FEDERATED EQUITY FUNDS, 497, 2000-03-28

FEDERATED EQUITY FUNDS
497, 2000-03-28

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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

(REVISED MARCH 28, 2000)

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-(3/00)

HOW IS THE FUND ORGANIZED?

The Fund is a diversified portfolio of Federated Equity Funds (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on April 17, 1984. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.

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

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

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

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

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

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:

. it is organized under the laws of, or has a principal office located in,
another country;

. the principal trading market for its securities is in another country; or

. 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

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

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

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.

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.

Inter-Fund Borrowing and Lending Arrangements

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

. 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.

. 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

. 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

certain fixed income securities to fall while the prices of other
securities
rise or remain unchanged.

. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity

a fixed income security to changes in interest rates.

Credit Risks

. 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.

. 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.

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.

. 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

. 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.

. 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

. 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

. 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.

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.

Lending

The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.

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 in to 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.

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.

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;

. 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:

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

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

. 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:

. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family

Funds are no longer marketed); or

. 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:

. 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;

. 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;

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

. 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;

. 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;

. which are involuntary redemptions processed by the Fund because the
accounts

do not meet the minimum balance requirements; and

Class B Shares Only

. 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.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

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:

. 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.)

. 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
- ----------------------------------------------------------------------------------------
<S> <C>
First $1 - $5 million 0.75%
- ----------------------------------------------------------------------------------------
Next $5 - $20 million 0.50%
- ----------------------------------------------------------------------------------------
Over $20 million 0.25%
- ----------------------------------------------------------------------------------------
</TABLE>

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

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

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.

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

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

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.

FOREIGN INVESTMENTS

If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.

However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

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.

- ------------------------------------------------------------------------------------------------------------------------------------
Name
Total
Birth
Date

Aggregate Compensation
Address Principal

Occupations Compensation From Trust
Position With Trust for Past Five
Years From Trust and Fund
Complex
- -----------------------------
- --------------------------------------------------------- ---------------
- ----------------------
<S>

<C> <C>
<C>
John F. Donahue*#+ Chief Executive Officer and Director or
Trustee of the $0 $0 for the Trust and
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and
Director, Federated 54 other investment
Federated Investors Tower Investors, Inc.; Chairman and Trustee,
Federated companies in the
1001 Liberty Avenue Investment Management Company; Chairman and
Director, the Fund Complex
Pittsburgh, PA Federated Investment Counseling and Federated
Global
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 54 other
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy
Industries, investment companies
Pittsburgh, PA Inc. (coated steel conduits/computer storage
equipment); in the Fund Complex
TRUSTEE formerly: Senior Partner, Ernst & Young LLP;
Director,
MED 3000 Group, Inc. (physician practice
management);
Director, Member of Executive Committee,
University

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 54 other
Grubb & Ellis/Investment Vice President, John R. Wood and Associates,
Inc., investment companies
Properties Corporation Realtors; Partner or Trustee in private real
estate in the Fund Complex
3201 Tamiami Trail North ventures in Southwest Florida; formerly:
President,
Naples, FL Naples Property Management, Inc. and
Northgate
TRUSTEE Village Development
Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas P. Constantakis Director or Trustee of the Federated Fund
Complex; $1,827.20 $47,958.02 for the
Birth Date: September 3, 1939 Director, Michael Baker Corporation
(engineering, Trust and 29 other
175 Woodshire Drive construction, operations and technical
services); investment companies
Pittsburgh, PA formerly: Partner, Andersen Worldwide
SC. in the Fund Complex
TRUSTEE

- ------------------------------------------------------------------------------------------------------------------------------------
John F. Cunningham Director or Trustee of some of the Federated
Fund $1,360.57 $0 for the Trust and
Birth Date: March 5, 1943 Complex; Chairman, President and Chief
Executive 46 other investment
353 El Brillo Way Officer, Cunningham & Co., Inc. (strategic
business companies in the
Palm Beach, FL consulting); Trustee Associate, Boston
College; Fund Complex
TRUSTEE Director, Iperia Corp.
(communications/software);
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 Trust and
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of
the Funds 16 other investment
Federated Investors Tower in the Federated Fund Complex; President,
Chief companies in the Fund
1001 Liberty Avenue Executive Officer and Director, Federated
Investors, Complex
Pittsburgh, PA Inc.; President and Trustee, Federated
Investment
EXECUTIVE VICE PRESIDENT Management Company; President and Trustee,
Federated
and 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; Trust and 54 other
3471 Fifth Avenue Medical Director, University of Pittsburgh
Medical investment companies
Suite 1111 Center - Downtown; Hematologist, Oncologist,
and in the Fund Complex
Pittsburgh, PA Internist, University of Pittsburgh Medical
Center;
TRUSTEE Member, 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 54 other
One Royal Palm Way General Court; President, State Street Bank
and investment companies
100 Royal Palm Way Trust Company and State Street
Corporation. in the Fund Complex
Palm Beach,
FL
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 Trust and
Birth Date: April 10, 1945 Complex; Executive Vice President, Legal
and 50 other investment
80 South Road External Affairs, Dugan Valva Contess,
Inc. companies in the Fund
Westhampton Beach, NY (marketing, communications, technology
and Complex
TRUSTEE consulting); formerly Management
Consultant.

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 and 54 other
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray;
Director, investment companies
President, Duquesne University Michael Baker Corp. (engineering,
construction, in the Fund Complex
Pittsburgh, PA operations and technical
services).
TRUSTEE

Previous Positions: Dean and Professor of

Law,
University of Pittsburgh School of Law; Dean

and

Professor of Law, Villanova University

School

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 54 other
4905 Bayard
Street
investment companies
Pittsburgh, PA Previous Positions: National Spokesperson,
Aluminum in the Fund Complex
TRUSTEE Company of America; television producer;
business
owner.
- ------------------------------------------------------------------------------------------------------------------------------------
John S. Walsh Director or Trustee of some of the Federated
Fund $1,360.57 $0 for the Trust and
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon,
Inc. 48 other investment
2007 Sherwood Drive (manufacturer of construction temporary
heaters); companies in the Fund
Valparaiso, IN President and Director, Manufacturers
Products, Inc. Complex
TRUSTEE (distributor of portable construction
heaters);
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 Trust and
Birth Date: May 2,
1929
8 other investment
Federated Investors
Tower
companies in the Fund
1001 Liberty
Avenue
Complex
Pittsburgh,
PA
PRESIDENT

- ------------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Trustee or Director of some of the Funds in
the Federated $0 $0 for the Trust and
Birth Date: October 22, 1930 Fund Complex; President, Executive Vice
President and 1 other investment
Federated Investors Tower Treasurer of some of the Funds in the
Federated Fund company in the Fund
1001 Liberty Avenue Complex; Vice Chairman, Federated Investors,
Inc.; Vice Complex
Pittsburgh, PA President, Federated Investment Management
Company and
EXECUTIVE VICE PRESIDENT 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 Trust and
Birth Date: October 26, 1938 Fund Complex; Executive Vice President,
Secretary and 54 other investment
Federated Investors Tower Director, Federated Investors, Inc.; Trustee,
Federated companies in the Fund
1001 Liberty Avenue Investment Management Company and Federated
Investment Complex
Pittsburgh, PA Counseling; Director, Federated Global
Investment
EXECUTIVE VICE PRESIDENT Management Corp, Federated Services Company
and
and SECRETARY Federated Securities
Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Thomas Treasurer of the Federated Fund Complex;
Vice $0 $0 for the Trust and
Birth Date: June 17, 1954 President - Funds Financial Services
Division, 54 other investment
Federated Investors Tower Federated Investors, Inc.; formerly:
various companies in the Fund
1001 Liberty Avenue management positions within Funds
Financial Complex
Pittsburgh, PA Services Division of Federated Investors, Inc.
TREASURER

- ------------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President or Vice President of some of the
Funds in $0 $0 for the Trust and
Birth Date: May 17, 1923 the Federated Fund Complex; Director or
Trustee of 6 other investment
Federated Investors Tower some of the Funds in the Federated Fund
Complex; companies in the Fund
1001 Liberty Avenue Executive Vice President, Federated
Investors, Inc.; Complex
Pittsburgh, PA Chairman and Director, Federated Securities
Corp.
VICE PRESIDENT
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Madden Chief Investment Officer of this Fund and
various other $0 $0 for the Trust and
Birth Date: October 22, 1945 Funds in the Federated Fund Complex;
Executive Vice 12 other investment
Federated Investors Tower President, Federated Investment Counseling,
Federated companies in the Fund
1001 Liberty Avenue Global Investment Management Corp., Federated
Investment Complex
Pittsburgh, PA Management Company and Passport Research,
Ltd.; Vice
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 Trust and
Birth Date: November 7, 1962 Mr. Grefenstette joined Federated in 1992 and
has been no other investment
Federated Investors Tower a Portfolio Manager and a Vice President of
the Fund's companies in the Fund
1001 Liberty Avenue Adviser since 1996. From 1994 until 1996, Mr.
Grefenstette Complex
Pittsburgh, PA was a Portfolio Manager and an Assistant 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 Trust and
Birth Date: December 16, 1964 inception. He is Vice President of the
Trust. Mr. Shah no other investment
Federated Investors Tower joined Federated in 1993 and has been a
Portfolio Manager companies in the Fund
1001 Liberty Avenue and a Vice President of the Fund's Adviser
since January Complex
Pittsburgh, PA 1997. Mr. Shah was a Portfolio Manager and
served as an
VICE PRESIDENT 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.

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.

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.

For the fiscal year ended October 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $8,992,119.18 for which the
Fund paid $32,669.50 in brokerage commissions.

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
- --------------------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------------------
</TABLE>

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

FEES PAID BY THE FUND FOR SERVICES

For the Year Ended October 31 1999
1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
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?

The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.

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
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares

- -----------------------------------------------------------------------------------------------
Total Return N/A
77.53% 26.41%
- -----------------------------------------------------------------------------------------------
</TABLE>

Start

of Performance on

30-Day Period 1 Year

November 25, 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class B Shares

- -----------------------------------------------------------------------------------------------
Total Return N/A
80.95% 27.19%
- -----------------------------------------------------------------------------------------------
</TABLE>

Start

of Performance on

30-Day Period 1 Year

November 25, 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class C Shares

- -----------------------------------------------------------------------------------------------
Total Return N/A
85.39% 27.83%
- -----------------------------------------------------------------------------------------------
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

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:

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

. 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;

. 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

. 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 is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

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.

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.

Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

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.

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:

. Leading market positions in well-established industries;

. High rates of return on funds employed;

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

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

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

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.

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

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED CAPITAL APPRECIATION 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 Capital Appreciation 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

(REVISED MARCH 28, 2000)

G01489-02 (3/00)

HOW IS THE FUND ORGANIZED?

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

Common Stocks

directly

influence the value of its common stock.

Preferred Stocks

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

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.

Warrants

Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.

Fixed Income Securities

The following describes the types of fixed income securities in which the Fund
invests.

Corporate Debt Securities

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types

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.

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

Zero Coupon Securities

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred

as a coupon payment). Investors buy zero coupon securities at a price below
the amount payable at maturity. The difference between the purchase price
and

the amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate and credit risks of a zero coupon security. A zero
coupon step-up security converts to a coupon security before final maturity.

There are many forms of zero coupon securities. Some are issued at a
discount
and are referred to as zero coupon or capital appreciation bonds. Others
are

created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs
are the most common forms of stripped zero coupon securities. In addition,
some securities give the issuer the option to deliver additional securities

place of cash interest payments, thereby increasing the amount payable at
maturity. These are referred to as pay-in-kind or PIK securities.

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.

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

their unique characteristics.

Derivative Contracts

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

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

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

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.

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:

Buy call options on foreign currency in anticipation of an increase in
the

value of the underlying asset.

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

Write call options on portfolio securities 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 a 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.

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:

. it is organized under the laws of, or has a principal office located in,
another country;

. the principal trading market for its securities is in another country; or

. 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 Exchange Contracts

In order to convert U.S. dollars into the currency needed to buy a
foreign

security, or to convert foreign currency received from the sale of a
foreign security into U.S. dollars, the Fund may enter into spot currency
trades. In a spot trade, the Fund agrees to exchange one currency for
another at the current exchange rate. The Fund may also enter into
derivative contracts in which a foreign currency is an underlying asset.
The exchange rate for currency derivative contracts may be higher or

lower

than the spot exchange rate. Use of these derivative contracts may increase
or decrease the Fund's exposure to currency 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

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

security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Delayed Delivery Transactions

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.

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.

Inter-fund Borrowing and Lending Arrangements

The 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 interfund 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

Bank
Loan Rate.

Investing in Securities of Other Investment Companies

Investment Ratings for Investment Grade Securities

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

. 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

certain fixed income securities to fall while the prices of other
securities
rise or remain unchanged.

. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity

a fixed income security to changes in interest rates.

Credit Risks

. 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.

maturity

. 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

. 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.

Liquidity Risks

. 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.

. These features 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.

. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.

. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

Risks Associated with Noninvestment Grade Securities

. Securities rated below investment grade, also known as junk bonds,
generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.

Risks of Foreign Investing

. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the

United

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.

Currency Risks

. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets

volatile than securities traded exclusively in the U.S.

. The Adviser attempts to manage currency risk by limiting the amount the
Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.

FUNDAMENTAL INVESTMENT OBJECTIVE

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

INVESTMENT LIMITATIONS

Diversification

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 1940 Act.

Investing in Real Estate

Underwriting

Lending

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 of 1940. 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.

Pledging Assets

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

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;

. futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of

trading

. 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.

TRADING IN FOREIGN SECURITIES

WHAT DO SHARES COST?

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts

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

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:

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

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

. 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:

. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family

Funds are no longer marketed); or

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

. 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;

. 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;

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

with

the Distributor; and the immediate family members of the above persons;

. 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;

. which are involuntary redemptions processed by the Fund because the
accounts

do not meet the minimum balance requirements; and

Class B Shares Only

. 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

RULE 12B-1 PLAN

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.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

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

. 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
- --------------------------------------------------------------------------------------
<S> <C>
First $1 - $5 million 0.75%
- --------------------------------------------------------------------------------------
Next $5 - $20 million 0.50%
- --------------------------------------------------------------------------------------
Over $20 million 0.25%
- --------------------------------------------------------------------------------------
</TABLE>

For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

EXCHANGING SECURITIES FOR SHARES

SUBACCOUNTING SERVICES

REDEMPTION IN KIND

MASSACHUSETTS PARTNERSHIP LAW

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.

As of December 3, 1999, the following shareholder owned of record,
beneficially,
or both, 5% or more of the Fund's outstanding Class A Shares: Edward Jones &
Co., Maryland Hts., MO owned approximately 2,498,176 shares (22.02%).

As of December 3, 1999, the following shareholder owned of record,
beneficially,
or both, 5% or more of the Fund's outstanding Class B Shares: Edward Jones &
Co., Maryland Hts., MO owned approximately 552,039 shares (11.63%).

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of the Fund's outstanding Class C Shares:
Merrill, Lynch, Pierce, Fenner & Smith (for the sole benefit of its customers)
owned approximately 34,912 shares (6.02%) and Edward Jones & Co., Maryland Hts.,
MO owned approximately 103,110 shares (17.79%).

TAX INFORMATION

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES

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.

- ------------------------------------------------------------------------------------------------------------------------------------
Name
Total
Birth
Date

Aggregate Compensation
Address Principal

Occupations Compensation From Trust
Position With Trust for Past Five
Years From Trust and Fund
Complex
- --------------------------
- --------------------------------------------------------- ---------------
- ----------------------
<S>

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 54 other
Grubb & Ellis/Investment Vice President, John R. Wood and Associates,
Inc., investment companies
Properties Corporation Realtors; Partner or Trustee in private real
estate in the Fund Complex
3201 Tamiami Trail North ventures in Southwest Florida; formerly:
President,
Naples, FL Naples Property Management, Inc. and
Northgate
TRUSTEE Village Development
Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Nicholas P. Constantakis Director or Trustee of the Federated Fund
Complex; $1,827.20 $47,958.02 for the
Birth Date: September 3, 1939 formerly: Partner, Andersen Worldwide
SC. Trust and 29 other
175 Woodshire
Drive

investment companies
Pittsburgh,
PA

in the Fund Complex

TRUSTEE

Previous Positions: Chairman of the Board and
Chief

Executive Officer, Computer Consoles, Inc.;
President

and Chief Operating Officer, Wang

Services Company; Director, Federated

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 Trust and
Birth Date: April 10, 1945 Complex; Management
Consultant. 50 other investment
80 South
Road
companies in the Fund
Westhampton Beach, NY Previous Positions: Chief Executive Officer,
PBTC Complex
TRUSTEE 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

Previous Positions: Dean and Professor of

Law,
University of Pittsburgh School of Law; Dean

and

Professor of Law, Villanova University

School

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 54 other
4905 Bayard
Street
investment companies
Pittsburgh, PA Previous Positions: National Spokesperson,
Aluminum in the Fund Complex
TRUSTEE Company of America; television producer;
business
owner.
- ------------------------------------------------------------------------------------------------------------------------------------
John S. Walsh Director or Trustee of some of the Federated
Fund $1,360.59 $0 for the Trust and
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon,
Inc. 48 other investment
2007 Sherwood Drive (manufacturer of construction temporary
heaters); companies in the Fund
Valparaiso, IN President and Director, Manufacturers
Products, Inc. Complex
TRUSTEE (distributor of portable construction
heaters);
President, Portable Heater Parts, a division
of

Research, Ltd.;
Executive Vice President and Director,
Federated

Securities Corp.; Trustee, Federated

Shareholder

Services

Investment Counseling Institutional Portfolio
Management

Services Division; Senior Vice President,
Federated

Investment Management Company and Passport

Administration from Carnegie Mellon

University.
- ------------------------------------------------------------------------------------------------------------------------------------
Aash M. Shah Aash M. Shah is Vice President of the Trust.
Mr. Shah $0 $0 for the Trust and
Birth Date: December 16, 1964 joined Federated in 1993 and has been a
Portfolio Manager no other investment
Federated Investors Tower and a Vice President of the Fund's Adviser
since January companies in the Fund
1001 Liberty Avenue 1997. Mr. Shah was a Portfolio Manager and
served as an Complex
Pittsburgh, PA Assistant Vice President of the Adviser from
1995 to
VICE PRESIDENT 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/Directors 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.

Other Related Services

BROKERAGE TRANSACTIONS

Research Services

For the fiscal year ended, October 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $135,834,355.57 for which
the Fund paid $250,759.34 in brokerage commissions.

ADMINISTRATOR

Maximum Administrative Fee Average Aggregate Daily Net Assets of the
Federated Funds
- ------------------------------------------------------------------------------------------
<S> <C>
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
- ------------------------------------------------------------------------------------------
</TABLE>

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT Auditors

FEES PAID BY THE FUND FOR SERVICES

For the Year Ended October 31 1999
1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
Advisory Fee Earned $2,172,794
$1,472,640 $1,072,874
- -----------------------------------------------------------------------------------------------------
Advisory Fee Reduction $ 0 $
48,251 $ 98,874
- -----------------------------------------------------------------------------------------------------
Brokerage Commissions $ 363,651 $
282,278 $ 241,524
- -----------------------------------------------------------------------------------------------------
Administrative Fee $ 212,917 $
185,000 $ 185,000
- -----------------------------------------------------------------------------------------------------
12b-1

Fee

- -----------------------------------------------------------------------------------------------------
Class A Shares $ 0
- -- --
- -----------------------------------------------------------------------------------------------------
Class B Shares $ 559,919
- -- --
- -----------------------------------------------------------------------------------------------------
Class C Shares $ 66,941
- -- --
- -----------------------------------------------------------------------------------------------------
Shareholder Services
Fee

- -----------------------------------------------------------------------------------------------------
Class A Shares $ 515,312
- -- --
- -----------------------------------------------------------------------------------------------------
Class B Shares $ 186,640
- -- --
- -----------------------------------------------------------------------------------------------------
Class C Shares $ 22,314
- -- --
- -----------------------------------------------------------------------------------------------------
</TABLE>

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

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, five-year, ten-year and Start of
Performance periods ended October 31, 1999.

Start of Performance on

30-Day Period 1 Year 5 Years 10
Years January 1, 1977
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
Class A Shares

- ---------------------------------------------------------------------------------------------------------------
Total Return N/A 33.40% 22.63%
15.96% NA
- ---------------------------------------------------------------------------------------------------------------
Yield N/A N/A N/A
N/A N/A
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

Start of Performance on

- ---------------------------------------------------------------------------------------------------------------
Total Return N/A 34.62% NA
NA 22.05%
- ---------------------------------------------------------------------------------------------------------------
Yield N/A N/A N/A
N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Class C Shares

- ---------------------------------------------------------------------------------------------------------------
Total Return N/A 39.09% NA
NA 22.47%
- ---------------------------------------------------------------------------------------------------------------
Yield N/A N/A N/A
N/A N/A
- -------------------------------------------------------------------------------------------------------------
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

. 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

. information about the mutual fund industry from sources such as the

Investment Company Institute.

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

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.

Morningstar, Inc. An independent rating service, is the publisher of the bi-
weekly Mutual FundValues, 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 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.

Lipper Growth Fund Average is an average of the total returns for 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.

Lipper Growth Fund Index is an average of the net asset- valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.

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

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

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

Strategic Insight Growth Funds Index consists of mutual funds that invest in
well-established companies primarily for long-term capital gains rather than
current income.

WHO IS FEDERATED INVESTORS, INC.?

FEDERATED FUNDS OVERVIEW

Municipal Funds

Equity Funds

Corporate Bond Funds

Government Funds

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

Bank Marketing

Broker/Dealers and Bank Broker/Dealer Subsidiaries

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 Capital Appreciation Fund dated October 31, 1999.

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.

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

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

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

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

. Leading market positions in well-established industries;

. High rates of return on funds employed;

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

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

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

Prime-2--Issuers rated Prime-1 (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-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.

ADDRESSES

FEDERATED CAPITAL APPRECIATION 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

STATEMENT OF ADDITIONAL INFORMATION

Federated Communications Technology 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 Communications Technology
Fund (Fund), dated December 31, 1999. Obtain the prospectus without charge by
calling 1-800-341-7400.

DECEMBER 31, 1999

Revised March 28, 2000

G02681-02 (3/00)

CONTENTS

How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 8
How is the Fund Sold? 9
Exchanging Securities for Shares 10
Subaccounting Services 10
Redemption in Kind 10
Massachusetts Partnership Law 11
Account and Share Information 11
Tax Information 11
Who Manages and Provides Services to the Fund? 12

How Does the Fund Measure Performance? 16

Who is Federated Investors, Inc.? 17
Financial Information 18

Investment Ratings 19
Addresses 21

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 the above-mentioned Shares. The Fund's
investment adviser is Federated Investment Management Company (Adviser).

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

COMMON STOCKS

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.

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

WARRANTS

Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). The Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing stockholders.

Fixed Income Securities

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

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.

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.

Zero Coupon Securities

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.

Convertible Securities

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

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:
. it is organized under the laws of, or has a principal office located in,
another country;

. the principal trading market for its securities is in another country; or

. 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.

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) 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. 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.

Derivative Contracts

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.

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 market 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 financial futures contracts.

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, futures, futures on indices and
financial futures contracts in anticipation of an increase in the value of
the underlying asset;

. Buy put options on portfolio securities, futures, futures on indices and
financial futures contracts in anticipation of a decrease in the value of

the

underlying asset; and

. Buy or write options to close out existing options positions.

The Fund may also write call options on portfolio securities, futures, futures
on indices and financial futures contracts 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, futures, futures
on indices and financial futures contracts 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.

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:

Interest Rate Swaps

Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities, in return for payments equal to a different
fixed or floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which fluctuates) on
$10 million principal amount in exchange for the right to receive the equivalent
of a stated fixed rate of interest on $10 million principal amount.

Currency Swaps

Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.

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.

Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.

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.

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.

Asset Coverage

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.

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

INVESTMENT RISKS

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

EQUITY SECURITIES INVESTMENT RISKS

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.

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. The
developing communications industry sector may be significantly affected by
failure to obtain, or delay in obtaining, financing or regulatory approval,
intense competition, product compatibility, consumer preferences, and rapid
obsolescence.

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.

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.

. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security when it wants to. If this happens, the Fund will be
required to continue to hold the security and the Fund could incur losses.

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.

Currency Risks

. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets

volatile than securities traded exclusively in the U.S.

Euro Risks

. The Fund may make significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar will

have a
significant impact on the value of the Fund's investments.

. With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these
countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.

Risks of Foreign Investing

. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the

United

information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.

Leverage Risks

Credit Risks

. 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.

FIXED INCOME SECURITIES INVESTMENT RISKS

Interest Rate Risks

certain fixed income securities to fall while the prices of other
securities
rise or remain unchanged.

. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity

a fixed income security to changes in interest rates.

Credit Risks

. 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.

maturity

. 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

. 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.

Liquidity Risks

. 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.

Sector Risks

. A substantial part of the Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, or with other
similar characteristics. As a result, the Fund will be more susceptible to
any economic, business, political, or other developments which generally
affect these issuers.

Risks Associated with Noninvestment Grade Securities

FUNDAMENTAL INVESTMENT OBJECTIVE

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

INVESTMENT LIMITATIONS

Diversification

Concentration of Investments

The Fund will not invest more than 25% of its total assets (valued at the time
of investment) in securities of companies engaged principally in any one
industry other than the communications technology industry, except that this
restriction does not apply to cash or cash items and securities issued or
guaranteed by the United States government or its agencies or instrumentalities.

Underwriting

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. For purposes of
this restriction, 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.

Investing in Real Estate

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 1940 Act, any rule or order
thereunder, or any SEC staff interpretation thereof.

Lending

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 of 1940. 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.

Illiquid Securities

The Fund will not purchase securities for which there is no readily available
market, or enter into 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.

Investing in Other Investment Companies

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses. At the present time, the Fund expects
that its investments in other investment companies may include shares of money
market funds, including funds affiliated with the Fund's investment adviser.

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

Purchases on Margin

Pledging Assets

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

. futures contracts and options are 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 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

What Do Shares Cost?

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts

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

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:

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

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

. 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:

. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family

Funds are no longer marketed); or

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

. 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;

. representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age

70-1/2;

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

with

the Distributor; and the immediate family members of the above persons;

. 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;

. which are involuntary redemptions processed by the Fund because the
accounts

do not meet the minimum balance requirements; and

Class B Shares Only

. 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

RULE 12B-1 PLAN (CLASS A SHARES, CLASS B SHARES, CLASS C SHARES)

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.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

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:

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

In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.

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

<S> <C>
First $1 - $5million 0.75%
Next $5 - $20million 0.50%
Over $20million 0.25%
</TABLE>

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

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

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 Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.

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

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: Merrill Lynch
Pierce Fenner & Smith, Jacksonville, FL, 8.91%; Enterprise Trust & Investment
Company, Los Gatos, CA, 8.40%; Painewebber, Farmington Hills, MI, 5.38%; and
Charles Schwab & Company, Inc., San Francisco, CA, 5.21%.

As of December 3, 1999, the following shareholder owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Merrill Lynch
Pierce Fenner & Smith, Jacksonville, FL, 15.45%.

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

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

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 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

As of December 3, 1999, the Fund's Board and Officers as a group owned
approximately 1.43% of the Fund's outstanding Class A Shares and less than 1% of
the Fund's outstanding Class B and C Shares.

- ------------------------------------------------------------------------------------------------------------------------------
Name Total
Birth Date Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past Five Years From Trust and Fund Complex
- -------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C>
John F. Donahue*+# Chief Executive Officer and Director or Trustee of the $0 $0 for the Trust and
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated 54 other investment
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated companies in the
1001 Liberty Avenue Investment Management Company; Chairman and Director, the Fund Complex
Pittsburgh, PA Federated Investment Counseling and Federated Global
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 54 other
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy Industries, investment companies
Pittsburgh, PA Inc. (coated steel conduits/computer storage equipment); in the Fund Complex
TRUSTEE formerly: Senior Partner, Ernst & Young LLP; Director,
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 54 other
Grubb & Ellis/Investment Vice President, John R. Wood and Associates, Inc., investment companies
Properties Corporation Realtors; Partner or Trustee in private real estate in the Fund Complex
3201 Tamiami Trail North ventures in Southwest Florida; formerly: President,
Naples, FL Naples Property Management, Inc. and Northgate
TRUSTEE Village Development Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
Nicholas P. Constantakis Director or Trustee of the Federated Fund Complex; $1,827.20 $47,958.02 for the
Birth Date: September 3, 1939 Director, Michael Baker Corporation (engineering, Trust and 29 other
175 Woodshire Drive construction, operations and technical services); investment companies
Pittsburgh, PA formerly: Partner, Andersen Worldwide SC. in the Fund Complex
TRUSTEE

- ----------------------------------------------------------------------------------------------------------------------------------
John F. Cunningham Director or Trustee of some of the Federated Fund $1,360.57 $0 for the Trust and
Birth Date: March 5, 1943 Complex; Chairman, President and Chief Executive 46 other investment
353 El Brillo Way Officer, Cunningham & Co., Inc. (strategic business companies in the
Palm Beach, FL consulting); Trustee Associate, Boston College; Fund Complex
TRUSTEE Director, Iperia Corp.(communications/software);
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 Trust and
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the Funds 16 other investment
Federated Investors Tower in the Federated Fund Complex; President, Chief companies in the Fund
1001 Liberty Avenue Executive Officer and Director, Federated Investors, Complex
Pittsburgh, PA Inc.; President and Trustee, Federated Investment
EXECUTIVE VICE PRESIDENT Management Company; President and Trustee, Federated
and 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; Trust and 54 other
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical investment companies
Suite 1111 Center - Downtown; Hematologist, Oncologist, and in the Fund Complex
Pittsburgh, PA Internist, University of Pittsburgh Medical Center;
TRUSTEE Member, 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 54 other
One Royal Palm Way General Court; President, State Street Bank and investment companies
100 Royal Palm Way Trust Company and State Street Corporation. in the Fund Complex
Palm Beach, FL
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 Trust and
Birth Date: April 10, 1945 Complex; Executive Vice President, Legal and 50 other investment
80 South Road External Affairs, Dugan Valva Contess, Inc. companies in the Fund
Westhampton Beach, NY (marketing, communications, technology and Complex
TRUSTEE consulting); formerly Management Consultant.

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 and 54 other
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray; Director, investment companies
President, Duquesne University Michael Baker Corp. (engineering, construction, in the Fund Complex
Pittsburgh, PA operations and technical services).
TRUSTEE

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 54 other
4905 Bayard Street investment companies
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum in the Fund Complex
TRUSTEE Company of America; television producer; business
owner.
- ---------------------------------------------------------------------------------------------------------------------------------
John S. Walsh Director or Trustee of some of the Federated Fund $1,360.57 $0 for the Trust and
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc. 48 other investment
2007 Sherwood Drive (manufacturer of construction temporary heaters); companies in the Fund
Valparaiso, IN President and Director, Manufacturers Products, Inc. Complex
TRUSTEE (distributor of portable construction heaters);
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 Trust and
Birth Date: May 2, 1929 8 other investment
Federated Investors Tower companies in the Fund
1001 Liberty Avenue Complex
Pittsburgh,
PA
PRESIDENT

- ----------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Trustee or Director of some of the Funds in the Federated $0 $0 for the Trust and
Birth Date: October 22, 1930 Fund Complex; President, Executive Vice President and 1 other investment
Federated Investors Tower Treasurer of some of the Funds in the Federated Fund company in the Fund
1001 Liberty Avenue Complex; Vice Chairman, Federated Investors, Inc.; Vice Complex
Pittsburgh, PA President, Federated Investment Management Company and
EXECUTIVE VICE PRESIDENT 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 Trust and
Birth Date: October 26, 1938 Fund Complex; Executive Vice President, Secretary and 54 other investment
Federated Investors Tower Director, Federated Investors, Inc.; Trustee, Federated companies in the Fund
1001 Liberty Avenue Investment Management Company and Federated Investment Complex
Pittsburgh, PA Counseling; Director, Federated Global Investment
EXECUTIVE VICE PRESIDENT Management Corp, Federated Services Company and
and SECRETARY Federated Securities Corp.
- ----------------------------------------------------------------------------------------------------------------------------------
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust and
Birth Date: June 17, 1954 President - Funds Financial Services Division, 54 other investment
Federated Investors Tower Federated Investors, Inc.; formerly: various companies in the Fund
1001 Liberty Avenue management positions within Funds Financial Complex
Pittsburgh, PA Services Division of Federated Investors, Inc.
TREASURER

- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President or Vice President of some of the Funds in $0 $0 for the Trust and
Birth Date: May 17, 1923 the Federated Fund Complex; Director or Trustee of 6 other investment
Federated Investors Tower some of the Funds in the Federated Fund Complex; companies in the Fund
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; Complex
Pittsburgh, PA Chairman and Director, Federated Securities Corp.
VICE PRESIDENT
- ----------------------------------------------------------------------------------------------------------------------------------
J. Thomas Madden Chief Investment Officer of this Fund and various other $0 $0 for the Trust and
Birth Date: October 22, 1945 Funds in the Federated Fund Complex; Executive Vice 12 other investment
Federated Investors Tower President, Federated Investment Counseling, Federated companies in the Fund
1001 Liberty Avenue Global Investment Management Corp., Federated Investment Complex
Pittsburgh, PA Management Company and Passport Research, Ltd.; Vice
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 Trust and
Birth Date: November 7, 1962 Mr. Grefenstette joined Federated in 1992 and has been no other investment
Federated Investors Tower a Portfolio Manager and a Vice President of the Fund's companies in the
1001 Liberty Avenue Adviser since 1996. From 1994 until 1996, Mr. Grefenstette Fund Complex
Pittsburgh, PA was a Portfolio Manager and an Assistant 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 Trust and
Birth Date: December 16, 1964 inception. He is Vice President of the Trust. Mr. Shah no other investment
Federated Investors Tower joined Federated in 1993 and has been a Portfolio Manager companies in the
1001 Liberty Avenue and a Vice President of the Fund's Adviser since January Fund Complex
Pittsburgh, PA 1997. Mr. Shah was a Portfolio Manager and served as an
VICE PRESIDENT 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.

Other Related Services

BROKERAGE TRANSACTIONS

Research Services

the Fund paid $15,542.00 in brokerage commissions.

On October 31, 1999, the Fund owned securities of the following regular
broker/dealer: ABN AMRO Chicago Corp., $1,190,000.

ADMINISTRATOR

Maximum Administrative Fee Average Aggregate Daily Net Assets
of

the Federated Funds

<S> <C>
0.150 of 1% on the first $250million
0.125 of 1% on the next $250million
0.100 of 1% on the next $250million
0.075 of 1% on assets in excess of $750million
</TABLE>

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

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 public accountant 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.

FEES PAID BY THE FUND FOR SERVICES

For the Year Ended October 31 1999*
<S> <C>
Advisory Fee Earned $24,748
Advisory Fee Reduction $24,748
Brokerage Commissions $34,450
Administrative Fee $20,781
12b-1 Fee
Class A Shares $ 0
Class B Shares $14,724
Class C Shares $ 3,911
Shareholder Services Fee
Class A Shares $ 2,038
Class B Shares $ 4,908
Class C Shares $ 1,304
</TABLE>

* For the period September 21, 1999 to October 31, 1999.

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 return is given for the Start of Performance period ended October 31,
1999.

Start of Performance on

30-Day

Period September 21, 1999

Class A Shares

<S>

<C> <C>
Total Return

N/A 17.39%
- ------------------------------------------------------------------------------------------------------------
</TABLE>

Start of Performance on

30-Day

Period September 21, 1999

Class B Shares

<S>

<C> <C>
Total Return

N/A 18.70%
- ------------------------------------------------------------------------------------------------------------
</TABLE>

Start of Performance on

30-Day

Period September 21, 1999

Class C Shares

<S>

<C> <C>
Total Return

N/A 23.20%
- ------------------------------------------------------------------------------------------------------------
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

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.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

. 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 Funds; and

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

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 Daily Stock Price Index of 500 Common Stocks (S&P 500)

Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500) is a
composite index of common stocks in industry, transportation, and financial and
public utility companies. 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.

NASDAQ Telecommunications Index

NASDAQ Telecommunications Index is a capitalization- weighted index designed to
measure the performance of all NASDAQ stocks in the telecommunications sector.

Goldman Sachs Technology Industry Composite Index

Goldman Sachs Technology Industry Composite Index is a modified capitalization-
weighted index of selected technology stocks.

Merril Lynch 100 Technology Index

The Merrill Lynch 100 Technology Index is an unmanaged, equally weighted index
of the 100 largest technology stocks, as defined by the market capitalization
and trading volume.

NASDAQ Composite Index

The NASDAQ Composite Index (Composite) measures all NASDAQ domestic and non-U.S.
based common stocks listed on The NASDAQ Stock Market. The index is market value
weighted. This means that each company's security affects the index in
proportion to its market value. The market value, which is the last sale price
multiplied by total shares outstanding, is calculated throughout the trading
day, and is related to the total value of the index. Today, the Composite
includes over 5,000 companies, more than most other stock market indexes.
Because it is so broad-based, the Composite is one of the most widely followed
and quoted major market indexes.

Lipper Averages

Lipper Averages represent the average total returns reported by all mutual funds
designated by Lipper Analytical Services as falling into the respective
categories indicated.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

Municipal Funds

Equity Funds

Corporate Bond Funds

Government Funds

In the government sector, as of December 31, 1998, Federated manages 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.

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.

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

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

Broker/Dealers and Bank Broker/Dealer Subsidiaries

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 Communications Technology Fund dated October 31, 1999.

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.

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

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

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

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

Leading market positions in well-established industries;
High rates of return on funds employed;
Conservative capitalization structure with moderate reliance on debt and ample
asset protection;
Broad margins in earning coverage of fixed financial charges and high internal
cash generation; and
Well-established access to a range of financial markets and assured sources of
alternate liquidity.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

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.

Addresses

FEDERATED COMMUNICATIONS TECHNOLOGY 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

STATEMENT OF ADDITIONAL INFORMATION

Federated Growth Strategies 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 Growth Strategies 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

(REVISED MARCH 28, 2000)

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 314172107
Cusip 314172206
Cusip 314172305

G01228-02 (3/00)

How is the Fund Organized?

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

Common Stocks

directly

influence the value of its common stock.

Preferred Stocks

Warrants

Fixed Income Securities

The following describes the types of fixed income securities in which the may
Fund invest.

Corporate Debt Securities

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types

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.

issue

securities known as surplus notes that permit the insurance company to defer
any payment that would reduce its capital below regulatory requirements.

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.

investment.

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

their unique characteristics.

Derivative Contracts

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

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.

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

Write call options on portfolio securities 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 a 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.

Buy or write options to close out existing options positions.

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:

. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or

. 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.

Depositary Receipts

Depositary receipts represent interests in underlying securities issued
by

a foreign company. Depositary receipts are not traded in the same market
as the underlying security. The foreign securities underlying American
Depositary Receipts (ADRs) 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. 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.

Foreign Exchange Contracts

In order to convert U.S. dollars into the currency needed to buy a
foreign

lower

than the spot exchange rate. Use of these derivative contracts may increase
or decrease the Fund's exposure to currency 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

the

Asian Development Bank, the European Investment Bank and the
Inter-American
Development Bank.

political

Special Transactions

Repurchase Agreements

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

security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements

Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to

repurchase

them at an agreed upon time and price. A reverse repurchase agreement may
be

viewed as a type of borrowing by the Fund. Reverse repurchase agreements
are

subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.

Delayed Delivery Transactions

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.

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.

Inter-fund Borrowing and Lending Arrangements

only

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

Bank
Loan Rate.

Investing in Securities of Other Investment Companies

Investment Ratings for Investment Grade Securities

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

Interest Rate Risks

certain fixed income securities to fall while the prices of other
securities
rise or remain unchanged.

. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity

a fixed income security to changes in interest rates.

Credit Risks

. 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.

maturity

. 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

. 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.

Liquidity Risks

. 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.

. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

Risks Associated with Noninvestment Grade Securities

Risks of Foreign Investing

. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the

United

information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.

Currency Risks

. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets

volatile than securities traded exclusively in the U.S.

FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is appreciation of capital. The investment
objective may not be changed by the Fund's Trustees without shareholder
approval.

INVESTMENT LIMITATIONS

Diversification

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 1940 Act.

Investing in Real Estate

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

Lending

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 of 1940. 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

Investing in Commodities

For purposes of the commodities limitation, 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.

Pledging Assets

Purchases on Margin

Illiquid Securities

The Fund will not purchase securities for which there is no readily available
market, or enter into 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.

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;
. futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of

trading

. 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.

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?

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

Quantity Discounts

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

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:

. the Trustees, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;
. any associated person of an investment dealer who has a sales agreement
with
the Distributor; and

. 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:

. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family

Funds are no longer marketed); or

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

. 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;

. representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age

70 1/2 ;

. of Shares that represent a reinvestment within 120 days of a previous
redemption;
. 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; . 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;
. which are involuntary redemptions processed by the Fund because the
accounts

do not meet the minimum balance requirements; and

Class B Shares Only

. 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

RULE 12B-1 PLAN (CLASS B SHARES AND CLASS C SHARES)

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.

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

SUPPLEMENTAL PAYMENTS

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

. 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
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>

For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

Exchanging Securities for Shares

Subaccounting Services

Redemption in Kind

Massachusetts Partnership Law

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.

As of December 10, 1999, the following shareholder owned of record,
beneficially, or both, 5% or more of the Fund's outstanding Class A Shares:
Edward Jones & Co., Maryland Hts., MO owned approximately 2,822,287 shares
(12.04%)

As of December 10, 1999, the following shareholder owned of record,
beneficially, or both, 5% or more of the Fund's outstanding Class B Shares:
Edward Jones & Co., Maryland Hts., MO owned approximately 626,983 shares
(10.52%).

As of December 10, 1999, the following shareholder owned of record,
beneficially, or both, 5% or more of the Fund's outstanding Class C Shares:
Edward Jones & Co., Maryland Hts., MO owned approximately 173,596 shares
(17.47%).

Tax Information

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

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.

Name Total
Birth Date Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past Five Years From Trust and
Fund Complex
<S> <C> <C> <C>
John F. Donahue*#+ Chief Executive Officer and Director or Trustee of the Federated Fund $0 $0 for the
Birth Date: July 28, 1924 Complex; Chairman and Director, Federated Investors, Inc.; Chairman Trust and
Federated Investors Tower and Trustee, Federated Investment Management Company; Chairman and 54 other
1001 Liberty Avenue Director, Federated Investment Counseling and Federated Global investment
Pittsburgh, PA Investment Management Corp.; Chairman, Passport Research, Ltd. companies in
CHAIRMAN AND TRUSTEE the Fund Complex

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

John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; President, $2,010.18 $125,264.48 for
Birth Date: June 23, 1937 Investment Properties Corporation; Senior Vice President, John R. the Trust and
Wood/Commercial Dept. Wood and Associates, Inc., Realtors; Partner or Trustee in private 54 other
John R. Wood real estate ventures in Southwest Florida; formerly: President, investment
Associates, Inc. Naples Property Management, Inc. and Northgate Village Development companies in the
Realtors Corporation. Fund Complex
3255 Tamiami Trail North
Naples, FL

TRUSTEE

Nicholas Constantakis Director or Trustee of the Federated Fund Complex; formerly: $1,827.20 $47,958.02 for the
Birth Date: Partner, Andersen Worldwide SC. Trust and
September 3, 1939 29 other
175 Woodshire Drive investment
Pittsburgh, PA companies in the
TRUSTEE

Fund Complex

John F. Cunningham Director or Trustee of some of the Federated Fund Complex; Chairman, $1,360.57 $0 for the
Birth Date: March 5, 1943 President and Chief Executive Officer, Cunningham & Co., Inc. Trust and
353 El Brillo Way (strategic business consulting); Trustee Associate, Boston College; 46 other
Palm Beach, FL Director, Iperia Corp.(communications/software); formerly: Director, investment
TRUSTEE Redgate Communications and EMC Corporation (computer storage systems). companies in the Fund
Previous Positions: Chairman of the Board and Chief Executive Complex
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 Fund Complex; $ 0 $0 for the
Birth Date: April 11, 1949 Director or Trustee of some of the Funds in the Federated Fund Trust and
Federated Investors Tower Complex; President, Chief Executive Officer and Director, Federated 16 other
1001 Liberty Avenue Investors, Inc.; President and Trustee, Federated Investment investment
Pittsburgh, PA Management Company; President and Trustee, Federated Investment companies in the
EXECUTIVE VICE PRESIDENT Counseling; President and Director, Federated Global Investment Fund Complex
and TRUSTEE 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; Professor of $1,827.20 $113,860.22 for the
Birth Date: Medicine, University of Pittsburgh; Medical Director, University of Trust and
October 11, 1932 Pittsburgh Medical Center - Downtown; Hematologist, Oncologist, and 54 other
3471 Fifth Avenue Internist, University of Pittsburgh Medical Center; Member, National investment
Suite 1111 Board of Trustees, Leukemia Society of America. companies in the
Pittsburgh, PA Fund Complex
TRUSTEE

Peter E. Madden Director or Trustee of the Federated Fund Complex; formerly: $1,661.10 $113,860.22 for the
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts General Court; Trust and
One Royal Palm Way President, State Street Bank and Trust Company and State Street 54 other
100 Royal Palm Way Corporation. investment
Palm Beach, FL companies in the

TRUSTEE Previous Positions: Director, VISA USA and VISA International; Fund Complex
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 Complex; Management $1,409.07 $0 for the
Birth Date: April 10, 1945 Consultant. Trust and
80 South Road 50 other
Westhampton Beach, NY Previous Positions: Chief Executive Officer, PBTC International Bank; investment
TRUSTEE Partner, Arthur Young & Company (now Ernst & Young LLP); Chief companies
Financial Officer of Retail Banking Sector, Chase Manhattan Bank; in the Fund

Senior Vice President, Marine Midland Bank; Vice President, Citibank; Complex
Assistant Professor of Banking and Finance, Frank G. Zarb School of
Business, Hofstra University.

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

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

John S. Walsh Director or Trustee of some of the Federated Fund Complex; President $1,360.59 $0 for the
Birth Date: and Director, Heat Wagon, Inc. (manufacturer of construction Trust and
November 28, 1957 temporary heaters); President and Director, Manufacturers Products, 48 other
2007 Sherwood Drive Inc. (distributor of portable construction heaters); President, investment
Valparaiso, IN Portable Heater Parts, a division of Manufacturers Products, Inc.; companies
TRUSTEE Director, Walsh & Kelly, Inc. (heavy highway contractor); formerly: in the Fund
Vice President, Walsh & Kelly, Inc. Complex

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

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

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

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

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

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

President, Federated Investment Management Company and Passport
Research, Ltd.

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

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

Other Related Services

BROKERAGE TRANSACTIONS

Research Services

For the fiscal year ended, October 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $968,020,092.95 for which
the Fund paid $1,352,373.52 in brokerage commissions.

ADMINISTRATOR

Maximum Administrative Fee Average Aggregate Daily Net
Assets of the Federated Funds
<S> <C>
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

</TABLE>

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT AUDITORS

FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>

For the Year Ended October 31
1999 1998 1997
<S>

<C> <C> <C>
Advisory Fee
Earned

Advisory Fee Reduction $
0 $ 0 $ 0
Brokerage Commissions
$1,526,906 $1,288,654 $1,166,954
Administrative Fee $
596,672 $ 457,074 $ 346,201
12b-1

Fee

Class A Shares $
0 -- --
Class B Shares $
926,942 -- --
Class C Shares $
147,984 -- --
Shareholder Services
Fee
Class A Shares

$1,620,046 -- --
Class B Shares $
308,980 -- --
Class C Shares $
45,382 -- --
</TABLE>

How Does the Fund Measure Performance?

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, five-year, ten-year, and Start of
Performance periods ended October 31, 1999.

Start of Performance on

30-Day Period 1 Year 5 Years 10
Years August 23, 1984

<S> <C> <C> <C>
<C> <C>
Class A Shares

Total Return N/A 51.41% 25.23%
15.64% NA
Yield N/A N/A N/A
N/A N/A
- ---------------------------------------------------------------------------------------------------------------

Start of Performance on

30-Day Period 1 Year 5 Years 10
Years August 16, 1995
Class B Shares
<S> <C> <C> <C>
<C> <C>
Total Return N/A 53.50% NA
NA 24.24%
Yield N/A N/A N/A
N/A N/A
- -------------------------------------------------------------------------------------------------------------

Start of Performance on

30-Day Period 1 Year 5 Years 10
Years August 16, 1995
Class C Shares
<S> <C> <C> <C>
<C> <C>
Total Return N/A 58.08% NA
NA 24.63%
Yield N/A N/A N/A
N/A N/A
- -------------------------------------------------------------------------------------------------------------
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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

. 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

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

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

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.

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.

Lipper Growth Fund Average is an average of the total returns for 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.

Lipper Growth Fund Index is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.

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

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

Strategic Insight Growth Funds Index consists of mutual funds that invest in
well-established companies primarily for long-term capital gains rather than
current income.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

Municipal Funds

Equity Funds

Corporate Bond Funds

Government Funds

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

Bank Marketing

Broker/Dealers and Bank Broker/Dealer Subsidiaries

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 Growth Strategies Fund dated October 31, 1999.

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.

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

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

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

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

. Leading market positions in well-established industries; . High rates of
return on funds employed; . Conservative capitalization structure with moderate
reliance on debt and

ample asset protection;
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

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.

Addresses

FEDERATED GROWTH STRATEGIES 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

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED LARGE CAP 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 Large Cap 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.

[Federated Logo]
WORLD-CLASS INVESTMENT MANAGER(SM)

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

DECEMBER 31, 1999

(REVISED MARCH 28, 2000)

Federated is a registered mark
of Federated Investors, Inc. [LOGO]
1999 (c)Federated Investors, Inc. RECYCLED
PAPER

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 314172842
314172834
314172826

G02515-02- (3/00)

How is the Fund Organized?

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

Common Stocks

directly

influence the value of its common stock.

Preferred Stocks

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

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.

Warrants

Fixed Income Securities

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

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.

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.

Convertible Securities

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.

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:

. it is organized under the laws of, or has a principal office located in,
another country;

. the principal trading market for its securities is in another country; or . 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.

Depositary Receipts

Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as
the

underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) 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. 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.

Derivative Contracts

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.

The Fund may trade in the following types of derivative contracts.

Futures Contracts

traded OTC are frequently referred to as forward contracts.

The Fund may buy and sell the following types of futures contracts: stock
indexes and futures on portfolio securities.

Options

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 and securities indexes in
anticipation of an increase in the value of the underlying asset.

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

. Write call options on portfolio securities and securities indexes 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.

. Write put options on portfolio securities and securities indexes 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.

Special Transactions

Repurchase Agreements

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.

Reverse Repurchase Agreements

Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to

repurchase

them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.

Delayed Delivery Transactions

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.

To Be Announced Securities (TBAs)

As with other delayed delivery transactions, a seller agrees to issue a
TBA
security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to accept
any security that meets specified terms. For example, in a TBA mortgage
backed transaction, the Fund and the seller would agree upon the issuer,
interest rate and terms of the underlying mortgages. The seller would not
identify the specific underlying mortgages until it issues the security.
TBA mortgage backed securities increase interest rate risks because the
underlying mortgages may be less favorable than anticipated by the Fund.

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.

Asset Coverage

with

a value that equals or exceeds the Fund's obligations. Unless the Fund has
other readily marketable assets to set aside, it cannot trade assets used to
secure such obligations without entering into an offsetting derivative
contract or terminating a special transaction. This may cause the Fund to

miss

favorable trading opportunities or to realize losses on derivative contracts
or special transactions.

Inter-Fund Borrowing and Lending Arrangements

lending

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

Bank
Loan Rate.

Investing in Securities of Other Investment Companies

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.

Stock Market Risks

Sector Risks

Liquidity Risks

. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts..

Currency Risks

. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets

volatile than securities traded exclusively in the U.S.

Risks of Investing in American Depositary Receipts

. Because the Fund may invest in ADRs 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 of Foreign Investing

. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the

United

information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.

Leverage Risks

. 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

certain fixed income securities to fall while the prices of other
securities
rise or remain unchanged.

. Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity

a fixed income security to changes in interest rates.

Credit Risks

. 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.

maturity

. 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.

INVESTMENT LIMITATIONS

Diversification

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, as
amended (1940 Act).

Investing in Real Estate

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

Lending

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 1940 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

Investing in Commodities

Purchases on Margin

Pledging Assets

Illiquid Securities

The Fund will not purchase securities for which there is no readily available
market, or enter into 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 and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."

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;

. futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of

trading

. 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.

TRADING IN FOREIGN SECURITIES

What Do Shares Cost?

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts

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

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:

. 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:

. through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family

Funds are no longer marketed); or

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

. 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;

. representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age

70 1/2;

with

the Distributor; and the immediate family members of the above persons; . 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

do not meet the minimum balance requirements; and

Class B Shares Only

. 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

RULE 12B-1 PLAN

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.

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

SUPPLEMENTAL PAYMENTS

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

. 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
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>

For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

Exchanging Securities for Shares

Subaccounting Services

Redemption in Kind

Massachusetts Partnership Law

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.

As of December 3, 1999, the following shareholder owned of record, beneficially,
or both, 5% or more of outstanding Class A Shares: Edward Jones & Company,
Maryland Heights, MO, 49.96%.

As of December 3, 1999, the following shareholder owned of record, beneficially,
or both, 5% or more of outstanding Class B Shares: Edward Jones & Company,
Maryland Heights, MO, 8.05%.

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Edward Jones
&
Company, Maryland Heights, MO, 23.06%; and Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL, 16.69%.

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

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

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.

Name Total
Birth Date Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past Five Years From Trust and Fund Complex
<S> <C> <C> <C>
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).

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 Previous Positions: Director, VISA USA and VISA in the Fund Complex
TRUSTEE 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 Previous Positions: National Spokesperson, Aluminum 54 other investment
Pittsburgh, PA Company of America; television producer; business owner. companies
TRUSTEE 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.

Other Related Services

BROKERAGE TRANSACTIONS

Research Services

For the fiscal year ended October 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $25,660,661.71 for which
the Fund paid $29,868.00 in brokerage commissions.

ADMINISTRATOR

</TABLE>

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT AUDITORS

FEES PAID BY THE FUND FOR SERVICES

For the Year Ended October 31 1999
<S> <C>
Advisory Fee Earned $640,616
Advisory Fee Reduction $340,302
Brokerage Commissions $133,667
Administrative Fee $158,333
12b-1 Fee
Class A Shares $ 0
Class B Shares $350,001
Class C Shares $ 31,203
Shareholder Services Fee
Class A Shares $ 86,471
Class B Shares $116,667
Class C Shares $ 10,401
</TABLE>

How Does the Fund Measure Performance?

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 December 29, 1998
Class A Shares
<S> <C>
<C> <C>
Total Return N/A
N/A 20.82%
- ---------------------------------------------------------------------------------------------------------------------------------

Start of Performance on

30-Day Period 1
Year December 29, 1998

Class B Shares

<S> <C>
<C> <C>
Total Return N/A
N/A 22.03%
- ---------------------------------------------------------------------------------------------------------------------------------

Start of Performance on

30-Day Period 1
Year December 29, 1998

Class C Shares

<S> <C>
<C> <C>
Total Return N/A
N/A 26.53%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

. 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

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

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

Moody's Investors Service, Inc., Fitch IBCA, Inc. and Standard & Poor's.
Various
publications.

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.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

Municipal Funds

Equity Funds

Corporate Bond Funds

Government Funds

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

Bank Marketing

Broker/Dealers and Bank Broker/Dealer Subsidiaries

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 Large Cap Growth Fund dated October 31, 1999.

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.

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

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

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

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

. Leading market positions in well-established industries; . High rates of
return on funds employed; . Conservative capitalization structure with moderate
reliance on debt and

ample asset protection;
. Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

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.

Addresses

FEDERATED LARGE CAP 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

STATEMENT OF ADDITIONAL INFORMATION

Federated Small Cap Strategies 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 Small Cap Strategies 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

(REVISED MARCH 28, 2000)

Contents

G01228-06 (3/00)

How is the Fund Organized?

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

Common Stocks

directly

influence the value of its common stock.

Preferred Stocks

Warrants

Fixed Income Securities

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

Corporate Debt Securities

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types

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.

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

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.

investment.

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

their unique characteristics.

Derivative Contracts

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

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.

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 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 and futures contracts in
anticipation of an increase in the value of the underlying asset;

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

Buy or write options to close out existing options positions.

The Fund may also write call options on portfolio securities and
financial
and stock index futures contracts 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 a 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 and futures
contracts to generate income from premiums, and in anticipation of an
increase or only limited decrease in the value of the underlying asset.

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:

. it is organized under the laws of, or has a principal office located
in,
another country;

. the principal trading market for its securities is in another
country;
or

. 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.

Depositary Receipts

Depositary receipts represent interests in underlying securities issued
by

securities,
including currency risks and risks of foreign investing.

Foreign Exchange Contracts

In order to convert U.S. dollars into the currency needed to buy a
foreign

lower

than the spot exchange rate. Use of these derivative contracts may increase
or decrease the Fund's exposure to currency 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

the

Asian Development Bank, the European Investment Bank and the
Inter-American
Development Bank.

political

Special Transactions

Repurchase Agreements

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

security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements

Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to

repurchase

them at an agreed upon time and price. A reverse repurchase agreement may
be

viewed as a type of borrowing by the Fund. Reverse repurchase agreements
are

Delayed Delivery Transactions

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.

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.

Inter-fund Borrowing and Lending Arrangements

only

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

Bank
Loan Rate.

Investing in Securities of Other Investment Companies

Investment Ratings for Investment Grade Securities

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

Interest Rate Risks

. 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.

. 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.

Credit Risks

. 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.

. 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.

. 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

. 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.

Liquidity Risks

. 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.

. OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

Risks Associated with Noninvestment Grade Securities

. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.

Risks of Foreign Investing

. 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.

Currency Risks

. Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets

volatile than securities traded exclusively in the U.S.

FUNDAMENTAL INVESTMENT OBJECTIVE

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

INVESTMENT LIMITATIONS

Diversification

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 1940 Act.

Investing in Real Estate

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

Lending

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 of 1940. 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

Investing in Commodities

Pledging Assets

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.

Illiquid Securities

The Fund will not purchase securities for which there is no readily
available market, or enter into 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.

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;

. 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.

TRADING IN FOREIGN SECURITIES

What Do Shares Cost?

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts

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

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:

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

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

. 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:

. 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

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

. 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;

. 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;

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

. 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;

. which are involuntary redemptions processed by the Fund because the
accounts

do not meet the minimum balance requirements; and

Class B Shares Only

. 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

RULE 12B-1 PLAN

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.

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

SUPPLEMENTAL PAYMENTS

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

. 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.)

. 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
<S> <C>
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
</TABLE>

For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

Exchanging Securities for Shares

Subaccounting Services

Redemption in Kind

Massachusetts Partnership Law

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.

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of the Fund's outstanding Class A Shares:
Frojack Co., Grand Forks, ND owned approximately 654,791 shares (8.26%) and
Edward Jones & Co., Maryland Hts., MO owned approximately 1,041,191 shares
(13.13%).

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of the Fund's outstanding Class B Shares:
Merrill, Lynch, Pierce, Fenner & Smith (for the sole benefit of its customers)
owned approximately 885,853 shares (8.29%).

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of the Fund's outstanding Class C Shares:
Edward Jones & Co., Maryland Hts., MO owned approximately 108,171 shares
(6.24%); Hubco, Birmingham, AL owned approximately 122,039 shares (7.04%);
Hubco, Birmingham, AL owned approximately 173,195 shares (10.00%); and

Merrill, Lynch, Pierce, Fenner & Smith (for the sole benefit of its customers)
owned approximately 320,495 shares (18.50%).

Tax Information

FEDERAL INCOME TAX

The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.

FOREIGN INVESTMENTS

However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

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.

Name Total
Birth Date Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past Five Years From Trust and Fund Complex
<S> <C> <C> <C>
John F. Donahue*#+ Chief Executive Officer and Director or Trustee of the Federated Fund $ 0 $0 for the
Birth Date: July 28, 1924 Complex; Chairman and Director, Federated Investors, Inc.; Chairman Trust and
Federated Investors Tower and Trustee, Federated Investment Management Company; Chairman and 54 other
1001 Liberty Avenue Director, Federated Investment Counseling and Federated Global investment
Pittsburgh, PA Investment Management Corp.; Chairman, Passport Research, Ltd. companiesin the
CHAIRMAN AND TRUSTEE Fund Complex

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

John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; President, $2,010.18 $125,264.48 for
Birth Date: June 23, 1937 Investment Properties Corporation; Senior Vice President, John R. the Trust and
Wood/Commercial Dept. Wood and Associates, Inc., Realtors; Partner or Trustee in private 54 other invest-
John R. Wood Associates, Inc. real estate ventures in Southwest Florida; formerly: President, ment companies in
Realtors Naples Property Management, Inc. and Northgate Village Development the Fund Complex
3255 Tamiami Trail North Corporation.
Naples, FL
TRUSTEE

Nicholas Constantakis Director or Trustee of the Federated Fund Complex; formerly: Partner, $1,827.20 $47,958.02for the
Birth Date: September 3, 1939 Andersen Worldwide SC. Trust and
175 Woodshire Drive 29 other invest-
Pittsburgh, PA ment companies in
TRUSTEE the Fund Complex

J. Christopher Donahue+. President or Executive Vice President of the Federated Fund Complex; $ 0 $0 for the
Birth Date: April 11, 1949 Director or Trustee of some of the Funds in the Federated Fund Trust and
Federated Investors Tower Complex; President, Chief Executive Officer and Director, Federated 16 other invest-
1001 Liberty Avenue Investors, Inc.; President and Trustee, Federated Investment ment companies in
Pittsburgh, PA Management Company; President and Trustee, Federated Investment the Fund Complex
EXECUTIVE VICE PRESIDENT and Counseling; President and Director, Federated Global Investment
TRUSTEE 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; Professor of $1,827.20 $113,860.22 for
Birth Date: October 11, 1932 Medicine, University of Pittsburgh; Medical Director, University of the Trust and
3471 Fifth Avenue Pittsburgh Medical Center - Downtown; Hematologist, Oncologist, and 54 other invest-
Suite 1111 Internist, University of Pittsburgh Medical Center; Member, National ment companies in
Pittsburgh, PA Board of Trustees, Leukemia Society of America. the Fund Complex
TRUSTEE

Peter E. Madden Director or Trustee of the Federated Fund Complex; formerly: $1,661.10 $113,860.22 for
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts General Court; the Trust and
One Royal Palm Way President, State Street Bank and Trust Company and State Street 54 other invest-
100 Royal Palm Way Corporation. ment companies in
Palm Beach, FL 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 Complex; Management $1,409.07 $0 for the
Birth Date: April 10, 1945 Consultant. Trust and
80 South Road 50 other invest-
Westhampton Beach, NY Previous Positions: Chief Executive Officer, PBTC International Bank; ment companies in
TRUSTEE Partner, Arthur Young & Company (now Ernst & Young LLP); Chief the Fund Complex
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., Director or Trustee of the Federated Fund Complex; President, Law
J.D., S.J.D.# Professor, Duquesne University; Consulting Partner, Mollica & Murray; $1,963.45 $113,860.22 for
Birth Date: December 20, 1932 Director, Michael Baker Corp. (engineering, construction, operations the Trust and
President, Duquesne and technical services). 54 other invest-
University ment companies
Pittsburgh, PA in the Fund
TRUSTEE 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; Public $1,827.20 $113,860.22 for
Birth Date: June 21, 1935 Relations/Marketing/Conference Planning. the Trust and
4905 Bayard Street 54 other invest-
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum Company of ment companies in
TRUSTEE America; television producer; business owner. the Fund Complex

John S. Walsh Director or Trustee of some of the Federated Fund Complex; President $1,360.59 $0 for the
Birth Date: November 28, 1957 and Director, Heat Wagon, Inc. (manufacturer of construction Trust and
2007 Sherwood Drive temporary heaters); President and Director, Manufacturers Products, 48 other invest-
Valparaiso, IN Inc. (distributor of portable construction heaters); President, ment companies in
TRUSTEE Portable Heater Parts, a division of Manufacturers Products, Inc.; the Fund Complex
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 invest-
1001 Liberty Avenue ment companies in
Pittsburgh, PA the Fund Complex
PRESIDENT

Edward C. Gonzales Trustee or Director of some of the Funds in the Federated Fund $ 0 $0 for the
Birth Date: October 22, 1930 Complex; President, Executive Vice President and Treasurer of some of Trust and
Federated Investors Tower the Funds in the Federated Fund Complex; Vice Chairman, Federated 1 other invest-
1001 Liberty Avenue Investors, Inc.; Vice President, Federated Investment Management ment company in
Pittsburgh, PA Company and Federated Investment Counseling, Federated Global the Fund Complex
EXECUTIVE VICE PRESIDENT 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 Fund Complex; $ 0 $0 for the
Birth Date: October 26, 1938 Executive Vice President, Secretary and Director, Federated Trust and
Federated Investors Tower Investors, Inc.; Trustee, Federated Investment Management Company and 54 other invest-
1001 Liberty Avenue Federated Investment Counseling; Director, Federated Global ment companies in
Pittsburgh, PA Investment Management Corp., Federated Services Company and the Fund Complex
EXECUTIVE VICE PRESIDENT and Federated Securities Corp.
SECRETARY

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

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

J. Thomas Madden Chief Investment Officer of this Fund and various other Funds in the $ 0 $0 for the
Birth Date: October 22, 1945 Federated Fund Complex; Executive Vice President, Federated Trust and
Federated Investors Tower Investment Counseling, Federated Global Investment Management Corp., 12 other invest-
1001 Liberty Avenue Federated Investment Management Company and Passport Research, Ltd.; ment companies in
Pittsburgh, PA Vice President, Federated Investors, Inc.; formerly: Executive Vice the Fund Complex
CHIEF INVESTMENT OFFICER 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. Mr. $ 0 $0 for the
Birth Date: November 7, 1962 Grefenstette joined Federated in 1992 and has been a Portfolio Trust and
Federated Investors Tower Manager and a Vice President of the Fund's Adviser since 1996. From no other invest-
1001 Liberty Avenue 1994 until 1996, Mr. Grefenstette was a Portfolio Manager and an ment companies in
Pittsburgh, PA Assistant Vice President of the Fund's Adviser. Mr. Grefenstette is a the Fund Complex
VICE PRESIDENT 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 its $ 0 $0 for the
Birth Date: December 16, 1964 inception. He is Vice President of the Trust. Mr. Shah joined Trust and
Federated Investors Tower Federated in 1993 and has been a Portfolio Manager and a Vice no other invest-
1001 Liberty Avenue President of the Fund's Adviser since January 1997. Mr. Shah was a ment companies in
Pittsburgh, PA Portfolio Manager and served as an Assistant Vice President of the the Fund Complex
VICE PRESIDENT Adviser from 1995 to 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/Directors 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.

Other Related Services

those that the Fund could buy, they also contain significant safeguards
designed to protect the Fund and its shareholders from abuses in this area,

such as requirements to obtain prior approval for, and to report,
particular transactions.

BROKERAGE TRANSACTIONS

Research Services

For the fiscal year ended, October 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $213,414,018.90 for which
the Fund paid $433,899.66 in brokerage commissions.

On October 31, 1999, the Fund owned securities of the following regular
broker/dealer: Jeffries & Co., $1,812,000.

ADMINISTRATOR

Maximum Administrative Fee Average Aggregate Daily Net
Assets
of the Federated Funds

<S> <C>
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

</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per port folio 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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT AUDITORS

FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>

For the Year Ended October 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $2,903,193 $2,906,645 $1,283,451
Advisory Fee Reduction $ 353,345 $ 254,218 $1,283,451
Brokerage Commissions $ 643,373 $ 569,050 $ 474,382
Administrative Fee $ 291,868 $ 292,243 $ 195,031
12b-1 Fee
Class A Shares -- -- --
Class B Shares $1,519,607 -- --
Class C Shares $ 262,706 -- --
Shareholder Services Fee
Class A Shares $ 373,626 -- --
Class B Shares $ 506,536 -- --
Class C Shares $ 87,569 -- --
</TABLE>

How Does the Fund Measure Performance?

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 1, 1995
<S> <C> <C> <C>
Class A Shares

Total Return N/A 15.91%
15.80%

Yield N/A N/A N/A
Class B Shares

Total Return N/A 16.36%
16.14%

Yield N/A N/A N/A
Class C Shares

Total Return N/A 20.74%
16.57%

Yield N/A N/A N/A
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

. 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

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

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

Russell 2000 Small Stock Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily in
small capitalization common stocks.

Standard & Poor's 600 Small Capitalization Index (S&P Small Cap 600) is an
unmanaged index of 600 small capitalization common stocks with a market
capitalization generally ranging between $80 million and $600 million. The
index, monitored by Standard & Poor's Corporation, is cited as an indicator of
small capitalization stock performance.

Lipper Small Company Growth Fund Average is an average of the total returns for
312 growth funds tracked by Lipper Analytical Services, Inc., an independent
mutual fund rating service.

Lipper Small Company Growth Fund Index is an average of the net asset-valuated
total returns for the top 30 small company growth funds tracked by Lipper
Analytical Services, Inc., an independent mutual fund rating service.

Morningstar, Inc. An independent rating service, is the publisher of the bi-
weekly 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.

Wilshire 5000 Equity Index consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available, and can be
used to compare to the total returns of funds whose portfolios are invested
primarily in common stocks.

Strategic Insight Small Company Growth Funds Index consists of mutual funds that
invest primarily in companies below $750 million in total market capitalization.

& 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.

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 FUNDS OVERVIEW

Municipal Funds

Equity Funds

Corporate Bond Funds

Government Funds

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

Bank Marketing

Broker/Dealers and Bank Broker/Dealer Subsidiaries

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 Small Cap Strategies Fund dated October 31, 1999.

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.

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

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

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

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

. Leading market positions in well-established industries;

. High rates of return on funds employed;

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

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

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.

Addresses

Federated Small Cap Strategies 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