FEDERATED EQUITY INCOME FUND INC, 485APOS, 1997-05-30

FEDERATED EQUITY INCOME FUND INC
485APOS, 1997-05-30

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1933 Act File No. 33-6901
1940 Act File No. 811-4743

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

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

Post-Effective Amendment No. 22 ............. X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 19 .......................... X

FEDERATED EQUITY INCOME FUND, INC.

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

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

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

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
----------
X 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i)
- --- ----------
75 days after filing pursuant to paragraph (a) (ii)
- ---
on pursuant to paragraph (a) (ii) of Rule 485.

If appropriate, check the following box:

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

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:

X filed the Notice required by that Rule on May 15, 1997; or
intends to file the Notice required by that Rule on or about
; or
------------
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.

Copies to:

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

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of Federated Equity Income
Fund, Inc., which is comprised of four classes of shares, (1) Class A
Shares, (2) Class B Shares, (3) Class C Shares and (4) Class F Shares, is
comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

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

Item 5. Management of the Fund...Fund Information (1-4); Management of
the Fund (1-4); Distribution of Shares
(1-4); Supplemental Payments to
Financial Institutions (1-4);
Administration of the Fund (1-4);
Brokerage Transactions (1-4).
Item 6. Capital Stock and Other
Securities...............Shareholder Information (1-4); Tax
Information (1-4); Federal Income Tax
(1-4); State and Local Taxes (1-4).

Item 7. Purchase of Securities Being
Offered..................Net Asset Value (1-4); Purchasing Shares
(1-4); Investing in the Fund (1-4);
Class A Shares (1); Class B Shares (2);
Class C Shares (3); Share Purchases (1-
4); Redeeming and Exchanging Shares (1-
4).

Item 8. Redemption or Repurchase.Eliminating the Contingent Deferred
Sales Charge (1-4); Account and Share
Information (1-4).
.
Item 9. Pending Legal Proceedings None

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

Item 10. Cover Page...............Cover Page (1-4).
Item 11. Table of Contents........Table of Contents (1-4).
Item 12. General Information and
History..................General Information About the Fund (1-
4); About Federated Investors (1-4).
Item 13. Investment Objectives and
Policies.................Investment Objectives and Policies (1-
4).
Item 14. Management of the Fund...Federated Equity Income Fund, Inc.,
Management (1-4).
Item 15. Control Persons and Principal
Holders of Securities....Fund Ownership (1-4); Directors
Compensation (1-4).
Item 16. Investment Advisory and Other
Services.................Investment Advisory Services (1-4);
Other Services (1-4).
Item 17. Brokerage Allocation.....Brokerage Transactions (1-4).
Item 18. Capital Stock and Other
Securities...............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................Purchasing Shares (1-4); Determining Net
Asset Value (1-4); Determining Market
Value of Securities (1-4); Redeeming
Shares (1-4).
Item 20. Tax Status...............Tax Status (1-4).
Item 21. Underwriters.............See Part A - Distribution of Shares (1-
4).
Item 22. Calculation of Performance
Data.....................Total Return (1-4); Yield (1-4); Current
Distributions (1-4); Performance
Comparisons (1-4);
Item 23. Financial Statements.....Incorporated by reference to Annual
Report of Registrant dated March
31,1997, (File Nos. 33-6901 and 811-
4743).
FEDERATED EQUITY INCOME FUND, INC.

Class F Shares

PROSPECTUS

The Class F Shares of Federated Equity Income Fund, Inc. (the "Fund")
represent interests in an open-end, diversified management investment
company (a mutual fund) investing primarily in income-producing equity
securities.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

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

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

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

Prospectus dated July 31, 1997

TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Fund Expenses 1
Financial Highlights -- Class F Shares 2
General Information 3
Calling the Fund 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Portfolio Turnover 6
Investment Limitations 6
Net Asset Value 7
Investing in the Fund 7
Purchasing Shares 7
Purchasing Shares Through a Financial Intermediary 8
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Systematic Investment Program 8
Retirement Plans 8
Reducing or Eliminating the Sales Charge 8
Redeeming and Exchanging Shares 9
Redeeming or Exchanging Shares Through
a Financial Intermediary 9
Redeeming or Exchanging Shares by Telephone 9
Redeeming or Exchanging Shares by Mail 9
Requirements for Redemption 10
Requirements for Exchange 10
Systematic Withdrawal Program 10
Contingent Deferred Sales Charge 10
Account and Share Information 11
Confirmations and Certificates 11
Dividends and Distributions 11
Accounts with Low Balances 11
Fund Information 11
Management of the Fund 11
Distribution of Class F Shares 12
Administration of the Fund 13

Brokerage Transactions 13
Shareholder Information 13
Tax Information 13

Federal Income Tax 13
State and Local Taxes 14
Performance Information 14
Other Classes of Shares 14
Appendix 15

</TABLE>

SUMMARY OF FUND EXPENSES
CLASS F SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a 1.00%
percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of
original purchase
price or redemption proceeds, as applicable)(1) 1.00%
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee 0.60%
12b-1 Fee 0.25%

Shareholder Services Fee (after waiver)(2) 0.24%

Total Other Expenses 0.51%
Total Operating Expenses(3) 1.36%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of
the original purchase price or the net asset value of Shares redeemed
within four years of their purchase date. For a more complete description,
see `Investing in the Fund'' and "Contingent Deferred Sales Charge."

(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(3) The total operating expenses would have been 1.37% absent the voluntary
waiver of a portion of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class F Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Investing in the Fund" and "Fund
Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment
of the maximum sales charge.
<TABLE>
<S> <C>
1 Year $ 34
3 Years $ 64
5 Years $ 84
10 Years $172
</TABLE>

You would pay the following expenses on the same investment assuming
no redemption.
<TABLE>
<S> <C>
1 Year $ 24
3 Years $ 53
5 Years $ 84
10 Years $172
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS -- CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

* Computed on an annualized basis.

(a) Reflects operations for the period from November 12, 1993 (date of
initial public offering) to March 31, 1994.

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

(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were
charged. This disclosure is required for fiscal years beginning on or
after September 1, 1995.

Further information about the Fund's performance is contained in the
Fund's annual report for the fiscal year ended March 31, 1997, which can
be obtained free of charge.

GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on July
29, 1986. Class F Shares of the Fund ("Shares") are designed for individuals
and institutions seeking high current income and capital appreciation
through a professionally managed, diversified portfolio of convertible
securities.

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

CALLING THE FUND

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

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

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

INVESTMENT POLICIES

The investment policies described below may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.

ACCEPTABLE INVESTMENTS

The Fund attempts to achieve its objectives by investing at least 65% of its
assets in income-producing equity securities. Equity securities include
common stocks, preferred stocks, and securities (including debt securities)
that are convertible into common stocks. The portion of the Fund's total
assets invested in common stocks, preferred stocks, and convertible
securities will vary according to the Fund's assessment of market and
economic conditions and outlook. The Fund's stock selection emphasizes those
common stocks in each sector that have good value, attractive yield, and
dividend growth potential. The Fund will utilize convertible securities
because such securities typically offer high yields and good potential for
capital appreciation.

CONVERTIBLE SECURITIES

Convertible securities include a spectrum of securities which can be
exchanged for or converted into common stock. Convertible securities may
include, but are not limited to: convertible bonds or debentures;
convertible preferred stock; units consisting of usable bonds and warrants;
or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS (Dividend Enhanced Convertible Stock, or
Debt Exchangeable for Common Stock when issued as a debt security), LYONS
(Liquid Yield Option Notes, which are corporate bonds that are purchased
at prices below par with no coupons and are convertible into stock), PERCS
(Preferred Equity Redemption Cumulative Stock, (an equity issue that pays
a high cash dividend, has a cap price and mandatory conversion to common
stock at maturity), and PRIDES (Preferred Redeemable Increased Dividend
Securities (which are essentially the same as DECS; the difference is little
more than who initially underwrites the issue).

Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in
order of preference or priority on the issuer's balance sheet. Hence, an
issuer with investment grade senior debt may issue convertible securities
with ratings less than investment grade or not rated. Convertible securities
rated below investment grade may be subject to some of the same risks as
those inherent in junk bonds. The Fund does not limit convertible securities
by rating, and there is no minimal acceptance rating for a convertible
security to be purchased or held in the Fund. Therefore, the Fund invests in
convertible securities irrespective of their ratings. This could result in
the Fund purchasing and holding, without limit, convertible securities rated
below investment grade by a nationally recognized statistical rating
organization or in the Fund holding such securities where they have acquired
a rating below investment grade after the Fund has purchased it.

ZERO COUPON CONVERTIBLE SECURITIES

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

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

TEMPORARY INVESTMENTS

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

* commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);
* instruments of domestic and foreign banks and savings associations (such
as certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances); or

* obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and other short-term instruments.

REPURCHASE AGREEMENTS

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

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's failure
to complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.

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

LENDING OF PORTFOLIO SECURITIES

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

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

INVESTING IN OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies.
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.

PUT AND CALL OPTIONS

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

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

Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded options
have a continuous liquid market while over-the-counter options may not. The
Fund will not buy call options or write put options without further
notification to shareholders.

FINANCIAL FUTURES AND OPTIONS ON FUTURES

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

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

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

RISKS

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

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

RESTRICTED AND ILLIQUID SECURITIES

The Fund intends to invest in restricted securities and as a matter of
fundamental investment policy, which may not be changed without shareholder
approval, will limit such investments to 10% of its net assets. This
restriction is not applicable to commercial paper issued under Section 4(2)
of the Securities Act of 1933. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objectives
and policies but which are subject to restriction on resale under federal
securities law. As a matter of non-fundamental investment policy, the Fund
will limit investments in illiquid securities, including certain restricted
securities determined by the Directors not to be liquid, non-negotiable time
deposits and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.

The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must
be in an exempt transaction. Section 4(2) commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity.

FOREIGN SECURITIES

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

HIGH-YIELD CORPORATE DEBT OBLIGATIONS

The Fund may invest up to 35% of the value of its total assets in corporate
debt obligations that are not investment grade securities or are not rated
but are determined by the Adviser to be of comparable quality and may
include bonds in default. Securities which are rated BBB or lower by
Standard & Poor's or Baa or lower by Moody's either have speculative
characteristics or are speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations. A
description of the rating categories is contained in the Appendix to this
Prospectus. There is no lower limit with respect to rating categories for
securities in which the Fund may invest.

Corporate debt obligations that are not determined to be investment-grade
are high-yield, high-risk securities (i.e., `junk bonds''), typically
subject to greater market fluctuations and greater risk of loss of income
and principal due to an issuer's default. To a greater extent than
investment-grade securities, lower rated securities tend to reflect short-term
corporate, economic and market developments, as well as investor perceptions
of the issuer's credit quality. In addition, lower-rated securities may be
more difficult to dispose of or to value than high-rated, lower-
yielding securities. The Fund does not intend to invest more than 5% of its
assets in corporate debt obligations that are not investment-grade
securities (excluding securities convertible into equity securities) during
the current fiscal year.

The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal
and interest payments with respect to these securities than for higher
rated securities. The Adviser attempts to reduce the risks described above
through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.

PORTFOLIO TURNOVER

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

INVESTMENT LIMITATIONS

The Fund will not:

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

* invest more than 5% of the value of its total assets in securities of one
issuer (except cash and cash items, repurchase agreements, and U.S.
government obligations) or acquire more than 10% of any class of voting
securities of any issuer.

The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.

The Fund will not:

* invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or

* commit more than 5% of the value of its total assets to premiums on open
put option positions; or invest more than 5% of its total assets in
warrants.

NET ASSET VALUE

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

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

INVESTING IN THE FUND

This prospectus offers Class F Shares with the characteristics described
below.
<TABLE>
<CAPTION>
CLASS F
<S> <C>
Minimum and Subsequent Investment Amount $500/$100
Minimum and Subsequent Investment Amount for $50
Retirement Plans
Maximum Sales Charge 1.00%*
Maximum Contingent Deferred Sales Charge** 1.00%**
</TABLE>

* There is no sales charge for purchases of $1 million or more. In addition,
no sales charge is imposed for Shares purchased through certain entities or
programs. Please see the section entitled "Reducing or Eliminating the Sales
Charge."

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

The following contingent deferred sales charge schedule applies to Class F
Shares:
<TABLE>
<CAPTION>
CONTINGENT
SHARES HELD DEFERRED
AMOUNT OF PURCHASE LESS THAN SALES CHARGE
<S> <C> <C>
Up to $1,999,999 Four Years 1.00%
$2,000,000 to $4,999,999 Two Years .50%
Over $5,000,000 One Year .25%
</TABLE>

PURCHASING SHARES

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

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

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

Orders placed through a financial intermediary are considered received when
the Fund is notified of the purchase order or when payment is converted into
federal funds. Purchase orders through a broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the
broker to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be
purchased at that day's price. Purchase orders through other financial
intermediaries must be received by the financial intermediary and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial intermediary's
responsibility to transmit orders promptly. Financial intermediaries may
charge fees for their services.
The financial intermediary which maintains investor accounts in Class F
Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent
deferred sales charge (see "Contingent Deferred Sales Charge"). In addition,
advance payments made to financial intermediaries may be subject to reclaim
by the distributor for accounts transferred to financial intermediaries
which do not maintain investor accounts on a fully disclosed basis and do
not account for share ownership periods.

PURCHASING SHARES BY WIRE

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

PURCHASING SHARES BY CHECK

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

SYSTEMATIC INVESTMENT PROGRAM

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

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.

REDUCING OR ELIMINATING THE SALES CHARGE

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

NO SALES CHARGE IS IMPOSED FOR CLASS F SHARES PURCHASED:

* through bank trust departments;

* through investment advisers registered under the Investment Advisers Act
of 1940 purchasing on behalf of their clients;

* by sales representatives, Directors, and employees of the Fund, Federated
Advisers, Federated Securities Corp. or their affiliates;

* by any investment dealer who has a sales agreement with Federated
Securities Corp., their spouses and children under age 21; or

* by any trusts or pension or profit-sharing plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates to the extent that no payment was
advanced for their purchases.

IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing in quantity and accumulating purchases;

* combining concurrent purchases of two or more funds;

* using the reinvestment privilege; or

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

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

DEALER CONCESSION

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

REDEEMING AND EXCHANGING SHARES

Shares of the Fund may be redeemed for cash or exchanged for Class F Shares
of other Federated Funds on days on which the Fund computes its NAV. Shares
are redeemed at NAV less any applicable contingent deferred sales charge.
Exchanges are made at NAV. Depending upon the circumstances, a capital gain
or loss may be realized when Shares are redeemed or exchanged.

REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY

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

REDEEMING OR EXCHANGING SHARES BY TELEPHONE

Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for
these transactions must be on file with the Fund. Shares held in certificate
form must first be returned to the Fund as described in the instructions
under "Redeeming or Exchanging Shares by Mail." Redemption proceeds will
either be mailed in the form of a check to the shareholder's address of
record or wire-transferred to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. The minimum
amount for a wire transfer is $1,000.

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

REDEEMING OR EXCHANGING SHARES BY MAIL

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

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

REQUIREMENTS FOR REDEMPTION

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

REQUIREMENTS FOR EXCHANGE

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

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

SYSTEMATIC WITHDRAWAL PROGRAM

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

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

CONTINGENT DEFERRED SALES CHARGE

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

ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

* following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
* representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 59 1/2;

* a total or partial distribution from a qualified plan, other than an
Individual Retirement Account, Keogh Plan, or a custodial account following
retirement;

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

* of Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, and their
immediate family members; employees of any financial institution that sells
Shares of the Fund pursuant to a sales agreement with the distributor; and
spouses and children under the age of 21 of the aforementioned persons; and

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

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

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND CERTIFICATES
Shareholders will receive detailed confirmations of all transactions and
monthly confirmations reporting any dividends paid. Share certificates are
not issued unless requested in writing to Federated Shareholder Services
Company.

DIVIDENDS AND DISTRIBUTIONS

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

ACCOUNTS WITH LOW BALANCES

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

FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

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

INVESTMET ADVISER

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to 0.60% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses.

ADVISER'S BACKGROUND

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

Linda A. Duessel has been the Fund's portfolio manager since February 1997.
Ms. Duessel joined Federated Investors in 1991 and has been a Vice President
of the Fund's investment adviser since 1995. Ms. Duessel was an Assistant
Vice President of the Fund's investment adviser from 1991 until 1995. Ms.
Duessel is a Chartered Financial Analyst and received her M.S. in Industrial
Administrationn from Carnegie Mellon University.

Steven J. Lehman will be named an additional portfolio manager of the Fund,
pending completion of his registration as an Investment Adviser
Representative with the Commonwealth of Pennsylvania. Mr. Lehman joined the
Fund's adviser in May 1997, as a Vice President. From 1985 to May 1997, Mr.
Lehman served as a Portfolio Manager, then Vice President/Senior Portfolio
Manager, at First Chicago NBD Investment Management Company. Mr. Lehman is a
Chartered Financial Analyst; he received his M.A. from the University of
Michigan.

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

DISTRIBUTION OF CLASS F SHARES

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

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), the Fund will pay to the distributor
an amount, computed at an annual rate of 0.25% of the average daily net
asset value of Class F Shares to finance any activity which is principally
intended to result in the sale of shares subject to the Distribution Plan.
The distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.

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

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

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, for distribution
and/or administrative services, an amount equal to 1.00% of the offering
price of the Shares acquired by their clients or customers on purchases up
to $1,999,999, 0.50% of the offering price on purchases of $2,000,000 to
$4,999,999, and 0.25% of the offering price on purchases of $5,000,000 or
more. (This fee is in addition to the 1.00% sales charge on purchases of
less that $1 million.) The financial institutions may elect to waive the
initial payment described above; such waiver will result in the waiver by
the Fund of the otherwise applicable contingent deferred sales charge.

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

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services
Company provides these at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 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 choose voluntarily to waive a portion of its
fee.

BROKERAGE TRANSACTIONS

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

SHAREHOLDER INFORMATION

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

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

As of May 8, 1997, the following shareholder of record owned 25% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class C Shares for its clients),
Jacksonville, Florida, owned approximately 2,920,296 Class C Shares (43.89%)
and, therefore, may, for certain purposes, be deemed to control the Fund and
be able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

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

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

STATE AND LOCAL TAXES

Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

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

PERFORMANCE INFORMATION

From time to time the Fund advertises its total return and yield for Class F
Shares.

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

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

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

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

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

OTHER CLASSES OF SHARES

The Fund also offers other classes of shares called Class A Shares, Class B
Shares and Class C Shares which are all sold primarily to customers of
financial institutions subject to certain differences.

Class A Shares are sold subject to a front-end sales charge and a
Shareholder Services Agreement. Investments in Class A Shares are subject to
a minimum initial investment of $500, unless the investment is in a
retirement account, in which the minimum investment is $50. Class A Shares
are subject to a 12b-1 Plan, however it is not currently making payments,
nor does it anticipate doing so in the immediate future.

Class B Shares are sold at net asset value and are subject to a 12b-1 Plan
and a Shareholder Services Agreement. Investments in Class B Shares are
subject to a minimum initial investment of $1,500, unless the investment is
in a retirement account, in which the minimum investment is $50. A
contingent deferred sales charge is imposed on certain shares which are
redeemed within six full years of purchase.

Class C Shares are sold at net asset value and are subject to a 12b-1 Plan
and a Shareholder Services Agreement. Investments in Class C Shares are
subject to a minimum investment of $1,500, unless the investment is in a
retirement account, in which the minimum investment is $50. A contingent
deferred sales charge is imposed on assets redeemed within the first full 12
months following purchase.

Class A Shares, Class B Shares, Class C Shares, and Class F Shares are
subject to certain of the same expenses, however, the front-end sales load
for Class F Shares is lower than that for Class A Shares. Expense
differences, however, between Class A Shares, Class B Shares, C Shares and
Class F Shares may affect the performance of each class.

To obtain more information and a combined prospectus for Class A Shares,
Class B Shares and Class C Shares, investors may call 1-800-341-7400 or
contact their financial institution.

APPENDIX

DESCRIPTION OF BOND RATINGS

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

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

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS

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

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

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

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

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

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

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

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

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

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

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

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS

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 rated 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 INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS

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

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

A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered 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 for bonds with
higher ratings.

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

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

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

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

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

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

FEDERATED EQUITY
INCOME FUND, INC.

CLASS F SHARES

Federated Investors Tower
Pittsburgh, PA 15222-3779

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA
15222-3779

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779

CUSTODIAN

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

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT

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

Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

[Graphic]

FEDERATED EQUITY
INCOME FUND, INC.

Class F Shares

PROSPECTUS

JULY 31, 1997

An Open-End, Diversified
Management Investment Company

Federated Securities Corp., Distributor

Cusip 313915407
8062806A-F (7/97)

FEDERATED EQUITY INCOME FUND, INC.

Class A Shares, Class B Shares, Class C Shares

PROSPECTUS

The shares of Federated Equity Income Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a
mutual fund) investing primarily in income-producing equity securities.

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

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

Prospectus dated July 31, 1997

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary of Fund Expenses 1
Financial Highlights -- Class A Shares 2
Financial Highlights -- Class B Shares 3
Financial Highlights -- Class C Shares 4
General Information 5
Calling the Fund 5
Investment Information 5
Investment Objective 5
Investment Policies 5
Portfolio Turnover 8
Investment Limitations 8
Net Asset Value 9
Investing in the Fund 9
Purchasing Shares 10
Purchasing Shares through a
Financial Intermediary 10
Purchasing Shares by Wire 10
Purchasing Shares by Check 10
Systematic Investment Program 10
Retirement Plans 10
Class A Shares 10
Class B Shares 11
Class C Shares 11
Redeeming and Exchanging Shares 11
Redeeming or Exchanging Shares
through a Financial Intermediary 11
Redeeming or Exchanging Shares
by Telephone 11
Redeeming or Exchanging Shares by Mail12
Requirements for Redemption 12
Requirements for Exchange 12
Systematic Withdrawal Program 12
Contingent Deferred Sales Charge 12
Account and Share Information 13
Confirmations and Certificates 13
Dividends and Distributions 13
Accounts with Low Balances 13
Fund Information 13
Management of the Fund 13
Distribution of Shares 14
Administration of the Fund 15
Brokerage Transactions 16
Shareholder Information 16
Tax Information 16
Federal Income Tax 16
State and Local Taxes 16
Performance Information 17
Other Classes of Shares 17
Appendix 18
</TABLE>

SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES

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

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.60% 0.60% 0.60%
12b-1 Fee 0.00%(2) 0.75% 0.75%
Shareholder Services Fee 0.21%(3) 0.25% 0.25%
Total Other Expenses 0.48% 0.52% 0.52%
Total Operating Expenses 1.08%(4) 1.87%(5) 1.87%
</TABLE>

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

(2) Class A Shares has no present intention of paying or accruing the 12b-1
fee during the fiscal year ending March 31, 1998. If Class A Shares were
paying or accruing the 12b-1 fee, Class A Shares would be able to pay up to
0.50% of its average daily net assets for the 12b-1 fee. See "Fund
Information."

(3) For shareholders of Class A, the shareholder services fee has been
reduced to reflect the voluntary waiver of a portion of the shareholder
services fee. The shareholder service provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum shareholder services
fee is 0.25%.

(4) The total operating expenses for Class A Shares would have been 1.12%
absent the voluntary waiver described in note 3 above.

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

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Investing in the Fund" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period, and (3)
payment of the maximum sales charge.

1 Year $ 65 $ 76 $ 29
3 Years $ 87 $ 103 $ 59
5 Years $ 111 $ 124 $ 101
10 Years $ 179 $ 198 $ 219
</TABLE>

You would pay the following expenses on the same investment, assuming no
redemption.
<TABLE>
<S> <C> <C> <C>
1 Year $ 65 $ 19 $ 19
3 Years $ 87 $ 59 $ 59
5 Years $ 111 $ 101 $ 101
10 Years $ 179 $ 198 $ 219
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS -- CLASS A SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated May 12, 1997, on the Fund's
financial statements for the year ended March 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated herein by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be
obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(A) 1987(B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $14.26 $11.50 $11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84 $ 9.22 $10.18 $10.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.42 0.46 0.49 0.43 0.55 0.69 0.84 0.91 0.89 0.72 0.23
Net realized and
unrealized gain
(loss) on
investments 2.16 2.96 0.40 0.15 1.22 1.08 (0.16) (1.18) 1.59 (0.81) 0.18
Total from
investment
operations 2.58 3.42 0.89 0.58 1.77 1.77 0.68 (0.27) 2.48 (0.09) 0.41
LESS DISTRIBUTIONS
Distributions
from
net investment
income (0.41) (0.41) (0.45) (0.43) (0.53) (0.69) (0.86) (0.87) (0.86) (0.72) (0.23)
Distributions in
excess of net
invest-
ment income(c) -- -- -- -- -- -- -- (0.41) -- -- --
Distributions
from net realized
gain on
investments (0.84) (0.25) -- -- -- -- -- (0.52) -- (0.15) --
Total
distributions (1.25) (0.66) (0.45) (0.43) (0.53) (0.69) (0.86) (1.80) (0.86) (0.87) (0.23)
NET ASSET VALUE,
END OF PERIOD $15.59 $14.26 $11.50 $11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84 $ 9.22 $10.18
TOTAL RETURN(D) 18.82% 30.37% 8.31% 5.29% 18.98% 21.19% 8.95% (3.19)% 28.25% (0.54)% 3.63%
RATIOS TO
AVERAGE
NET ASSETS
Expenses 1.08% 1.03% 1.00% 1.00% 0.99% 1.04% 1.05% 0.97% 0.77% 1.16%* 1.22%*
Net investment
income 2.68% 3.19% 4.01% 3.82% 5.45% 7.36% 10.25% 9.34% 9.02% 8.32%* 6.93%*
Expense waiver/
reimbursement(e) 0.04% 0.20% 0.36% 0.89% 1.60% 1.46% 1.46% 1.43% 1.25% 0.86%* 0.28%*
SUPPLEMENTAL DATA
Net assets, end
of period (000
omitted) $431,281 $220,268 $108,683 $84,665 $30,616 $25,176 $22,589 $22,052 $11,306 $8,895 $10,866
Average commis-
sion rate
paid(f) $0.0530 -- -- -- -- -- -- -- -- -- --
Portfolio
turnover 75% 96% 91% 43% 79% 115% 31% 54% 49% 41% 24%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 1, 1987 to March 31, 1988.
(Effective November 1, 1987, the Fund changed its fiscal year-end from
April 30, to March 31.)

(b) Reflects operations for the period from December 30, 1986 (date of
initial public investment) to April 30, 1987.

(c) Distributions in excess of net investment inome were a result of certain
book and tax differences. These distributions did not represent a return of
capital for federal income tax purposes.

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

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

(f) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
This disclosure is required for fiscal years beginning on or after
September 1, 1995.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE
FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1997, WHICH
CAN BE OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS -- CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

* Computed on an annualized basis.

(a) Reflects operations for the period from September 27, 1994 (date of
initial public offering) to March 31, 1995.

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

(d) Calculated using average outstanding shares.

(e) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were
charged. This disclosure is required for fiscal years beginning on or
after September 1, 1995.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE
FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1997, WHICH
CAN BE OBTAINED FREE OF CHARGE.

FINANCIAL HIGHLIGHTS -- CLASS C SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

* Computed on an annualized basis.

(a) Reflects operations for the period from May 3, 1993 (date of initial
public offering) to March 31, 1994.

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

(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
This disclosure is required for fiscal years beginning on or after September
1, 1995.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE
FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1997, WHICH
CAN BE OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on July
29, 1986. Class A Shares, Class B Shares, and Class C Shares of the Fund
("Shares") are designed for individuals and institutions seeking high
current income and capital appreciation through a professionally managed,
diversified portfolio of convertible securities.

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

CALLING THE FUND

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

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

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

INVESTMENT POLICIES

The investment policies described below may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.

ACCEPTABLE INVESTMENTS

The Fund's stock selection emphasizes those common stocks in each sector
that have good value, attractive yield, and dividend growth potential. The
Fund will utilize convertible securities because such securities typically
offer high yields and good potential for capital appreciation.

CONVERTIBLE SECURITIES

Convertible securities include a spectrum of securities which can be
exchanged for or converted into common stock. Convertible securities may
include, but are not limited to: convertible bonds or debentures;
convertible preferred stock; units consisting of usable bonds and warrants;
or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS
(Liquid Yield Option Notes, which are corporate bonds that are purchased at
prices below par with no coupons and are convertible into stock), PERCS
(Preferred Equity Redemption Cumulative Stock, an equity issue that pays a
high cash dividend, has a cap price and mandatory conversion to common stock
at maturity), and PRIDES (Preferred Redeemable Increased Dividend
Securities, which are essentially the same as DECS; the difference is little
more than who initially underwrites the issue).

Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in
order of preference or priority on the issuer's balance sheet. Hence, an
issuer with investment grade senior debt may issue convertible securities
with ratings less than investment grade or not rated. Convertible securities
rated below investment grade may be subject to some of the same risks as
those inherent in junk bonds. The Fund does not limit convertible securities
by rating, and there is no minimal acceptance rating for a convertible
security to be purchased or held in the Fund. Therefore, the Fund invests in
convertible securities irrespective of their ratings. This could result in
the Fund purchasing and holding, without limit, convertible securities rated
below investment grade by a nationally recognized statistical rating
organization or in the Fund holding such securities where they have
acquired a rating below investment grade after the Fund has purchased it.

ZERO COUPON CONVERTIBLE SECURITIES

TEMPORARY INVESTMENTS

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

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

* obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and other short-term instruments.

REPURCHASE AGREEMENTS

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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

LENDING OF PORTFOLIO SECURITIES

INVESTING IN OTHER INVESTMENT COMPANIES

PUT AND CALL OPTIONS

Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded options
have a continuous liquid market while over-the-counter options may not. The
Fund will not buy call options or write put options without further
notification to shareholders.

FINANCIAL FUTURES AND OPTIONS ON FUTURES

RISKS

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

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

RESTRICTED AND ILLIQUID SECURITIES

FOREIGN SECURITIES

HIGH-YIELD CORPORATE DEBT OBLIGATIONS

Corporate debt obligations that are not determined to be investment-grade
are high-yield, high-risk securities (i.e., `junk bonds''), typically
subject to greater market fluctuations and greater risk of loss of
income and principal due to an issuer's default. To a greater extent
than investment-grade securities, lower rated securities tend to reflect
short-term corporate, economic and market developments, as well as
investor perceptions of the issuer's credit quality. In addition,
lower rated securities may be more difficult to dispose of or to value
than high-rated, lower-yielding securities. The Fund does not intend
to invest more than 5% of its assets in corporate debt obligations
that are not investment-grade securities (excluding securities
convertible into equity securities) during the current fiscal year.

The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make
principal and interest payments with respect to these securities than for
higher rated securities. The Adviser attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of
each issuer as well as by monitoring broad economic trends and corporate
and legislative developments.

PORTFOLIO TURNOVER

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a
set date) or pledge securities except that under certain circumstances
the Fund may borrow up to one-third of the value of its total assets and
pledge assets to secure such borrowings; sell securities short except,
under strict limitations, it may maintain open short positions so long as
not more than 10% of the value of its net assets is held as collateral
for those positions; or

The Fund will not:

* invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations;

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

* invest more than 5% of its total assets in warrants.

NET ASSET VALUE

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

INVESTING IN THE FUND

This prospectus offers three classes of Shares each with the characteristics
described below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Minimum and Subsequent
Investment Amounts $500/$100 $1500/$100 $1500/$100
Minimum and Subsequent $50 $50 $50
Investment Amount
for Retirement Plans
Maximum Sales Charge 5.50%* None None
Maximum Contingent None 5.50+ 1.00%#
Deferred Sales
Charge**
Conversion Feature No Yes++ No
</TABLE>

* Class A Shares are sold at NAV, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE DEALER
AS A PERCENTAGE CONCESSION AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
</TABLE>

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

+ The following contingent deferred sales charge schedule applies to Class B
Shares:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

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

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

PURCHASING SHARES

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

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

PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY

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

PURCHASING SHARES BY WIRE

PURCHASING SHARES BY CHECK

SYSTEMATIC INVESTMENT PROGRAM

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.

CLASS A SHARES

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

NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:

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

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

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

IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
* purchasing in quantity and accumulating purchases at the levels in the
table noted above;

* combining concurrent purchases of two or more funds; or

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

DEALER CONCESSION

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

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

CLASS B SHARES

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

CONVERSION OF CLASS B SHARES

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

CLASS C SHARES

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

REDEEMING AND EXCHANGING SHARES

Shares of the Fund may be redeemed for cash or exchanged for Shares of the
same class of other Federated Funds on days on which the Fund computes its
NAV. Shares are redeemed at NAV less any applicable contingent deferred
sales charge. Exchanges are made at NAV. Depending upon the circumstances, a
capital gain or loss may be realized when Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY

REDEEMING OR EXCHANGING SHARES BY TELEPHONE

REQUIREMENTS FOR REDEMPTION

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

SYSTEMATIC WITHDRAWAL PROGRAM

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

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

ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

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

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

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

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

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

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND CERTIFICATES

Shareholders will receive detailed confirmations of all transactions and
monthly confirmations reporting any dividends paid. Share certificates are
not issued unless requested in writing to Federated Shareholder Services
Company.

DIVIDENDS AND DISTRIBUTIONS

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

ACCOUNTS WITH LOW BALANCES

FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

INVESTMENT ADVISER

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

ADVISORY FEES

ADVISER'S BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of
1940. It is a subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the trustees of which
are John F. Donahue, Chairman and Trustee of Federated Investors, Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors. Federated Advisers and other
subsidiaries of Federated Investors serve as investment advisers to a number
of investment companies and private accounts. Certain other subsidiaries
also provide administrative services to a number of investment companies.
With over $110 billion invested across more than 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
Federated Investors is one of the largest mutual fund investment managers in
the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.

Steven J. Lehman will be named an additional portfolio manager of the Fund,
pending completion of his registration as an Investment Adviser
Representative with the Commonwealth of Pennsylvania. Mr. Lehman joined the
Fund's adviser in May 1997 as a Vice President. From 1985 to May 1997, Mr.
Lehman served as a Portfolio Manager, then Vice President/Senior Portfolio
Manager, at First Chicago NBD Investment Management Company. Mr. Lehman is a
Chartered Financial Analyst; he received his M.A. from the University of
Michigan.

DISTRIBUTION OF SHARES

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

The distributor will pay dealers an amount equal to 5.5% of the net asset
value of Class B Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will
not be made from the assets of the Fund. Dealers may voluntarily waive
receipt of all or any portion of these payments. The distributor may pay a
portion of the distribution fee discussed below to financial institutions
that waive all or any portion of the advance payments.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will
pay a fee to the distributor in an amount computed at an annual rate of
0.75% of the average daily net assets of each class of Shares to finance any
activity which is principally intended to result in the sale of Shares
subject to the Distribution Plan. Class A Shares may pay to the distributor
an amount, computed at an annual rate of 0.50% of the average daily net
asset value of Class A Shares to finance any activity which is principally
intended to result in the sale of shares subject to the Distribution Plan.
For Class A and Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers. With respect to Class B Shares, because distribution fees to be
paid by the Fund to the distributor may not exceed an annual rate of 0.75%
of each class of Shares' average daily net assets, it will take the
distributor a number of years to recoup the expenses it has incurred for its
sales services, distribution and distribution-related support services
pursuant to the Distribution Plan. Class A Shares are not currently making
payments under the Distribution Plan, nor does it anticipate doing so in the
immediate future.

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

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

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

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

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

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

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

BROKERAGE TRANSACTIONS

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

SHAREHOLDER INFORMATION

Directors may be removed by the Directors or shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.
As of May 8, 1997, the following shareholder of record owned 25% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class C Shares for its clients),
Jacksonville, Florida, owned approximately 2,920,296 Class C Shares (43.89%)
and, therefore, may, for certain purposes, be deemed to control the Fund and
be able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

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

STATE AND LOCAL TAXES

Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

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

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for each
class of Shares including Class F Shares described under "Other Classes of
Shares."

Total return represents the change, over a specific period of time, in the
value of an investment in each class of Shares after reinvesting all income
and capital gains distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage. The yield of each
class of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by each
class of Shares over a thirty-day period by the maximum offering price per
share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily
reflect income actually earned by each class of Shares and, therefore, may
not correlate to the dividends or other distributions paid to shareholders.

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

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

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

OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions. Class F
Shares are subject to a front-end sales charge, a 12b-1 Plan, a contingent
deferred sales charge and a Shareholder Service Agreement. Class F Shares
has a minimum initial investment of $1,500, unless the investment is in a
retirement account in which the minimum investment is $50.

Class A Shares, Class B Shares, Class C Shares, and Class F Shares are
subject to certain of the same expenses, however, the front-end sales charge
for Class F Shares is 1.00%, which is lower than that for Class A Shares.
Expense differences, however, between Class A Shares, Class B Shares, Class
C Shares, and Class F Shares may affect the performance of each class.

To obtain more information and a prospectus for Class F Shares, investors
may call 1-800-341-7400 or contact their financial institution.

APPENDIX

DESCRIPTION OF BOND RATINGS

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS

AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Corporation. 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.

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

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING

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

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 rated 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.

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

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

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

FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS

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

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

FEDERATED EQUITY INCOME
FUND, INC.

CLASS A SHARES, CLASS B
SHARES, AND CLASS C SHARES

Federated Investors Tower
Pittsburgh, PA 15222-3779

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA
15222-3779

INVESTMENT ADVISER

Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT

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

INDEPENDENT AUDITORS

Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

[Graphic]

FEDERATED EQUITY
INCOME FUND, INC.

Class A Shares, Class B Shares,
Class C Shares

PROSPECTUS
JULY 31, 1997

An Open-End, Diversified
Management Investment Company

Federated Securities Corp., Distributor

[Graphic]

Cusip 313915100
Cusip 313915209
Cusip 313915308
G00492-01 (7/97)

FEDERATED EQUITY INCOME FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES

STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus for Class A Shares, Class B Shares, and Class C Shares, and the
prospectus for Class F Shares of Federated Equity Income Fund, Inc. (the
`Fund''), dated July 31, 1997. This Statement is not a prospectus itself.
You may request a copy of either prospectus or a paper copy of this
Statement, if you received it electronically, free of charge by calling 1-
800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1997
Cusip 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407
8062806B(7/97

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVES AND POLICIES 3
Convertible Securities 3
Temporary Investments 4
Warrants 5
When-Issued and Delayed Delivery Transactions6
Repurchase Agreements 6
Futures and Options Transactions 6
Restricted and Illiquid Securities 10
Lending of Portfolio Securities 10
Reverse Repurchase Agreements 11
Portfolio Turnover 11
INVESTMENT LIMITATIONS 12
FEDERATED EQUITY INCOME FUND, INC. MANAGEMENT16
Fund Ownership 13
Directors Compensation 24
Director Liability 13
INVESTMENT ADVISORY SERVICES 26
Adviser to the Fund 26
Advisory Fees 26
BROKERAGE TRANSACTIONS 27
OTHER SERVICES 28
Fund Administration 28
Custodian and Portfolio Accountant 29
Transfer Agent 29
Independent Auditors 29
PURCHASING SHARES 29
Distribution Plan and Shareholder
Services 29
Conversion to Federal Funds 30
Purchases by Sales Representatives, Fund
Directors, and Employees 31
Exchanging Securities For Fund Shares 31
Determining Net Asset Value 32
Determining Market Value of Securities 32
REDEEMING SHARES 35
Redemption in Kind 35
Contingent Deferred Sales Charge 35
TAX STATUS 35
The Fund's Tax Status 35
Shareholders' Tax Status 36
TOTAL RETURN 36
YIELD 38
CURRENT DISTRIBUTIONS 38
PERFORMANCE COMPARISONS 39
Economic and Market Information 21
ABOUT FEDERATED INVESTORS 41
Mutual Fund Market 42
Institutional Clients 42
Bank Marketing 43
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 43
FINANCIAL STATEMENTS 43

GENERAL INFORMATION ABOUT THE FUND

The Fund was incorporated under the laws of the State of Maryland on July
29, 1986. It is qualified to do business as a foreign corporation in
Pennsylvania. On February 26, 1996, the Board of Directors approved an
amendment to the Articles of Incorporation of the Fund to change the name
of the Fund from Liberty Equity Income Fund, Inc. to Federated Equity
Income Fund, Inc. On December 21, 1992, shareholders of the Fund approved
changing the name of the Fund from Convertible Securities and Income, Inc.,
to Liberty Equity Income Fund, Inc. Shares of the Fund are offered in four
classes known as Class A Shares, Class B Shares, Class C Shares, and Class
F Shares (individually and collectively referred to as `Shares,'' as the
context may require). This Statement of Additional Information relates to
all classes of Shares of the Fund.
INVESTMENT OBJECTIVES AND POLICIES

The Fund's investment objective is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders.
CONVERTIBLE SECURITIES
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possiblility of unlimited upside
potential if the price of the underlying common stock exceeds a certain
level. DECS convert to common stock at maturity. The amount received is
dependent on the price of the common at the time of maturity. DECS contain
two call options at different strike prices. The DECS participate with the
common up to the first call price. They are effectively capped at that
point unless the common rises above a second price point, at which time
they participate with unlimited upside potential.
PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is
limited to a predetermined level. PERCS are less risky and less volatile
than the underlying common stock because their superior income mitigates
declines when the common falls, while the cap price limits gains when the
common rises.
TEMPORARY INVESTMENTS
The temporary investments in which the Fund may invest include, but are not
limited to:
o commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group,
Prime-1 or Prime-2 by Moody's Investors Service, Inc., or F-1 or F-2 by
Fitch Investors Service, Inc., and Europaper rated A-1, A-2, Prime-1,
or Prime-2. In the case where commercial paper or Europaper has
received different ratings from different rating services, such
commercial paper or Europaper is an acceptable temporary investment so
long as at least one rating is one of the preceding high-quality
ratings and provided the Fund's investment Adviser, Federated Advisers
(the ``Adviser'), has determined that such investment presents minimal
credit risks;
o instruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over $100,000,000,
or if the principal amount of the instrument is insured by the Federal
Deposit Insurance Corporation. These instruments may include Eurodollar
Certificates of Deposits (``ECDs'), Yankee Certificates of Deposit
(``Yankee CDs'), and Eurodollar Time Deposits (``ETDs'');
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o other short-term instruments which are not rated but are determined by
the Adviser to be of comparable quality to the other temporary
obligations in which the Fund may invest.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks
than domestic obligations of domestic banks or corporations. Examples
of these risks include international economic and political
developments, foreign governmental restrictions that may adversely
affect the payment of principal or interest, foreign withholding or
other taxes on interest income, difficulties in obtaining or enforcing
a judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because
the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping, and the public availability of information. These
factors will be carefully considered by the Adviser in selecting
investments for the Fund.
WARRANTS
Warrants basically are options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock
at issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual. However,
warrants have expiration dates after which they are worthless. In addition,
if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend
to be greater than the percentage increase or decrease in the market price
of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Adviser to be creditworthy pursuant
to guidelines established by the Board of Directors (the `Directors'').
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options
on portfolio securities to attempt to increase its current income.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract (`going short'') and the buyer who agrees to take
delivery of the security (`going long'') at a certain time in the
future. In the fixed-income securities market, price moves inversely
to interest rates. A rise in rates means a drop in price. Conversely,
a drop in rates means a rise in price. In order to hedge its holdings
of fixed-income securities against a rise in market interest rates,
the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., `go short'') to protect itself against the
possibility that the prices of its fixed-income securities may decline
during the Fund's anticipated holding period. The Fund would `go
long''(agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at
a specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before
a future date whether to assume a short position at the specified
price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the
hedged portfolio securities decrease in value during the term of an
option, the related futures contracts will also decrease in value and
the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale
of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the
option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the
Fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and the premium
paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio
against an increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the
fixed strike price at any time during the life of the option if the
option is exercised. As market interest rates rise, causing the prices
of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option. This
premium can offset the drop in value of the Fund's fixed-income
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then offset
the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
``MARGIN'' IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good-faith
deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have
been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called `variation margin,'' equal to the
daily change in value of the futures contract. This process is known
as `marking to market.'' Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell
the underlying security to the writer (seller) at a specified price
during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying security
upon payment of the exercise price. The Fund may only sell call
options either on securities held in its portfolio or on securities
which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration).
RESTRICTED AND ILLIQUID SECURITIES
The Fund expects that any restricted securities would be acquired either
from institutional investors who originally acquired the securities in
private placements or directly from the issuers of the securities in
private placements. Restricted securities and securities that are not
readily marketable may sell at a discount from the price they would bring
if freely marketable.
The Directors may consider the following criteria in determining the
liquidity of certain restricted securities:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
dealer undertakings to make a market in the security; and
the nature of the security and the nature of the marketplace
trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase agreement
the Fund transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. Securities in the Fund's
portfolio will be sold whenever the Adviser believes it is appropriate to
do so in light of the Fund's investment objective, without regard to the
length of time a particular security may have been held. The Adviser does
not anticipate that portfolio turnover will result in adverse tax
consequences. Any such trading will increase the Fund's portfolio turnover
rate and transaction costs. For the fiscal years ended March 31, 1997 and
1996, the portfolio turnover rates were 75% and 96%, respectively.
INVESTMENT LIMITATIONS

BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain
such short-term credits as are necessary for clearance of
transactions. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
SELLING SHORT
The Fund will not sell securities short unless during the time the
short position is open, it owns an equal amount of the securities sold
or securities readily and freely convertible into or exchangeable,
without payment of additional consideration, for securities of the
same issue as, and equal in amount to, the securities sold short; and
not more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any
borrowings are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the
borrowing. Margin deposits for the purchase and sale of financial
futures contracts and related options are not deemed to be a pledge.
INVESTING IN MINERALS OR REAL ESTATE
The Fund will not invest in oil, gas, or other mineral exploration or
development programs, or real estate, except that it may purchase
portfolio instruments issued by companies that invest in or sponsor
such interests.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that the Fund
may purchase and sell financial futures contracts and related options.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under federal securities law (except
for commercial paper issued under Section 4(2) of the Securities Act
of 1933).
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objectives, policies, and
limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities
up to one-third of the value of its total assets. This shall not
prevent the purchase or holding of corporate bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements, or other transactions which are permitted by
the Fund's investment objectives and policies.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase portfolio instruments if, as a result of
such purchase, 25% or more of the value of its total assets would be
invested in any one industry.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its total assets
in securities of one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations) or acquire more than 10%
of any class of voting securities of any issuer. For these purposes,
the Fund takes all common stock and all preferred stock of an issuer
each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
ARBITRAGE TRANSACTIONS
The Fund will not engage in arbitrage transactions.
ACQUIRING SECURITIES
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may purchase up to
10% of the voting securities of any one issuer and may exercise its
voting powers consistent with the best interests of the Fund. In
addition, the Fund, other companies advised by the Adviser, and other
affiliated companies may together buy and hold substantial amounts of
voting stock of a company and may vote together in regard to such
company's affairs. In some cases, the Fund and its affiliates might
collectively be considered to be in control of such company. In some
cases, Directors and other persons associated with the Fund and its
affiliates might possibly become directors of companies in which the
Fund holds stock.
WRITING COVERED CALL OPTIONS AND PURCHASING PUT OPTIONS
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. The Fund will
not purchase put options on securities unless the securities are held
in the Fund's portfolio. The Fund will not commit more than 5% of the
value of its total assets to premiums on open option positions.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including certain restricted securities (except for
Section 4(2) commercial paper and restricted securities which the
Adviser believes can be sold within seven days), non-negotiable time
deposits in repurchase agreements providing for settlement in more
than seven days after notice.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money, invest in reverse repurchase agreements,
pledge securities, or sell securities short in excess of 5% of the value of
its total assets during the last fiscal year and has no present intention
to do so in the current fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''

FEDERATED EQUITY INCOME FUND, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Equity Income Fund, Inc., and principal
occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Director
Attorney, Retired Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

* This Director is deemed to be an `interested person'' as defined in
the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board between
meetings of the Board.

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

FUND OWNERSHIP
As of May 8, 1997, the following shareholder of record owned 5% or more
of the outstanding Class A Shares of the Fund: Merrill Lynch Pierce Fenner
& Smith (as record owner holding Class A Shares for its clients),
Jacksonville, Florida, owned approximately 1,764,855 Class A Shares
(6.10%).
As of May 8, 1997, the following shareholder of record owned 5% or more of
the outstanding Class A Shares of the Fund: Sheldon & Co., National City
Bank, Cleveland, Ohio, owned approximately 2,197,482 Class A Shares
(7.60%).
As of May 8, 1997, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class B Shares for its clients),
Jacksonville, Florida, owned approximately 2,406,295 Class B Shares
(8.34%).
As of May 8, 1997, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class C Shares for its clients),
Jacksonville, Florida, owned approximately 2,920,296 Class C Shares
(43.89%).
As of May 8, 1997, the following shareholder of record owned 5% or more of
the outstanding Class F Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class F shares for its clients),
Jacksonville, Florida, owned approximately 1,277,764 Class F
Shares(22.44%).

DIRECTORS COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND*# FROM FUND COMPLEX+
John F. Donahue, $0 $0 for the Fund and
Chairman and Director 56 other investment companies in the Fund
Complex
J. Christopher Donahue,$0 $0 for the Fund and
Executive Vice President 18 other investment companies in the Fund
Complex
and Director
Thomas G. Bigley, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in the Fund
Complex
John T. Conroy, Jr.,$1,569.91 $119,615 for the Fund and
Director 56 other investment companies in the Fund
Complex
William J. Copeland,$1,569.91 $119,615 for the Fund and
Director 56 other investment companies in the Fund
Complex
James E. Dowd, $1,569.91 $119,615 for the Fund and
Director 56 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D.,$1,426.98 $108,725 for the Fund and
Director 56 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr.,$1,569.91 $119,615 for the Fund and
Director 56 other investment companies in the Fund
Complex
Peter E. Madden, $1,426.98 $108,725 for the Fund
and Director 56 other investment companies in the Fund
Complex
Gregor F. Meyer, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in the Fund
Complex
John E. Murray, Jr.,$1,426.98 $108,725 for the Fund and
Director 56 other investment companies in the Fund
Complex
Wesley W. Posvar, $1,426.98 $108,725 for the Fund and
Director 56 other investment companies in the Fund
Complex
Marjorie P. Smuts,$1,426.98 $108,725 for the Fund and
Director 56 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended March 31, 1997.
# The aggregate compensation is provided for the Corporation which was
comprised of one portfolio, as of
March 31, 1997.
+ The information is provided for the last calendar year.
DIRECTOR LIABILITY
The Articles of Incorporation provide that the Directors will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment Adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any 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 Fund.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the respective prospectuses. During the fiscal
years ended March 31, 1997, 1996, and 1995, the Fund's Adviser earned
$4,100,883, $1,573,643, and $960,072, respectively, of which $0, $ 418,318
, and $570,904, respectively, were voluntarily waived because of
undertakings to limit the Fund's expenses.
BROKERAGE TRANSACTIONS

The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund or
to the Adviser and may include: advice as to the advisability of investing
in securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the Adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The Adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the
fiscal years ended March 31, 1997, 1996, and 1995, the Fund paid total
brokerage commissions of $1,109,630, $611,535, and $363,114,
respectively.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the respective prospectuses. From March 1, 1994, to March 1,
1996, Federated Administrative Services, a subsidiary of Federated
Investors, served as the Fund's Administrator. For purposes of this
Statement of Additional Information, Federated Services Company and
Federated Administrative Services may hereinafter collectively be referred
to as the `Administrators''. For the fiscal years ended March 31, 1997,
1996, and 1995, the Administrators earned $516,371, $214,999, and $200,945,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA.
PURCHASING SHARES

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

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

If an additional purchase of Class A Shares and Class F Shares is made,
the Fund will consider the previous purchases still invested in the Fund.
For example, if a shareholder already owns Class A Shares having a current
value at the public offering price of $90,000 and he purchases $10,000 more
at the current public offering price, the sales charge on the additional
purchase according to the schedule now in effect would be 3.75%, not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Class A Shares or Class F Shares are
already owned or that purchases are being combined. The Fund will reduce
the sales charge after it confirms the purchases.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
reduction, a shareholder has the privilege of combining concurrent
purchases of Class A Shares or Class F Shares of two or more funds for
which affiliates of Federated Investors serve as investment adviser and
principal underwriter (the `Federated Funds''), the purchase price of
which includes a sales charge. For example, if a shareholder concurrently
invested $30,000 in the Class A Shares of one of the other Federated Funds
with a sales charge, and $20,000 in this Fund, the sales charge would be
reduced.

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

LETTER OF INTENT. If a shareholder intends to purchase at least $50,000
of Class A Shares or at least $1 million of Class F Shares of Federated
Funds (excluding money market funds) over the next 13 months, the sales
charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% (in the case of Class A
Shares) or 1.00% (in the case of Class F Shares) of the total amount
intended to be purchased in escrow (in shares) until such purchase is
completed.

The Shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is
not purchased, an appropriate number of escrowed Shares may be redeemed in
order to realize the difference in the sales charge.
While this letter of intent will not obligate the shareholder to purchase
Class A Shares or Class F Shares, each purchase during the period will be
at the sales charge applicable to the total amount intended to be
purchased. At the time a letter of intent is established, current balances
in accounts in any Class A Shares or Class F Shares of any Federated Funds,
excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will
not be adjusted.

REINVESTMENT PRIVILEGE. If Class A Shares or Class F Shares in the Fund
have been redeemed, the shareholder has the privilege, within 120 days, to
reinvest the redemption proceeds at the next-determined net asset value
without any sales charge. Federated Securities Corp. must be notified by
the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder
redeems his Class A Shares or Class F Shares in the Fund, there may be tax
consequences.

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

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to all classes of Shares, the Fund has adopted a Distribution
Plan in accordance with Investment Company Act Rule 12b-1. Additionally,
the Fund has adopted a Shareholder Services Agreement with respect to all
classes of Shares.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expects that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended March 31, 1997, payment in the amounts of
$1,645,601 (Class B Shares), $556,995 (Class C Shares) and $176,501 (Class
F Shares), were made pursuant to the Distribution Plans. The Fund is not
currently making payments under the Distribution Plan for Class A Shares,
nor does it anticipate doing so in the immediate future. In addition, for
the fiscal year ended March 31, 1997, payment in the amounts of $798,002
(Class A Shares), $548,534 (Class B Shares), $185,665 (Class C Shares), and
$176,501 (Class F Shares), was made pursuant to the Shareholder Services
Agreement, of which $127,680 (Class A Shares), $0 (Class B Shares), $0
(Class C Shares), and $7,703 (Class F Shares) was waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Shareholders Services acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
The following individuals and their immediate family members may buy
Class A Shares at net asset value without a sales charge:

Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. and its affiliates;

Federated Life Members; and

any associated pereson of an investment dealer who has a sales agreement
with Federated Securities Corp. Shares may also be sold without a sales
charge to trusts, pensions, or profit-sharing plans for these individuals.

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

EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for
Shares, or they may exchange a combination of convertible securities and
cash for Shares. Any securities to be exchanged must meet the investment
objective and policies of the Fund, must have a readily ascertainable
market value, and must not be subject to restrictions on resale.
The Fund will prepare a list of securities which are eligible for
acceptance and furnish this list to brokers upon request. The Fund reserves
the right to reject any security, even though it appears on the list, and
the right to amend the list of acceptable securities at any time without
notice to brokers or investors.
An investment broker acting for an investor should forward the securities
in negotiable form with an authorized letter of transmittal to Federated
Securities Corp. Federated Securities Corp. will determine that transmittal
papers are in good order and will forward them to the Fund's custodian,
State Street Bank and Trust Company. The Fund will notify the broker of its
acceptance and valuation of the securities within five business days of
their receipt by State Street Bank and Trust Company.
The Fund values such securities in the same manner as the Fund values its
portfolio securities. The basis of the exchange will depend upon the net
asset value of Shares on the day the securities are valued. One Share will
be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription, conversion, or other rights attached to the securities become
the property of the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE

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

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

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

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

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

ofor short-term obligations, according to the prices as furnished by an
independent pricing service or for short-term obligations with remaining
maturities of 60 days or less at the time of purchase, at amortized cost or
at fair value as determined in good faith by the Directors.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data.
REDEEMING SHARES

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

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

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

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

Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
CONTINGENT DEFERRED SALES CHARGE
In computing the amount of the applicable Contingent Deferred Sales Charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains;
(2) Shares held for more than seven full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase
with respect to Class C Shares; (3) Shares held for fewer than seven years
with respect to Class B Shares and for less than one full year from the
date of purchase with respect to Class C Shares on a first-in, first-out
basis.

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

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The dividends received
deduction for corporations will apply to ordinary income distributions to
the extent the distribution represents amounts that would qualify for the
dividends received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so qualifying.
These dividends, and any short-term capital gains, are taxable as ordinary
income.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio
securities and as a result of discounts from par value on securities
held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the Shares. Any loss by a shareholder
on Shares held for less than six months and sold after a capital gains
distribution will be treated as a long-term capital loss to the extent
of the capital gains distribution.
TOTAL RETURN

The Fund's average annual total returns for the following periods ended
March 31, 1997 were:

DATE OF
INITIAL
SHARE CLASS PUBLIC ONE-YEAR FIVE-YEARS TEN-YEARS SINCE
INCEPTION
INVESTMENT
Class A 12/30/86 12.28% 14.72% 12.17% 12.53%
Class B 9/27/94 12.02% - - 18.88%
Class C 5/3/93 16.84% - - 15.11%
Class F 11/12/93 16.29% - - 14.12%
The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price per
Share at the end of the period. The number of Shares owned at the end of
the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming a quarterly reinvestment of all
dividends and distributions. Any applicable contingent deferred sales
charge is deducted from the ending value of the investments based on the
lesser of the original purchase price or the offering price of Shares
redeemed.
Cumulative total return reflects Class B Shares' total performance over a
specific period of time. This total return assumes and is reduced by the
payment of the maximum sales charge and contingent deferred sales charge,
if applicable. The Class B Shares' total return is representative of only
six months of investment activity since the date of initial public
offering.
YIELD

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

SHARE CLASS YIELD
Class A 2.28%
Class B 1.60%
Class C 1.60%
Class F 2.10%
The yield for all classes of Shares of the Fund is determined by dividing
the net investment income per Share (as defined by the Securities and
Exchange Commission) earned by any class of Shares over a thirty-day period
by the maximum offering price per Share of any class of Shares on the last
day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by any class of Shares because of certain
adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
CURRENT DISTRIBUTIONS

Class A Shares', Class B Shares', Class C Shares', and Class F Shares
average net annualized current distributions rate for the thirty days ended
March 31, 1997, were 4.36%, 3.86%, 3.84% and 4.32%, respectively.
Each class of Shares calculates its current distributions daily based upon
its past twelve months' income dividends and short-term capital gains
distributions per Share divided by its offering price per Share on that
day. Each class of Shares may reduce the time period upon which it bases
its calculation of current distributions if the Adviser believes a
shortened period would be more representative in light of current market
conditions.
PERFORMANCE COMPARISONS

The Fund's performance of each class of Shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
The Fund may compare the performance of equity income funds to other types
of stock funds and indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and
income dividends and takes into account any change in net asset value
over a specific period of time. From time to time, the Fund will quote
its Lipper ranking in the convertible securities and fixed income funds
categories in advertising and sales literature.
o DOW JONES INDUSTRIAL AVERAGE (``DJIA') represents share prices of
selected blue-chip industrial corporations as well as public utility
and transportation companies. The DJIA indicates daily changes in the
average price of stocks in any of its categories. It also reports total
sales for each group of industries. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator
for the stock market as a whole.
o STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON
STOCKS is a composite index of common stocks in industry,
transportation, and financial and public utility companies which
compares total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes
due on any of these distributions are not included, nor are brokerage
or other fees calculated, in the Standard & Poor's figures.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their risk-
adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o LEHMAN BROTHERS HIGH YIELD INDEX covers the universe of fixed
rate, publicly issued, noninvestment grade debt registered with the
SEC. All bonds included in the High Yield Index must be dollar-
denominated and nonconvertible and have at least one year remaining to
maturity and an outstanding par value of at least $100 million.
Generally securities must be rated Ba1 or lower by Moody's Investors
Service, including defaulted issues. If no Moody's rating is available,
bonds must be rated BB+ or lower by S&P; and if no S&P rating is
available, bonds must be rated below investment grade by Fitch
Investor's Service. A small number of unrated bonds is included in the
index; to be eligible they must have previously held a high yield
rating or have been asociated with a high yield issuer, and must trade
accordingly.
In addition, the Fund will, from time to time, use the following standard
convertible securities indices against which it will compare its
performance: Goldman Sachs Convertible 100; Kidder Peabody Convertible Bond
Index; Value Line Convertible Bond Index; and Dow Jones Utility Index.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These
total returns also represent the historic change in the value of an
investment in any class of Shares based on quarterly reinvestment of
dividends over a specified period of time.
From time to time, the Fund may advertise the performance of any class of
Shares using charts, graphs, and descriptions, compared to federally
insured bank products, including certificates of deposit and time deposits,
and to money market funds using the Lipper Analytical Services money market
instruments average. In addition, advertising and sales literature for the
Fund may use charts and graphs to illustrate the principals of dollar-cost
averaging and may disclose the amount of dividends paid by the Fund over
certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of a sales charge or contingent deferred sales charge, as
applicable.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume. I
In the equity sector, Federated Investors has more than 25 years'
experience. As of December 31, 1996, Federated Investors managed 31 equity
funds totaling approximately $7.6 billion in assets across growth, value,
equity income, international, index and sector (i.e. utility) styles.
Federated'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.
In the corporate bond sector, as of December 31, 1996, Federated
Investors managed 10 money market funds, and 14 bond funds with assets
approximating $17.2 billion, and $4.0 billion, respectively. Federated's
corporate bond decision making-based on intensive, diligent credit
analysis-is backed by over 21 years of experience in the corporate bond
sector. In 1972, Federated Investors introduced one of the first high-yield
bond funds in the industry. In 1983, Federated Investors was one of the
first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high yield corporate bond management while William D.
Dawson, Executive Vice President, oversees Federated Investors' domestic
fixed income management. Henry A. Frantzen, Executive Vice President,
oversees the management of Federated Investors' international and global
portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive 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 Investor's service to financial
professionals and institutions has earned it high rankings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement.. The marketing effort to these
firms is headed by James F. Getz, President, Federated Securities
Corp..

* source: Investment Company Institute

FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended March 31, 1997, are
incorporated herein by reference to the Annual Report of the Fund dated
March 31, 1997 (File Nos. 33-6901 and 811-4743). A copy of this Report may
be obtained without charge by contacting the Fund.

PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (Incorporated by reference to the
Annual Report of the Registrant dated March 3l, l997
pursuant to Rule 411 under the Securities Act of 1933.)
(File Nos. 33-6901 and 811-4743);
(b) Exhibits:
(1) Copy of Articles of Incorporation of the Registrant, as
amended; (2)
(2) (i)Copy of By-Laws of the Registrant as Restated and
Amended; (3)
(ii)Copy of Amendment to By-Laws effective August 28,
1987; (4)
(iii)Copy of Amendment to By-Laws effective
November 19, 1987; (4)
(3) Not applicable;
(4) Copies of Specimen Certificates for Shares of Capital
Stock for Class A Shares, Class B Shares, Class C
Shares, and Class F Shares of the Registrant; +
(5) Conformed copy of Investment Advisory Contract of the
Registrant; (5)
(6) (i)Conformed copy of Distributor's Contract through
and including Exhibit C; (11)
(ii)Conformed copy of Exhibit D to the Distributor's
Contract; +
(iii)iii) The Registrant hereby incorporates the
conformed copy of the specimen Mutual Funds Sales
and Service Agreement; Mutual Funds Service
Agreement from Item 4(b)(6) of the Cash Trust
Series II Registration Statement on Form N-1A,
filed with the Commission on July 24, 1995. (File
Numbers 33-38550 and 811-6269)
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the Registrant
(9);
(9) (i) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement of the Registrant; (11)
(ii) The responses described in Item 24(b)(6) are
hereby incorporated by reference.
(iii) The Registrant hereby incorporates the conformed
copy of the Shareholder services Sub-Contract between
National Pensions Alliance, Ltd. and Federated
Shareholder Services from Item 24(b)(9)(ii) of the
Federated GNMA Trust Registration Statement on Form N-
1A, filed with the Commission on March 26, 1996. (File
Nos. 2-75670 and 811-3375).
+ All exhibits have been filed electronically.

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed December 15, 1986 (File Nos.
33-6901 and 811-4743).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed May 18, 1988 (File Nos. 33-6901 and
811-4743).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed July 19, 1988 (File Nos. 33-6901
and 811-4743).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed July 28, 1989 (File Nos. 33-6901
and 811-4743).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed May 29, 1996 (File Nos. 33-6901
and 811-4743).

(iv) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract between
Fidelity and Federated Shareholder Services from Item
24(b)(9)(iii) of the Federated GNMA Trust Registration
statement on Form N-1A, filed with the Commission on
March 26, 1996. (File Nos. 2-75670 and 811-3375).
(10) Not applicable;
(11) Conformed copy of Consent of Independent Auditors;+
(12) Not applicable;
(13) Copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) (i)Copy of Dealer Agreement; (3)
(ii)Copy of Rule 12b-1 Plan of the Registrant,
through and including Exhibit B; (11)
(iii)Conformed Copy of Exhibit C to the Rule 12b-1
Plan; +
(16) Schedule for Computation of Performance Data; (4)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates the conformed copy
of the specimen Multiple Class Plan from Item 24(b)(18)
of the World Investment series, Inc. Registration
Statement on Form N-1A, filed with the Commission on
January 26, 1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed copy of Power of Attorney; +

+ All exhibits have been filed electronically.

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed December 15, 1986 (File Nos.
33-6901 and 811-4743).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed May 18, 1988 (File Nos. 33-6901 and
811-4743).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed July 19, 1988 (File Nos. 33-6901
and 811-4743).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed May 29, 1996 (File Nos. 33-6901
and 811-4743).

Item 25. Persons Controlled by or Under Common Control with Registrant:
None

Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 8, 1997
Shares of capital stock
($0.001 per Share par value)
Class A Shares 22,652
Class B Shares 31,451
Class C Shares 4,681
Class F Shares 4,647

Item 27. Indemnification: (5.)

Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment
adviser, see the section entitled "Fund Information - Management
of the Fund" in Part A. The affiliations with the Registrant of
four of the Trustees and one of the Officers of the investment
adviser are included in Part A of this Registration Statement
under "Management of the Fund - Officers and Directors." The
remaining Trustee of the investment adviser, his position with
the investment adviser, and, in parentheses, his principal
occupation is: Mark D. Olson, Partner, Halbrook & Bayard, 107
West Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are: William D.
Dawson, III, Henry A. Frantzen, and J. Thomas Madden, Executive
Vice Presidents; Peter R. Anderson, Drew J. Collins, Jonathan C.
Conley, Deborah A. Cunningham, Mark Durbiano, J. Alan Minteer,
Susan Nason, and Mary Jo Ochson, Senior Vice Presidents; J. Scott
Albrecht, Joseph M. Balestrino, Randall S. Bauer, David F.
Belton, Christine A. Bosio, David A. Briggs, Kenneth J. Cody,
Alexandre de Bethmann, Michael P. Donnelly, Michael J. Donnelly,
Linda A. Duessel, Kathleen M. Foody-Malus, Thomas M. Franks,
Edward C. Gonzales, James E. Grefenstette, Susan R. Hill, Stephen
A. Keen, Robert M. Kowit, Jeff A. Kozemchek, Marian R. Marinack,
Sandra L. McInerney, Robert J. Ostrowski, Charles A. Ritter,
Scott B. Schermerhorn, Frank Semack, William F. Stotz, Edward J.
Tiedge, Paige M. Wilhelm, Jolanta M. Wysocka, Vice Presidents;
Thomas R. Donahue, Treasurer, and Stephen A. Keen, Secretary.
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, Pittsburgh, PA 15222-3779.
These individuals are also officers of a majority of the
investment advisers to the Funds listed in Part B of this
Registration Statement.

+ All exhibits have been filed electronically.

5. Response is incorporated by reference to Registrant's Post-effective
Amendment No. 6 on Form N-1A filed July 28, 1989 (File Nos. 33-6901
and 811-4743).

Item 29. Principal Underwriters:

(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; BayFunds; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
Peachtree Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Biltmore Funds;
The Biltmore Municipal Funds; The Monitor Funds; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; Tower Mutual
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Group of Funds, Inc.; Wesmark Funds; and World
Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Thomas R. Donahue Director, Asst. Secretary, --
Federated Investors Tower Asst. Treasurer, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Shareholder
Services Company P.O. Box 8600
("Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and Portfolio
Recordkeeper")

Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")

Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779

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

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED EQUITY INCOME
FUND, INC., has duly caused this Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 30th day of
May, 1997.

FEDERATED EQUITY INCOME FUND, INC.

BY: /s/Matthew S. Hardin
Matthew S. Hardin, Assistant Secretary
Attorney in Fact for John F. Donahue
May 30, 1997

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:

NAME TITLE DATE

By:/s/Matthew S. Hardin
Matthew S. Hardin Attorney In Fact May 30,1997
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Director
(Chief Executive Officer)

Richard B. Fisher* President

J. Christopher Donahue* Executive Vice President and Director

John W. McGonigle* Treasurer, Executive Vice President
and Secretary
(Principal Financial and Accounting
Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

Gregor F. Meyer* Director

John E. Murray, Jr. Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

* By Power of Attorney

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions `Financial
Highlights''in Post-Effective Amendment Number 22 to the Registration
Statement (Form N-1A No. 33-6901) and the related Prospectuses of Federated
Equity Income Fund, Inc. dated July 31, 1997 and to the incorporation
therein of our report dated May 12, 1997 on the financial statements and
financial highlights of Federated Equity Income Fund, Inc. included in its
Annual Report to Shareholders for the year ended March 31, 1997.

By:ERNST & YOUNG
Ernst & Young
Pittsburgh, Pennsylvania
May 27, 1997

Exhibit 4 under Form N-1A
Exhibit 4 under Item 601/Reg. S-K

FEDERATED EQUITY INCOME FUND, INC.
(CLASS A SHARES)

Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions

Incorporated Under The Laws Of The State Of Maryland

THIS IS TO CERTIFY THAT is the owner of

CUSIP313915100

Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EQUITY
INCOME FUND, INC. (CLASS A SHARES) hereafter called the `Company'',
transferable on the books of the Company by the owner in person or by duly
authorized attorney upon surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to
the provisions of the Articles of Incorporation and By-Laws of the Company
and all amendments thereto, all of which the holder by acceptance hereof
assents.

This Certificate is not valid unless countersigned by the Transfer
Agent.

IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its seal.

Dated: FEDERATED EQUITY INCOME FUND, INC.
Corporate Seal
1986
Maryland

/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman

Countersigned: Federated Shareholder
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in
full according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN
ACT-...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)

Additional abbreviations may also be used though not in the above
list.

For value received hereby sell, assign, and transfer unto
----------

Please insert social security or other
identifying number of assignee

===========================================================================
(Please print or typewrite name and address, including zip code, of
assignee)

- --

of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint

===========================================================================
to transfer the said shares on the books of the within named Company with
full power of substitution in the premises.

Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must
correspond with the name as written upon the
face of the certificate in every particular,
without alteration or enlargement or any
change whatever.

All persons dealing with FEDERATED EQUITY INCOME FUND, INC., a Maryland
corporation, must look solely to the Company property for the enforcement
of any claim against the Company, as the Directors, officers, agents or
shareholders of the Company assume no personal liability whatsoever for
obligations entered into on behalf of the Company.
THIS SPACE MUST NOT BE COVERED IN ANY WAY

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One

A. The Certificate is outlined by an (color) one-half inch border.

B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Maryland corporate seal appears in the bottom middle of the page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

FEDERATED EQUITY INCOME FUND, INC.
(CLASS B SHARES)

Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions

Incorporated Under The Laws Of The State Of Maryland

THIS IS TO CERTIFY THAT is the owner of

CUSIP313915209

Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EQUITY
INCOME FUND, INC. (CLASS B SHARES) hereafter called the `Company'',
transferable on the books of the Company by the owner in person or by duly
authorized attorney upon surrender of this certificate properly endorsed.

The shares represented hereby are issued and shall be held subject to
the provisions of the Articles of Incorporation and By-Laws of the Company
and all amendments thereto, all of which the holder by acceptance hereof
assents.

This Certificate is not valid unless countersigned by the Transfer
Agent.

IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its seal.

Dated: FEDERATED EQUITY INCOME FUND, INC.
Corporate Seal
1986
Maryland

/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman

Countersigned: Federated Shareholder
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in
full according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN
ACT-...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)

Additional abbreviations may also be used though not in the above
list.

For value received hereby sell, assign, and transfer unto
----------

Please insert social security or other
identifying number of assignee

===========================================================================
(Please print or typewrite name and address, including zip code, of
assignee)

of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint

===========================================================================
to transfer the said shares on the books of the within named Company with
full power of substitution in the premises.

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE

Page One

A. The Certificate is outlined by an (color) one-half inch border.

B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Maryland corporate seal appears in the bottom middle of the page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

FEDERATED EQUITY INCOME FUND,INC.
(CLASS C SHARES)

Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions

Incorporated Under The Laws Of The State Of Maryland

THIS IS TO CERTIFY THAT is the owner of

CUSIP313915308

Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EQUITY
INCOME FUND, INC.(CLASS C SHARES) hereafter called the `Company'',
transferable on the books of the Company by the owner in person or by duly
authorized attorney upon surrender of this certificate properly endorsed.

This Certificate is not valid unless countersigned by the Transfer
Agent.

IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its seal.

Dated: FEDERATED EQUITY INCOME FUND, INC.
Corporate Seal
1986
Maryland

/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman

Countersigned: Federated Shareholder
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature

Additional abbreviations may also be used though not in the above
list.

For value received hereby sell, assign, and transfer unto
----------

Please insert social security or other
identifying number of assignee

===========================================================================
(Please print or typewrite name and address, including zip code, of
assignee)

shares
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint

===========================================================================
to transfer the said shares on the books of the within named Company with
full power of substitution in the premises.

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE

Page One

A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Maryland corporate seal appears in the bottom middle of the page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

FEDERATED EQUITY INCOME FUND, INC.
(CLASS F SHARES)

Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions

Incorporated Under The Laws Of The State Of Maryland

THIS IS TO CERTIFY THAT is the owner of

CUSIP313915407

Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED EQUITY
INCOME FUND, INC. (CLASS F SHARES) hereafter called the `Company'',
transferable on the books of the Company by the owner in person or by duly
authorized attorney upon surrender of this certificate properly endorsed.

The shares represented hereby are issued and shall be held subject to
the provisions of the Articles of Incorporation and By-Laws of the Comapany
and all amendments thereto, all of which the holder by acceptance hereof
assents.

This Certificate is not valid unless countersigned by the Transfer
Agent.

IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its seal.

Dated: FEDERATED EQUITY INCOME FUND, INC.
Corporate Seal
1986
Maryland

/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman

Countersigned: Federated Shareholder
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature

Additional abbreviations may also be used though not in the above
list.

For value received hereby sell, assign, and transfer unto
----------

Please insert social security or other
identifying number of assignee

===========================================================================
(Please print or typewrite name and address, including zip code, of
assignee)

of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint

===========================================================================
to transfer the said shares on the books of the within named Company with
full power of substitution in the premises.

All persons dealing with FEDERATED EQUITY INCOME FUND, INC., a Maryland
corporation, must look solely to the Company property for the enforcement
of any claim against the Company, as the Trustees, officers, agents or
shareholders of the Company assume no personal liability whatsoever for
obligations entered into on behalf of the Company.
THIS SPACE MUST NOT BE COVERED IN ANY WAY

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE

Page One

A. The Certificate is outlined by an (color) one-half inch border.

B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Maryland corporate seal appears in the bottom middle of the page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

Exhibit D
to the
Distributor's Contract

LIBERTY EQUITY INCOME FUND, INC.
CLASS B SHARES

The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 1st day of March, 1993, between Liberty
Equity Income Fund, Inc. and Federated Securities Corp. with respect to
Classes of the Funds set forth above.

1. The Corporation hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-listed
Classes (`Shares'). Pursuant to this appointment, FSC is authorized to
select a group of brokers (`Brokers'') to sell Shares at the current
offering price therof as described and set forth in the respective
prospectuses of the Corporation, and administrators (`Administrators'') to
render administrative support services to the Corporation and its
shareholders. In addition, FSC is authorized to select a group of
administrators (`Administrators'') to render administrative support
services to the Corporation and its shareholders.
2. Administrative support services may include, but are not
limited to, the following functions: 1) account openings: the Broker of
Administrator communicates account openings via computer terminals located
on the Broker's or Administrator's premises; 2) account closings: the
Broker of Administrator communicates account closings via computer
terminals; 3) enter purchase transactions: purchase transactions are
entered through the Broker's or Administrator's own personal computer of
through the use of a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption transactions in
the same manner as purchases; 5) account maintenance: Broker or
Administrator provides or arranges to provide accounting support for all
transactions. Broker or Administrator also wires funds and receives funds
for Corporation share purchases and redemptions, confirms and reconciles
all transactions, reviews the activity in the Corporation's accounts, and
provides training and supervision of its personnel: 6) interest posting:
Broker or Administrator posts and reinvests dividends to the Corporation's
accounts: 7) prospectus and shareholder reports: Broker or Administrator
maintains and distributes current copies of prospectuses and Shareholder
reports: 8) advertisements: the Broker or Administrator continuously
advertises the availability of its services and products; 9) customer
lists: the Broker or Administrator continuously provides names of
potential customers; 10) design services: the Broker or Administrator
continuously designs material to send to customers and develops methods of
making such materials accessible to customers; and

11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Corporation will pay FSC
for services pursuant to this Agreement, a monthly fee computed at the
annual rate of .25 of 1.00% of the average aggregate net asset value of the
Class B Shares held during the month. For the month in which this Agreement
becomes effective of terminates, there shall be an appropriate proration of
any fee payable on the basis of the number of days that the Agreement is in
effect during the month.

4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Classes' expenses
exceed such lower expense limitation as FSC may, by notice to the
Corporation, voluntarily declare to be effective.

5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1 herein.
FSC, in its sole discretion, may pay Brokers and Administrators a periodic
fee in respect of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid shall be determined from time to time by FSC in its sole
discretion.

6. FSC will prepare reports to the Board of Directors of the
Corporation of the Corporation on a quarterly basis showing amounts
expended hereunder including amounts paid to Brokers and Administrators and
the purpose for such payments.

16
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1993, between Liberty Equity Income
Fund, Inc. and Federated Securities Corp., Liberty Equity Income Fund, Inc.
executes and delivers this Exhibit on behalf of the Funds, and with respect
to the separate Classes of Shares thereof, first set forth in this Exhibit.

Witness the due execution hereof this 1st day of September, 1994.

ATTEST: LIBERTY EQUITY INCOME FUND, INC.

/s/ John McGonigle By: /s/ Richard B. Fisher
Secretary
President

(SEAL)

ATTEST: FEDERATED SECURITIES CORP.

/s/ S. Elliott Cohan By: /s/ E. C. Gonzales
Secretary Executive Vice President

(SEAL)

Exhibit 15(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

EXHIBIT C
to the
12b-1 Plan

LIBERTY EQUITY INCOME FUND, INC.

CLASS B SHARES

This Plan is adopted by LIBERTY EQUITY INCOME FUND, INC. with respect
to the Class of Shares of the Corporation set forth above.

In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of the
average aggregate net asset value of the Class B Shares of the Corporation
held during the month.

Witness the due execution hereof this 1st day of September, 1994.

LIBERTY EQUITY INCOME FUND, INC.

By: /s/ Richard B. Fisher
President

Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FEDERATED EQUITY
INCOME FUND, INC.
and the Deputy General Counsel of Federated Services Company, and each of
them, their true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed
with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, by means of the Securities and Exchange Commission's electronic
disclosure system known as EDGAR; and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/JOHN F. DONAHUE Chairman and Director May 1, 1997
John F. Donahue (Chief Executive Officer)

/s/RICHARD B. FISHER President May 1, 1997
Richard B. Fisher

/s/J. CHRISTOPHER DONAHUE Executive Vice PresidentMay 1, 1997
J. Christopher Donahue and Director

/s/JOHN W. MCGONIGLE Treasurer, Executive ViceMay 1, 1997
John W. McGonigle President and Secretary
(Principal Financial and
Accounting Officer)

/s/THOMAS G. BIGLEY Director May 1, 1997
Thomas G. Bigley

/s/JOHN T. CONROY, JR. Director May 1, 1997
John T. Conroy, Jr.

SIGNATURES TITLE DATE

/s/WILLIAM J. COPELAND Director May 1, 1997
William J. Copeland

/s/JAMES E. DOWD Director May 1, 1997
James E. Dowd

/s/LAWRENCE D. ELLIS, M.D. Director May 1, 1997
Lawrence D. Ellis, M.D.

/s/EDWARD L. FLAHERTY, JR. Director May 1, 1997
Edward L. Flaherty, Jr.

/s/PETER E. MADDEN Director May 1, 1997
Peter E. Madden

/s/GREGOR F. MEYER Director May 1, 1997
Gregor F. Meyer

/s/JOHN E. MURRAY, JR. Director May 1, 1997
John E. Murray, Jr.

/s/WESLEY W. POSVAR Director May 1, 1997
Wesley W. Posvar

/s/MARJORIE P. SMUTS Director May 1, 1997
Marjorie P. Smuts

Sworn to and subscribed before me this 1st day of May, 1997

/s/MARIE M. HAMM
Marie M. Hamm

Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Oct. 9, 2000
Member, Pennsylvania Association of Notaries

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Federated Equity Income Fund, Inc.
Class A Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 950,275,019
<INVESTMENTS-AT-VALUE> 1,031,978,655
<RECEIVABLES> 13,835,221
<ASSETS-OTHER> 10,781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,045,824,657
<PAYABLE-FOR-SECURITIES> 2,067,233
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,759,224
<TOTAL-LIABILITIES> 5,826,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 925,189,537
<SHARES-COMMON-STOCK> 27,656,479
<SHARES-COMMON-PRIOR> 15,450,868
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (819,524)
<ACCUMULATED-NET-GAINS> 33,924,551
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81,703,636
<NET-ASSETS> 431,280,796
<DIVIDEND-INCOME> 20,671,620
<INTEREST-INCOME> 4,960,286
<OTHER-INCOME> 0
<EXPENSES-NET> 9,900,846
<NET-INVESTMENT-INCOME> 15,731,060
<REALIZED-GAINS-CURRENT> 50,872,590
<APPREC-INCREASE-CURRENT> 42,343,319
<NET-CHANGE-FROM-OPS> 108,946,969
<EQUALIZATION> 480,911
<DISTRIBUTIONS-OF-INCOME> 8,786,457
<DISTRIBUTIONS-OF-GAINS> 16,098,902
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,344,330
<NUMBER-OF-SHARES-REDEEMED> 5,333,044
<SHARES-REINVESTED> 1,194,325
<NET-CHANGE-IN-ASSETS> 648,843,263
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 16,113,883
<OVERDISTRIB-NII-PRIOR> (212,388)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,100,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,036,229
<AVERAGE-NET-ASSETS> 686,448,890
<PER-SHARE-NAV-BEGIN> 14.260
<PER-SHARE-NII> 0.420
<PER-SHARE-GAIN-APPREC> 2.160
<PER-SHARE-DIVIDEND> 0.410
<PER-SHARE-DISTRIBUTIONS> 0.840
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.590
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Federated Equity Income Fund, Inc.
Class B Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 950,275,019
<INVESTMENTS-AT-VALUE> 1,031,978,655
<RECEIVABLES> 13,835,221
<ASSETS-OTHER> 10,781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,045,824,657
<PAYABLE-FOR-SECURITIES> 2,067,233
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,759,224
<TOTAL-LIABILITIES> 5,826,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 925,189,537
<SHARES-COMMON-STOCK> 26,847,803
<SHARES-COMMON-PRIOR> 4,981,062
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (819,524)
<ACCUMULATED-NET-GAINS> 33,924,551
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81,703,636
<NET-ASSETS> 418,675,410
<DIVIDEND-INCOME> 20,671,620
<INTEREST-INCOME> 4,960,286
<OTHER-INCOME> 0
<EXPENSES-NET> 9,900,846
<NET-INVESTMENT-INCOME> 15,731,060
<REALIZED-GAINS-CURRENT> 50,872,590
<APPREC-INCREASE-CURRENT> 42,343,319
<NET-CHANGE-FROM-OPS> 108,946,969
<EQUALIZATION> 480,911
<DISTRIBUTIONS-OF-INCOME> 4,349,221
<DISTRIBUTIONS-OF-GAINS> 9,615,580
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,544,007
<NUMBER-OF-SHARES-REDEEMED> 1,529,865
<SHARES-REINVESTED> 852,599
<NET-CHANGE-IN-ASSETS> 648,843,263
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 16,113,883
<OVERDISTRIB-NII-PRIOR> (212,388)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,100,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,036,229
<AVERAGE-NET-ASSETS> 686,448,890
<PER-SHARE-NAV-BEGIN> 14.260
<PER-SHARE-NII> 0.340
<PER-SHARE-GAIN-APPREC> 2.130
<PER-SHARE-DIVIDEND> 0.300
<PER-SHARE-DISTRIBUTIONS> 0.840
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.590
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> Federated Equity Income Fund, Inc.
Class C Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 950,275,019
<INVESTMENTS-AT-VALUE> 1,031,978,655
<RECEIVABLES> 13,835,221
<ASSETS-OTHER> 10,781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,045,824,657
<PAYABLE-FOR-SECURITIES> 2,067,233
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,759,224
<TOTAL-LIABILITIES> 5,826,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 925,189,537
<SHARES-COMMON-STOCK> 6,514,433
<SHARES-COMMON-PRIOR> 3,378,290
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (819,524)
<ACCUMULATED-NET-GAINS> 33,924,551
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81,703,636
<NET-ASSETS> 101,587,640
<DIVIDEND-INCOME> 20,671,620
<INTEREST-INCOME> 4,960,286
<OTHER-INCOME> 0
<EXPENSES-NET> 9,900,846
<NET-INVESTMENT-INCOME> 15,731,060
<REALIZED-GAINS-CURRENT> 50,872,590
<APPREC-INCREASE-CURRENT> 42,343,319
<NET-CHANGE-FROM-OPS> 108,946,969
<EQUALIZATION> 480,911
<DISTRIBUTIONS-OF-INCOME> 1,455,111
<DISTRIBUTIONS-OF-GAINS> 3,712,059
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,514,431
<NUMBER-OF-SHARES-REDEEMED> 687,088
<SHARES-REINVESTED> 308,800
<NET-CHANGE-IN-ASSETS> 648,843,263
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 16,113,883
<OVERDISTRIB-NII-PRIOR> (212,388)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,100,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,036,229
<AVERAGE-NET-ASSETS> 686,448,890
<PER-SHARE-NAV-BEGIN> 14.260
<PER-SHARE-NII> 0.300
<PER-SHARE-GAIN-APPREC> 2.160
<PER-SHARE-DIVIDEND> 0.290
<PER-SHARE-DISTRIBUTIONS> 0.840
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.590
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

[ARTICLE] 6
[SERIES]
[NUMBER] 004
[NAME] Federated Equity Income Fund, Inc.
Class F Shares

[PERIOD-TYPE] 12-mos
[FISCAL-YEAR-END] Mar-31-1997
[PERIOD-END] Mar-31-1997
[INVESTMENTS-AT-COST] 950,275,019
[INVESTMENTS-AT-VALUE] 1,031,978,655
[RECEIVABLES] 13,835,221
[ASSETS-OTHER] 10,781
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,045,824,657
[PAYABLE-FOR-SECURITIES] 2,067,233
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3,759,224
[TOTAL-LIABILITIES] 5,826,457
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 925,189,537
[SHARES-COMMON-STOCK] 5,672,243
[SHARES-COMMON-PRIOR] 3,626,979
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (819,524)
[ACCUMULATED-NET-GAINS] 33,924,551
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 81,703,636
[NET-ASSETS] 88,454,354
[DIVIDEND-INCOME] 20,671,620
[INTEREST-INCOME] 4,960,286
[OTHER-INCOME] 0
[EXPENSES-NET] 9,900,846
[NET-INVESTMENT-INCOME] 15,731,060
[REALIZED-GAINS-CURRENT] 50,872,590
[APPREC-INCREASE-CURRENT] 42,343,319
[NET-CHANGE-FROM-OPS] 108,946,969
[EQUALIZATION] 480,911
[DISTRIBUTIONS-OF-INCOME] 1,747,407
[DISTRIBUTIONS-OF-GAINS] 3,635,381
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,247,501
[NUMBER-OF-SHARES-REDEEMED] 523,006
[SHARES-REINVESTED] 320,769
[NET-CHANGE-IN-ASSETS] 648,843,263
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 16,113,883
[OVERDISTRIB-NII-PRIOR] (212,388)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4,100,883
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 10,036,229
[AVERAGE-NET-ASSETS] 686,448,890
[PER-SHARE-NAV-BEGIN] 14.260
[PER-SHARE-NII] 0.380
[PER-SHARE-GAIN-APPREC] 2.160
[PER-SHARE-DIVIDEND] 0.370
[PER-SHARE-DISTRIBUTIONS] 0.840
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 15.590
[EXPENSE-RATIO] 1.36
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.000
</TABLE>