FEDERATED EQUITY INCOME FUND INC, 485APOS, 1999-03-29

FEDERATED EQUITY INCOME FUND INC
485APOS, 1999-03-29

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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. 26 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 23 X

FEDERATED EQUITY INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds

5800 Corporate Drive

Pittsburgh, Pennsylvania 15237-7000

(Address of Principal Executive Offices)

(412) 288-1900

(Registrant's Telephone Number)

John W. McGonigle, Esquire
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

(Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

____ immediately upon filing pursuant to paragraph (b) ____ on _______________
pursuant to paragraph (b) ____ 60 days after filing pursuant to paragraph (a)
(i) _X__ on MAY 31, 1999, 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.

Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin and Oshinsky, LLP

2101 L Street, N.W.
Washington, D.C. 20037

PROSPECTUS

FEDERATED EQUITY INCOME FUND, INC.

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

A mutual fund seeking to provide above average income and capital appreciation
by investing primarily in income-producing equity securities.

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

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information

May 31, 1999

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in
income-producing equity securities, including securities that are convertible
into common stocks.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

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

o RISKS RELATING TO INVESTING FOR VALUE. The Fund generally uses a "value"
style of investing, so that the Fund's share price may lag that of other
funds using a different investment style.

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

<PAGE>

RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Fund's Class A Shares as of the calendar year-end
for each of 10 years.

The `y' axis reflects the "% Total Return" beginning with "-13.00%" and
increasing in increments of 10.00% up to 47.00%.

The `x' axis represents calculation periods for the last ten calendar years of
the Fund beginning with the earliest year. The light gray shaded chart features
10 distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentage for the Fund's
Class A Shares for each calendar year is stated directly at the top of each
respective bar, for the calendar years 1989 through1998, The percentages noted
are: 8.42%, -12.45%, 42.20%, 9.80%, 20.24%, -3.85%, 33.84%, 22.20%, 25.11%, and
15.84%, respectively.

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

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

The Fund's Class A Shares total return from January 1, 1999 to March 31, 1999
was ____%.

Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 18.60% (quarter ended March 31, 1991). Its lowest quarterly
return was -9.81% (quarter ended September 30, 1990).

AVERAGE ANNUAL TOTAL RETURN

The following table represents the Fund's Class A, B and C
Shares' Average Annual Total Return for the calendar periods
through December 31, 1998. CLASS A SHARES CLASS B SHARES
CLASS C SHARES S&P 500 LEIFI

Life of the Fund 1 NA 20.61% 16.93% % %
- -----------------------------------------------------------------------------
1 Year 15.84% 14.93% 14.99% % %
- -----------------------------------------------------------------------------
5 Years 17.91% NA 17.05% % %
- -----------------------------------------------------------------------------
10 Years 15.04% NA NA % %
- -----------------------------------------------------------------------------

1. The Fund's Class B and Class C Shares start of performance dates were
September 28, 1994, and May 4, 1993, respectively.

The table shows the Fund's Class A, Class B and Class C Shares total returns
averaged over a period of years relative to the Standard & Poor's 500 Index (S&P
500), a broad-based market index, and the Lipper Equity Income Fund Index
(LEIFI), an average of funds with similar investment objectives,. Past
performance does not necessarily predict future performance. This information
provides you with historical performance so that you can analyze whether the
Fund's investment risks are balanced by its potential rewards.

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED EQUITY INCOME FUND, INC.

FEES AND EXPENSES

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

SHAREHOLDER FEES CLASS A CLASS CLASS C

B
<S> <C> <C> <C>
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a 5.50% None None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of 0.00% 5.50% 1.00%
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and None None None
other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if None None None
applicable)
Exchange Fee None None None

ANNUAL FUND OPERATING EXPENSES (Before Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.60% 0.60% 0.60%
Distribution (12b-1) Fee 0.50%(2) 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses % % %
Total Annual Fund Operating Expenses % %(3) %
</TABLE>

1 Although not contractually obligated to do so, the distributor waived certain
amounts. These are shown below along with the net expenses the Fund ACTUALLY
PAID for the fiscal year ended March 31, 1999. Waivers of Fund Expenses % % %
Total Actual Annual Fund Operating Expenses (after waivers) % % %

2 Class A Shares did not pay or accrue the distribution (12b-1) fee during the
fiscal year ended March 31, 1999. Class A Shares has no present intention of
paying or accruing the distribution (12b-1) fee during the year ending March
31, 2000.

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

<PAGE>

EXAMPLE

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

SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS A SHARES
Expenses assuming redemption $ $ $ $
Expenses assuming no $ $ $ $
redemption
CLASS B SHARES
Expenses assuming redemption $ $ $ $
Expenses assuming no $ $ $ $
redemption
CLASS C SHARES
Expenses assuming redemption $ $ $ $
Expenses assuming no $ $ $ $
redemption

<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its
assets in income-producing equity securities, including securities that are
convertible into common stocks. The Fund's holdings ordinarily will be in large
and middle capitalization companies. The Adviser attempts to manage the Fund so
that, on average, the Fund's portfolio yield is at least 50% greater than the
yield of the Standard & Poor's 500 Index (the "Index").

Companies with similar characteristics may be grouped together in broad
categories called sectors. The Adviser diversifies the Fund's investments,
limiting the Fund's risk exposure with respect to individual securities and
industry sectors. In attempting to remain relatively sector-neutral, and in
order to manage sector risk, the Adviser attempts to limit the Fund's exposure
to each industry sector in the Index, as a general matter, to not less than 80%
nor more than 120% of the Index's allocation to that sector.

The Adviser performs a technical review of potential issuers, looking at
criteria appropriate to the Fund's investment goals. The Adviser examines
primarily large and middle capitalization companies, which, in the Adviser's
opinion, are trading at a low valuation in relation to their historic and
current market prices, and to their expected future price based on projected
earnings. In addition, the equity securities held by the Fund will generally
have a history and an expectation of paying increasing dividends to
shareholders.

Additionally, the Adviser performs traditional fundamental analysis to select
securities that exhibit the most promising long-term value for the Fund's
portfolio. In selecting securities, the Adviser focuses on the current financial
condition of the issuing company, in addition to examining its business and
product strength, competitive position, and management expertise. Further, the
Adviser considers current economic, financial market, and industry factors,
which may affect the issuing company. To determine the timing of purchases of
portfolio securities, the Adviser compares the current stock price of an issuer
with the Adviser's judgment as to that stock's current and expected value based
on projected future earnings. The Adviser sells a portfolio security if it
determines that the issuer's prospects have deteriorated, or if it finds an
attractive security which the Adviser deems has superior risk and return
characteristics to a security held by the Fund.

The Adviser ordinarily uses the "value" style of investing, selecting securities
that generally have a comparatively low volatility in share price relative to
the overall equity market and which may provide relatively high dividend income.
When the Adviser uses a "value" style of investing, the price of the securities
held by the Fund may not, under certain market conditions, increase as rapidly
as stocks selected primarily for their growth attributes. In addition, some
securities in which the Adviser invests may have "growth" style characteristics
because the Fund is sector-neutral in its investment approach.

The Fund purchases convertible preferred stocks and convertible bonds, which
have a higher yield than common stocks, in order to increase the Fund's yield
and to generally provide a measure of protection against market declines.

TEMPORARY DEFENSIVE INVESTMENTS

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

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

EQUITY SECURITIES

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

COMMON STOCKS

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

CONVERTIBLE SECURITIES

Convertible securities are convertible preferred stock or convertible bonds that
the Fund has the option to exchange for equity securities of the issuer at a
specified conversion price. The option allows the Fund to realize additional
returns if the market price of the equity securities exceeds the conversion
price. For example, the Fund may hold securities that are convertible into
shares of common stock at a conversion price of $10 per share. If the market
value of the shares of common stock reached $12, the Fund could realize an
additional $2 per share by converting its securities. Convertible preferred
stock and convertible bonds pay or accrue interest or dividends at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a convertible bond must repay the
principal amount of the bond, normally within a specified time. Convertible
preferred stock and convertible bonds provide more income than equity
securities.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

STOCK MARKET RISKS

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

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

RISKS RELATING TO INVESTING FOR VALUE

o Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value
stocks tend to have higher dividends than growth stocks. This means they
depend less on price changes for returns and may lag behind growth stocks in
an up market.

WHAT DO SHARES COST?

You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV) plus any applicable
front-end sales charge (public offering price). NAV is determined at the end of
regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.

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

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

<PAGE>

MAXIMUM SALES CHARGE

MINIMUM FRONT-END CONTINGENT

SHARES OFFERED INITIAL/SUBSEQUENT SALES CHARGE2 DEFERRED SALES
INVESTMENT AMOUNTS1 CHARGE3

Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%

1 THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT AMOUNTS FOR RETIREMENT PLANS ARE
$250 AND $100, RESPECTIVELY. THE MINIMUM SUBSEQUENT INVESTMENT AMOUNTS FOR
SYSTEMATIC INVESTMENT PROGRAMS IS $50. INVESTMENT PROFESSIONALS MAY IMPOSE
HIGHER OR LOWER MINIMUM INVESTMENT REQUIREMENTS ON THEIR CUSTOMERS THAN THOSE
IMPOSED BY THE FUND. ORDERS FOR $250,000 OR MORE WILL BE INVESTED IN CLASS A
SHARES INSTEAD OF CLASS B SHARES TO MAXIMIZE YOUR RETURN AND MINIMIZE THE SALES
CHARGES AND MARKETING FEES. ACCOUNTS HELD IN THE NAME OF AN INVESTMENT
PROFESSIONAL MAY BE TREATED DIFFERENTLY. CLASS B SHARES WILL AUTOMATICALLY
CONVERT INTO CLASS A SHARES AFTER EIGHT FULL YEARS FROM THE PURCHASE DATE. THIS
CONVERSION IS A NON-TAXABLE EVENT. 2 FRONT-END SALES CHARGE IS EXPRESSED AS A
PERCENTAGE OF PUBLIC OFFERING PRICE. SEE "SALES CHARGE WHEN YOU PURCHASE." 3 SEE
"SALES CHARGE WHEN YOU REDEEM."

SALES CHARGE WHEN YOU PURCHASE

CLASS A SHARES

<PAGE>

Sales Charge as a Sales Charge as a

Purchase Amount Percentage of Public Percentage of NAV
Offering Price

Less than $50,000 5.50% 5.82%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1 million 2.00% 2.04%
$1 million or greater1 0.00% 0.00%

1 A CONTINGENT DEFERRED SALES CHARGE OF 0.75% OF THE REDEMPTION AMOUNT APPLIES
TO CLASS A SHARES REDEEMED UP TO 24 MONTHS AFTER PURCHASE UNDER CERTAIN
INVESTMENT PROGRAMS WHERE AN INVESTMENT PROFESSIONAL RECEIVED AN ADVANCE PAYMENT
ON THE TRANSACTION.

THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY:

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

o combining concurrent purchases of Shares:

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

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

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

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

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:

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

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

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

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

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

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

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

SALES CHARGE WHEN YOU REDEEM

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

CLASS A SHARES

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

CLASS B SHARES

Shares Held Up To: CDSC
1 year 5.50%
2 years 4.75%
3 years 4.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%

CLASS C SHARES

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

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

o purchased with reinvested dividends or capital gains;

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

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

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

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

IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:

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

o if your redemption is a required retirement plan distribution;

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

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

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:

o Shares that are not subject to a CDSC; and

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

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

HOW IS THE FUND SOLD?

The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares and Class F Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Class A Shares, Class B Shares and
Class C Shares. Each share class has different sales charges and other expenses,
which affect their performance. Contact your investment professional or call
1-800-341-7400 for more information concerning the other class.

The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals.

When the Distributor receives sales charges and marketing fees, it may pay some
or all of them to investment professionals. The Distributor and its affiliates
may pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

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

HOW TO PURCHASE SHARES

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

THROUGH AN INVESTMENT PROFESSIONAL

o Establish an account with the investment professional; and

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

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

DIRECTLY FROM THE FUND

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

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

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

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

BY WIRE Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire

ABA Number 011000028
Attention: EDGEWIRE

Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

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

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

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

THROUGH AN EXCHANGE

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

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.

BY AUTOMATED CLEARING HOUSE (ACH)

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

RETIREMENT INVESTMENTS

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

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

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

DIRECTLY FROM THE FUND

BY TELEPHONE

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

BY MAIL

You may redeem or exchange Shares by mailing a written request to the Fund. You
will receive a redemption amount based on the next calculated NAV after the Fund
receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317 All requests must include:

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

o amount to be redeemed or exchanged;

o signatures of all shareholders exactly as registered; and

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

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

SIGNATURE GUARANTEES Signatures must be guaranteed if:

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

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

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

o IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

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

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

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

REDEMPTION IN KIND

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

o to allow your purchase to clear;

o during periods of market volatility; or

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGES

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

o ensure that the account registrations are identical;

o meet any minimum initial investment requirements; and

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

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

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

SYSTEMATIC WITHDRAWAL PROGRAM

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

Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.

SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES You will not be charged a
CDSC on SWP redemptions if:

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

o you reinvest all dividends and capital gains distributions; and

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

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

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

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

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

SHARE CERTIFICATES

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

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

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

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

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

ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

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

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

WHO MANAGES THE FUND?

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

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

The Fund's portfolio managers are:

Linda A. Duessel has been the Fund's portfolio manager since February 1997.
She is Vice President of the Fund. Ms. Duessel joined Federated in 1991 and has
been a Portfolio Manager and a Vice President of the Fund's Adviser since 1995.
Ms. Duessel was a Senior Investment Analyst and an Assistant Vice President of
the Fund's Adviser from 1991 until 1995. Ms. Duessel is a Chartered Financial
Analyst and received her M.S. in Industrial Administration from Carnegie Mellon
University.

Steven J. Lehman has been the Fund's portfolio manager since September
1997. Mr. Lehman joined the Fund's Adviser in May 1997 as a Portfolio Manager
and Vice President. He has been a Senior Portfolio Manager since 1998. From 1986
to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice
President/Senior Portfolio Manager, at First Chicago NBD. Mr. Lehman is a
Chartered Financial Analyst; he received his M.A. from the University of
Chicago.

More than 4,000 investment professionals make Federated Funds available to their
customers.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 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.

YEAR 2000 READINESS

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

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

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

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

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

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.

(Financial Statements to be filed by Amendment)

<PAGE>

FEDERATED EQUITY INCOME FUND, INC.

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

A Statement of Additional Information (SAI) dated May 31, 1999, is incorporated
by reference into this prospectus. Additional information about the Fund's
investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.

INVESTMENT COMPANY ACT FILE NO. 811-4743

CUSIP 313915100

CUSIP 313915209

CUSIP 313915308

G00492-01 (5/99)

PROSPECTUS

FEDERATED EQUITY INCOME FUND, INC.

CLASS F SHARES

A mutual fund seeking to provide above average income and capital appreciation
by investing primarily in income-producing equity securities.

CONTENTS

May 31, 1999

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in
income-producing equity securities, including securities that are convertible
into common stocks.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

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

o RISKS RELATING TO INVESTING FOR VALUE. The Fund generally uses a "value"
style of investing, so that the Fund's share price may lag that of other
funds using a different investment style.

<PAGE>

RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Fund's Class F Shares as of the calendar year-end
for each of five years.

The `y' axis reflects the "% Total Return" beginning with "-4.00%" and
increasing in increments of 5.00% up to 36.00%.

The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features five distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund's Class F Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1994
through 1998, The percentages noted are:-4.00%, 33.42%, 21.88%, 24.86%, and
15.54%, respectively.

The bar chart shows the variability of the Fund's Class F Shares' total return
on a yearly basis.

The total returns displayed for the Fund's Class F Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.

The Fund's Class F Shares total return from January 1, 1999 to March 31, 1999
was ____%

Within the period shown in the Chart, the Fund's Class F Shares highest
quarterly return was 15.30% (quarter ended June 30, 1997). Its lowest quarterly
return was -9.19% (quarter ended September 30, 1998).

AVERAGE ANNUAL TOTAL RETURN

The following table represents the Fund's Class F Shares' Average Annual Total
Return for the calendar periods through December 31, 1998.

Calendar Period CLASS F S&P 500 LEIFI
1 Year 15.54% % %
- ---------------------------------------------------------------------------
5 Years 17.63% % %
- ---------------------------------------------------------------------------
Life of Fund (1) 17.06% % %
- ---------------------------------------------------------------------------

1 The Fund's Class F Shares start of performance date was November 12, 1993.

The table shows the Fund's Class F Shares total returns averaged over a period
of years relative to the Standard & Poor's 500 Index (S&P 500), a broad based
market index, and the Lipper Equity Income Fund Index (LEIFI), an average of
funds with similar investment objectives.

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

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED EQUITY INCOME FUND, INC.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Class F Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a 1.00%
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of 1.00%
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and None
other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if None
applicable)
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee 0.60%
Distribution (12b-1) Fee 0.25%
Shareholder Services Fee 0.25%
Other Expenses %
Total Annual Fund Operating Expenses %

<PAGE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Class F Shares with the cost of investing in other mutual funds.

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

1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming redemption $ $ $ $
Expenses assuming no $ $ $ $
redemption

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

TEMPORARY DEFENSIVE INVESTMENTS

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

EQUITY SECURITIES

COMMON STOCKS

CONVERTIBLE SECURITIES

Convertible preferred stock and convertible bonds pay or accrue interest or
dividends at a specified rate. The rate may be a fixed percentage of the
principal or adjusted periodically. In addition, the issuer of a convertible
bond must repay the principal amount of the bond, normally within a specified
time. Convertible preferred stock and convertible bonds provide more income than
equity securities.

<PAGE>

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

STOCK MARKET RISKS

RISKS RELATING TO INVESTING FOR VALUE

WHAT DO SHARES COST?

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

MAXIMUM SALES CHARGE

MINIMUM FRONT-END CONTINGENT

SHARES OFFERED INITIAL/SUBSEQUENT SALES CHARGE2 DEFERRED SALES
INVESTMENT AMOUNTS1 CHARGE3

Class F $1,500/$100 1.00% 1.00%

SALES CHARGE WHEN YOU PURCHASE

CLASS F SHARES

<PAGE>

Sales Charge as a Sales Charge as a
Purchase Amount Percentage of Public Percentage of NAV
Offering Price

Less than $1 million 1.00% 1.01%
$1 million or greater 0.00% 0.00%

THE SALES CHARGE AT PURCHASE MAY BE ELIMINATED BY:

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

o combining concurrent purchases of Shares:

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

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

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

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

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:

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

o when the Fund's Distributor does not advance payment to the investment
professional for your purchase;

o by exchanging shares from the same share class of another Federated Fund;

o for trusts or pension or profit-sharing plans where the third-party
administrator has an arrangement with the Fund's Distributor or its
affiliates to purchase shares without a sales charge; or

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

SALES CHARGE WHEN YOU REDEEM

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

CLASS F SHARES

Purchase Amount Shares Held CDSC
Up to $2 million 4 years or 1.00%

less

$2 - $5 million 2 years or 0.50%
less

$5 million or more 1 year or less 0.25%

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:

o purchased with reinvested dividends or capital gains;

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

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

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

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

IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:

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

o if your redemption is a required retirement plan distribution;

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

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES IN
THIS ORDER:

o Shares that are not subject to a CDSC; and

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

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

HOW IS THE FUND SOLD?

The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares, and Class F Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Class F Shares. Each share class has
different sales charges and other expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.

The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals.

RULE 12B-1 PLAN

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

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares. Where the Fund
offers more than one share class and you do not specify the class choice on your
New Account Form or form of payment (e.g., Federal Reserve wire or check) you
automatically will receive Class A Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUND

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

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

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

BY WIRE Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire

ABA Number 011000028
Attention: EDGEWIRE

Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

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

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

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

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

BY TELEPHONE

BY MAIL

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317 All requests must include:

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

o amount to be redeemed or exchanged;

o signatures of all shareholders exactly as registered; and

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

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

SIGNATURE GUARANTEES Signatures must be guaranteed if:

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

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

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

o IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
registration.

PAYMENT METHODS FOR REDEMPTIONS

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

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

REDEMPTION IN KIND

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

o to allow your purchase to clear;

o during periods of market volatility; or

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGES

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

o ensure that the account registrations are identical;

o meet any minimum initial investment requirements; and

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

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

SYSTEMATIC WITHDRAWAL PROGRAM

Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

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

SHARE CERTIFICATES

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

WHO MANAGES THE FUND?

More than 4,000 investment professionals make Federated Funds available to their
customers.

The Fund's portfolio managers are:

More than 4,000 investment professionals make Federated Funds available to their
customers.

ADVISORY FEES

YEAR 2000 READINESS

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.

(Financial Statements to be filed by Amendment)

<PAGE>

FEDERATED EQUITY INCOME FUND, INC.

CLASS F SHARES

INVESTMENT COMPANY ACT FILE NO. 811-4743
CUSIP 313915407

8062806A-F (5/99)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED EQUITY INCOME FUND, INC.

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

CLASS F SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Equity Income Fund, Inc.
(Fund), dated May 31, 1999.

This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectuses or the Annual Report without charge by calling 1-800-341-7400.

May 31, 1999

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

CUSIP313915100

CUSIP 313915209

CUSIP 313915308

CUSIP 313915407

8062806B (5/99)

<PAGE>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on July 29, 1986. The Fund
changed its name from Liberty Equity Income Fund, Inc. to Federated Equity
Income Fund, Inc. on February 26, 1996. The Fund's investment adviser is
Federated Investment Management Company (Adviser). The Adviser, formerly known
as Federated Advisers, changed its name effective March 31, 1999.

The Board of Directors (the Board) has established four classes of shares of the
Fund, known as Class A Shares, Class B Shares, Class C Shares and Class F
Shares (Shares). This SAI relates to all of the above-mentioned Shares.

SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. The Fund may also treat such redeemable preferred stock as a fixed
income security.

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

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

REAL ESTATE INVESTMENT TRUSTS (REITS)

REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax
if they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.

WARRANTS

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

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

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

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States supports some GSEs with its full, faith and credit. Other GSEs
receive support through federal subsidies, loans or other benefits. A few
GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities. Agency
securities are generally regarded as having low credit risks, but not as low
as treasury securities. The Fund treats mortgage backed securities
guaranteed by GSEs as agency securities. Although a GSE guarantee protects
against credit risks, it does not reduce the interest rate and prepayment
risks of these mortgage backed securities.

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types
of corporate debt securities. The Fund may also purchase interests in bank
loans to companies. The credit risks of corporate debt securities vary
widely among issuers.

In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on
subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer
any payment that would reduce its capital below regulatory requirements.

COMMERCIAL PAPER

Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper
reduces both the interest rate and credit risks as compared to other
debt securities of the same issuer.

DEMAND INSTRUMENTS

Demand instruments are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such
as a dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.

BANK INSTRUMENTS

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred
to as a coupon payment). Investors buy zero coupon securities at a price
below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. Investors must wait until maturity to receive interest and
principal, which increases the interest rate and credit risks of a zero
coupon security. There are many forms of zero coupon securities. Some are
issued at a discount and are referred to as zero coupon or capital
appreciation bonds. Others are created from interest bearing bonds by
separating the right to receive the bond's coupon payments from the right to
receive the bond's principal due at maturity, a process known as coupon
stripping. Treasury STRIPs, IOs and POs are the most common forms of
stripped zero coupon securities. In addition, some securities give the
issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are
referred to as pay-in-kind or PIK securities.

CONVERTIBLE SECURITIES

Convertible securities are convertible preferred stock or convertible bonds that
the Fund has the option to exchange for equity securities at a specified
conversion price. The option allows the Fund to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, the Fund may hold securities that are convertible into shares of common
stock at a conversion price of $10 per share. If the market value of the shares
of common stock reached $12, the Fund could realize an additional $2 per share
by converting its securities. Convertible securities have lower yields than
comparable fixed income securities. In addition, at the time a convertible
security is issued the conversion price exceeds the market value of the
underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:

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

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

o it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

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

DEPOSITARY RECEIPTS

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

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract. The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate and currency risks, and may also expose the Fund to liquidity and leverage
risks. OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

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

FUTURES CONTRACTS

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

OPTIONS

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

The Fund may:

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

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

Buy or write options to close out existing options positions.When the Fund
writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually
agreed upon time and price. The repurchase price exceeds the sale price,
reflecting the Fund's return on the transaction. This return is unrelated to
the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser. The Fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian
will monitor the value of the underlying security each day to ensure that
the value of the security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

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

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities scheduled for a future time. During the
period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value in
determining the price of its shares. Settlement dates may be a month or more
after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, delayed
delivery transactions create interest rate risks for the Fund. Delayed
delivery transactions also involve credit risks in the event of a
counterparty default.

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from
the borrower as collateral. The borrower must furnish additional collateral
if the market value of the loaned securities increases. Also, the borrower
must pay the Fund the equivalent of any dividends or interest received on
the loaned securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on
loan, but it will terminate a loan in anticipation of any important vote.
The Fund may pay administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash
collateral to a securities lending agent or broker.

Securities lending activities are subject to interest rate and credit risks.

ASSET COVERAGE

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

INVESTMENT RISKS

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

EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS

RISKS RELATED TO INVESTING FOR VALUE

O Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value
stocks tend to have higher dividends than growth stocks. This means they
depend less on price changes for returns and may lag behind growth stocks in
an up market.

SECTOR RISKS

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

LIQUIDITY RISKS

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

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

RISKS RELATED TO COMPANY SIZE

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

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

RISKS OF FOREIGN INVESTING

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

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

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

CURRENCY RISKS

o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.

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

EURO RISKS

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

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

CREDIT RISKS

o Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to
lose the benefit of the transaction or prevent the Fund from selling or
buying other securities to implement its investment strategy.

FIXED INCOME SECURITIES INVESTMENT RISKS
INTEREST RATE RISKS

o Prices of fixed income securities rise and fall in response to changes in
the interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.

o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.

CREDIT RISKS

o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.

o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.

o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.

CALL RISKS

o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.

o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.

PREPAYMENT RISKS

o Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage backed securities with higher interest rates. Conversely,
prepayments due to refinancings decrease when mortgage rates increase. This
extends the life of mortgage backed securities with lower interest rates.
Other economic factors can also lead to increases or decreases in
prepayments. Increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. These factors,
particularly the relationship between interest rates and mortgage
prepayments makes the price of mortgage backed securities more volatile than
many other types of fixed income securities with comparable credit risks.

o Mortgage backed securities generally compensate for greater prepayment risk
by paying a higher yield. The difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security is
perceived to have an increased prepayment risk or perceived to have less
market demand. An increase in the spread will cause the price of the
security to decline.

o The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks,
or other less favorable characteristics.

LIQUIDITY RISKS

o Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment
grade or are not widely held. These features may make it more difficult to
sell or buy a security at a favorable price or time. Consequently, the Fund
may have to accept a lower price to sell a security, sell other securities
to raise cash or give up an investment opportunity, any of which could have
a negative effect on the Fund's performance.

Infrequent trading of securities may also lead to an increase in their price
volatility.

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

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

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

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

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 REAL ESTATE

The Fund will not invest in 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.

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
US government obligations) or acquire more than 10% of any class of voting
securities of any issuer. For these purposes, the Corporation takes all common
stock and all preferred stock on an issuer each as a single class, regardless of
priorities, series, designations, or other differences.

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

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 RESTRICTED AND 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.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

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

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

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

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

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

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

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

TRADING IN FOREIGN SECURITIES

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

WHAT DO SHARES COST?

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

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

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

QUANTITY DISCOUNTS

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

ACCUMULATED PURCHASES

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

CONCURRENT PURCHASES

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

LETTER OF INTENT CLASS A SHARES AND CLASS F SHARES

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

REINVESTMENT PRIVILEGE

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

PURCHASES BY AFFILIATES OF THE FUND

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

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

o Employees of State Street Bank Pittsburgh who started their employment on
January 1, 1998, and were employees of Federated Investors, Inc.
(Federated) on December 31, 1997;

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

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

FEDERATED LIFE MEMBERS

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

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

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

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

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

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

o representing a total or partial distribution from a qualified plan. A total
or partial distribution does not include an account transfer, rollover or
other redemption made for purposes of reinvestment. A qualified plan does
not include an Individual Retirement Account, Keogh Plan, or a custodial
account, following retirement;

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

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

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

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

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

HOW IS THE FUND SOLD?

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

FRONT-END SALES CHARGE REALLOWANCES

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

RULE 12B-1 PLAN

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

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

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

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

SHAREHOLDER SERVICES

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

SUPPLEMENTAL PAYMENTS

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

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

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

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

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

o an amount on the NAV of Class F Shares purchased as follows: up to 1% on
purchases below $2 million; 0.50% on purchases from $2 million but below $5
million; and 0.25% on purchases of $5 million or more.

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

CLASS A SHARES

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

AMOUNT ADVANCE PAYMENTS AS A PERCENTAGE OF PUBLIC
OFFERING PRICE

First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%

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

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

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

CLASS F SHARES

Investment professionals purchasing Class F Shares for their customers are
eligible to receive an advance payment from the distributor of 0.25% of the
purchase price.

EXCHANGING SECURITIES FOR SHARES

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

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

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

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

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

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

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

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

As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class B Shares: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class B Shares for its clients), Jacksonville,
Florida, owned approximately 4,464,866 shares (6.91%).

As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class C Shares. Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class C Shares for its clients), Jacksonville,
Florida, owned approximately 3,199,754 shares (31.69%).

As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class F Shares. Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class F Shares for its clients), Jacksonville,
Florida, owned approximately 1,411,615 shares (21.37%).

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

TAX INFORMATION

FEDERAL INCOME TAX

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

FOREIGN INVESTMENTS

If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

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

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

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

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

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

As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, B, C, and F Shares.

An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.

<PAGE>

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION FROM
ADDRESS FROM FUND FUND AND FUND
POSITION WITH PRINCIPAL OCCUPATIONS COMPLEX
FUND FOR PAST FIVE YEARS

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

THOMAS G. BIGLEY Director or Trustee of the Federated Fund $ $113,860.22 for
Birth Date: February 3, Complex; Director, Member of Executive the
1934 Committee, Children's Hospital of Pittsburgh; Fund and
15 Old Timber Trail formerly: Senior Partner, Ernst & Young LLP; 54 other
Pittsburgh, PA Director, MED 3000 Group, Inc.; Director, investment
DIRECTOR Member of Executive Committee, University of companies
Pittsburgh. in the Fund
Complex

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

DIRECTOR

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

JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated $ $0 for the
Birth Date: March 5, Funds; Chairman, President and Chief Fund and
1943 Executive Officer, Cunningham & Co., Inc. ; 26 other
353 El Brillo Way Trustee Associate, Boston College; Director, investment
Palm Beach, FL EMC Corporation; formerly: Director, Redgate companies
DIRECTOR Communications. in the Fund
Complex

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

Inc.

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

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

Depository Trust Corporation.

CHARLES F. MANSFIELD, Director or Trustee of some of the Federated $ $0 for the
JR.++ Funds; Management Consultant. Fund and
Birth Date: April 10, 26 other
1945 Previous Positions: Chief Executive Officer, investment
80 South Road PBTC International Bank; Chief Financial companies
Westhampton Beach, NY Officer of Retail Banking Sector, Chase in the Fund
DIRECTOR Manhattan Bank; Senior Vice President, Marine Complex
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra

University.

JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $ $113,860.22 for
J.D., S.J.D. Complex; President, Law Professor, Duquesne the
Birth Date: December University; Consulting Partner, Mollica & Fund and
20, 1932 Murray. 54 other
President, Duquesne investment
University Previous Positions: Dean and Professor of companies
Pittsburgh, PA Law, University of Pittsburgh School of Law; in the Fund
DIRECTOR Dean and Professor of Law, Villanova Complex
University School of Law.

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

JOHN S. WALSH++ Director or Trustee of some of the Federated $ $0 for the
Birth Date: November Funds; President and Director, Heat Wagon, Fund and
28, 1957 Inc.; President and Director, Manufacturers 23 other
2007 Sherwood Drive Products, Inc.; President, Portable Heater investment
Valparaiso, IN Parts, a division of Manufacturers Products, companies
DIRECTOR Inc.; Director, Walsh & Kelly, Inc.; in the Fund
formerly: Vice President, Walsh & Kelly, Inc. Complex

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

<PAGE>

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

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

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

RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birth Date: May 17, 1923 Funds in the Federated Fund Complex; Director Fund and
Federated Investors or Trustee of some of the Funds in the 6 other
Tower Federated Fund Complex; Executive Vice investment
1001 Liberty Avenue President, Federated Investors, Inc.; companies
Pittsburgh, PA Chairman and Director, Federated Securities in the Fund
PRESIDENT Corp. Complex
J. THOMAS MADDEN Chief Investment Officer of this Fund and $0 $0 for the
Birth Date: October 22, various other Funds in the Federated Fund Fund and
1945 Complex; Executive Vice President, Federated 12 other
Federated Investors Investment Counseling, Federated Global investment
Tower Investment Management Corp., Federated companies
1001 Liberty Avenue Investment Management Company and Passport in the Fund
Pittsburgh, PA Research, Ltd.; Vice President, Federated Complex
CHIEF INVESTMENT OFFICER Investors, Inc.; formerly: Executive Vice
President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Investment Management Company and Passport
Research, Ltd.

LINDA A. DUESSEL Linda A. Duessel has been the Fund's $0 $0 for the
Birth Date: September portfolio manager since (insert date). [She Fund and
30, 1957 is Vice President of the no other
Federated Investors [Fund/Corporation/Trust].] Ms. Duessel investment
Tower joined Federated in 1991 and has been a companies
1001 Liberty Avenue Portfolio Manager and a Vice President of the in the Fund
Pittsburgh, PA Fund's Adviser since 1995. Ms. Duessel was a Complex
VICE PRESIDENT Senior Investment Analyst and an Assistant
Vice President of the Fund's Adviser from

1991 until 1995. Ms. Duessel is a Chartered

Financial Analyst and received her M.S. in

Industrial Administration from Carnegie
Mellon University.

</TABLE>

+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF THE FUND.

++ MESSRS. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
TRUSTEES/DIRECTORS ON JANUARY 1, 1999. THEY DID NOT EARN ANY FEES FOR SERVING
THE FUND COMPLEX SINCE THESE FEES ARE REPORTED AS OF THE END OF THE LAST
CALENDAR YEAR. THEY DID NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE
FUND.

INVESTMENT ADVISER

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

The Adviser is a wholly owned subsidiary of Federated.

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

OTHER RELATED SERVICES

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

BROKERAGE TRANSACTIONS

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

RESEARCH SERVICES

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

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

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

ADMINISTRATOR

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

MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE FUNDS
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

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

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT PUBLIC ACCOUNTANTS

Ernst & Young LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED

MARCH 31, 1999 1998 1997
Advisory Fee Earned $ $ $
Advisory Fee Reduction $ $ $
Brokerage Commissions $ $ $
Administrative Fee $ $ $
12B-1 FEE
Class A Shares $ ---- ----
Class B Shares $ ---- ----
Class C Shares $ ---- ----
Class F Shares $ ---- ----
SHAREHOLDER SERVICES FEE

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

HOW DOES THE FUND MEASURE PERFORMANCE?

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

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

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

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year, five-year and ten-year or since inception
periods ended March 31, 1999.

Yield given for the 30-day period ended March 31, 1999.

30-DAY PERIOD 1 Year 5 Years 10 Years Since
Inception on
CLASS A SHARES

Total Return
Yield

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

30-DAY PERIOD 5 Years 10 Years
Since Inception on
September 27, 1994

CLASS B SHARES

Total Return
Yield

30-DAY PERIOD1 Year 5 Years 10 Years Since Inception on May 3,
1993
CLASS C SHARES

Total Return
Yield

30-DAY PERIOD1 Year 5
Years 10 Years
Since Inception on
November 12, 1993

CLASS F SHARES

Total Return
Yield

TOTAL RETURN

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

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

YIELD

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

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

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

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

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

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

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

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

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

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 associated 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.

WHO IS FEDERATED INVESTORS, INC.?

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

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

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

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

EQUITY FUNDS

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

CORPORATE BOND FUNDS

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

GOVERNMENT FUNDS

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

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

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

advisory companies.

MUTUAL FUND MARKET

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

FEDERATED CLIENTS OVERVIEW

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

INSTITUTIONAL CLIENTS

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

BANK MARKETING

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

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

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

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended March 31, 1999
are incorporated herein by reference to the Annual Report to Shareholders of
Federated Equity Income Fund, Inc. dated March 31, 1999 (to be filed by
Amendment).

<PAGE>

INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

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

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

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

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

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

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

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

o Leading market positions in well established industries.

o High rates of return on funds employed.

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

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

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

PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

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

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

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

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

<PAGE>

ADDRESSES

FEDERATED EQUITY INCOME FUND, INC.

Class A Shares
Class B Shares
Class C Shares
Class F Shares

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

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

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

PART C. OTHER INFORMATION

Item 23. EXHIBITS:

(a) (i) Conformed copy of Articles of Restatement of the
Registrant; +

(ii) Conformed copy of Articles of Amendment of the
Registrant; +

(b) Copy of By-Laws of the Registrant as Restated and
Amended; (3)

(i) Copy of Amendment to By-Laws effective August 28, 1987;
(4) (ii) Copy of Amendment to By-Laws effective November 19,

1987; (4)

(iii) Copy of Amendment to By-Laws effective May 4, 1993;
(14)

(iv) Copy of Amendment No. 6 to By-Laws effective February 23, 1998; +

(v) Copy of Amendment No. 7 to By-Laws effective February 27, 1998; +

(vi) Copy of Amendment No. 8 to By-Laws effective May 12, 1998; +

(c) 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; (12)

(d) Conformed copy of Investment Advisory Contract of the
Registrant; (5)

(e) (i) Conformed copy of Distributor's Contract of the
Registrant, through and including Exhibit C; (11)

(ii) Conformed copy of Exhibit D to the Distributor's
Contract of the Registrant; (12)

(iii) The Registrant hereby incorporates the conformed copy
of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service
Agreement; and Plan Trustee/Mutual Funds
Service Agreement from Item 24(b)(6) of the Cash
Trust Series II Registration Statement on Form N-1A,
filed with the Commission on July 24, 1995. (File
Nos. 33-38550 and 811-6269).

(iv) Conformed copy of Distributor's Contract (Class B
Shares) including Exhibit 1 and Schedule A; (14)

- ---------------
+ All exhibits have been filed electronically.

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).

12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed May 30, 1997 (File Nos. 33-6901 and
811-4743).

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed May 28, 1998 (File Nos. 33-6901 and
811-4743).

<PAGE>

(f) Not applicable;

(g) (i) Conformed copy of Custodian Contract of the
Registrant; (10) (ii) Conformed Copy of Custody Fee
Schedule; (14)

(h) (i) Conformed copy of Amended and Restated Agreement
for Fund Accounting Services, Administrative
Services, Transfer Agency Services, and Custody
Services Procurement of the Registrant; +

(ii) The responses described in Item 23(e)(iii) are
hereby incorporated by reference.
(iii) Conformed copy of Amended and Restated Shareholder

Services Agreement; +

(iv) Conformed copy of Principal Shareholder Servicer's Agreement
(Class B Shares) including Exhibit 1 and Schedule A; (14)

(v) Conformed copy of Shareholders Services Agreement
(Class B Shares) including Exhibit 1 and Schedule A;
(14)

(vi) 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).

(i) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (2)

(j) Conformed Copy of Consent of Independent Auditors; (14)
(k) Not applicable;

(l) Copy of Initial Capital Understanding; (2)

- ---------------
+ 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).

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed May 24, 1995 (File Nos. 33-6901 and
811-4743).

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed May 28, 1998 (File Nos. 33-6901 and
811-4743).

<PAGE>

(m) (i) Copy of Rule 12b-1 Plan of the Registrant,
through and including Exhibit B; (11)
(ii) Conformed Copy of Exhibit C to the Rule
12b-1 Plan; (12)
(iii) Conformed copy of Exhibit 1 and Schedule A to the
12b-1 Distribution Plan (Class B Shares) of the
Registrant; (14)
(iv) The responses described in Item 23(e)(iii) are
hereby incorporated by reference.
(n) Copy of Financial Data Schedules; (14) (o) 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).

(p) (i) Conformed copy of Power of Attorney of
Registrant; (13)

(ii) Conformed copy of Power of Attorney of Chief
Investment Officer of the Registrant; +

(iii) Conformed copy of Power of Attorney of
Treasurer of the Registrant; +
(iv) Conformed copy of Power of Attorney of
Director of the Registrant; +
(v) Conformed copy of Power of Attorney of
Director of the Registrant; +
(vi) Conformed copy of Power of Attorney of Director
of the Registrant; +

- ---------------
+ All exhibits have been filed electronically.

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).

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).

12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed May 30, 1997 (File Nos. 33-6901 and
811-4743).

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.24 on Form N-1A filed March 26, 1998 (File Nos. 33-6901 and
811-4743).

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed May 28, 1998 (File Nos. 33-6901 and
811-4743).

<PAGE>

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND:

None

Item 25. INDEMNIFICATION: (5)

Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER:

For a description of the other business of the investment adviser,
see the section entitled "Who Manages 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 B of this
Registration Statement under "Who Manages and Provides Services to
the Fund" The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski

Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit

- --------------------
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).

<PAGE>

Vice Presidents: Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Keith J. Sabol
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Marc Halperin

Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Gary Farwell

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine M. Newcamp

Assistant Treasurer: Richard B. Fisher

The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the investment
companies in the Federated Fund Complex described in Part B of this
Registration Statement.

<PAGE>

Item 27. PRINCIPAL UNDERWRITERS:

(a) Federated Securities Corp. the Distributor for shares of the
Fund, acts as principal underwriter for the following open-end
investment companies, including the Registrant:

Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; 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 Core Trust; 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 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.; Fixed Income Securities, Inc.; ; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; 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; Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free
Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal FundsTrust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; DG Investor Series; High Yield Cash Trust; Investment Series
Trust; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;

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

<PAGE>

(b)
<TABLE>
<CAPTION>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, President

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

Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer --
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

Item 28. 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:

Federated Equity Income Federated Investors Tower
Fund, Inc.("Registrant") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(Notices should be sent to the
Agent for Service at the above address)

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

Federated Shareholder

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

Recordkeeper")

Federated Services. Federated Investors Tower
Company ....... 1001 Liberty Avenue
("Administrator") Pittsburgh, PA 15222-3779

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

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

("Custodian")

Item 29. MANAGEMENT SERVICES: Not applicable.

Item 30. 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.

<PAGE>

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 29th day of March, 1999.

FEDERATED EQUITY INCOME FUND, INC.

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

March 29, 1999

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

NAME TITLE DATE

By:/s/Matthew S. Hardin Attorney In Fact March 29, 1999
Matthew S. Hardin For the Persons
ASSISTANT SECRETARY 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

Richard J. Thomas* Treasurer (Principal Financial
and Accounting Officer)

J. Thomas Madden* Chief Investment Officer

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

Nicholas P. Constantakis* Director

William J. Copeland Director

John F. Cunningham* Director

Lawrence D. Ellis, M.D.* Director

Peter E. Madden* Director

Charles F. Mansfield, Jr.* Director

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

Marjorie P. Smuts* Director

John S. Walsh* Director

* By Power of Attorney

Exhibit 23 (a)(i) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K

ARTICLES OF RESTATEMENT

LIBERTY EQUITY INCOME FUND, INC.

Liberty Equity Income Fund, Inc., a Maryland Corporation (the
"Corporation", having its principal office in Baltimore, Maryland, hereby
certifies to the State Department of Assessments and Taxation that:

FIRST: The Corporation desires to restate its Charter as currently in effect.
The Charter as restated is as follows:

FIRST: THE NAME OF THE CORPORATION IS LIBERTY EQUITY INCOME FUND, INC.

SECOND: THE PURPOSE FOR WHICH THE CORPORATION IS FORMED IS TO ACT AS AN OPEN-END
INVESTMENT COMPANY OF THE MANAGEMENT TYPE REGISTERED AS SUCH WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO THE INVESTMENT COMPANY ACT OF 1940 AND TO
EXERCISE AND GENERALLY TO ENJOY ALL OF THE POWERS, RIGHTS AND PRIVILEGES GRANTED
TO, OR CONFERRED UPON, CORPORATIONS BY THE GENERAL LAWS OF THE STATE OF MARYLAND
NOW OR HEREAFTER IN FORCE.

THIRD: THE POST OFFICE ADDRESS OF THE PRINCIPAL OFFICE AND THE OFFICE OF THE
RESIDENT AGENT OF THE CORPORATION IN THE STATE OF MARYLAND IS 32 SOUTH STREET,
BALTIMORE, MARYLAND 21202. THE RESIDENT AGENT OF THE CORPORATION IN THE STATE OF
MARYLAND IS THE CORPORATION TRUST INCORPORATED, WHICH IS A CORPORATION ORGANIZED
AND EXISTING UNDER THE LAWS OF THE STATE OF MARYLAND.

FOURTH: (A) THE CORPORATION IS AUTHORIZED TO ISSUE 2,000,000,000 SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE. THE AGGREGATE PAR VALUE OF ALL SHARES
WHICH THE CORPORATION IS AUTHORIZED TO ISSUE IS $2,000,000. SUBJECT TO THE
FOLLOWING PARAGRAPH, THE AUTHORIZED SHARES ARE CLASSIFIED AS SEPARATE CLASSES OF
COMMON STOCK, WITH 750,000,000 CLASSIFIED INTO EACH OF CLASS A AND CLASS C
SHARES, AND 500,000,000 UNCLASSIFIED SHARES.

(B) THE BOARD OF DIRECTORS IS AUTHORIZED TO CLASSIFY OR TO
RECLASSIFY (I.E., INTO SERIES AND CLASSES OF SERIES), FROM TIME TO TIME, ANY
UNISSUED

SHARES OF STOCK OF THE CORPORATION, WHETHER NOW OR HEREAFTER AUTHORIZED, BY
SETTING, CHANGING OR ELIMINATING THE PREFERENCES, CONVERSION OR OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS OR
TERMS OR CONDITIONS OF OR RIGHTS TO REQUIRE REDEMPTION OF THE STOCK.

UNLESS OTHERWISE PROVIDED BY THE BOARD OF DIRECTORS PRIOR TO THE
ISSUANCE OF THE STOCK, THE SHARES OF EACH CLASS OR SERIES OF STOCK SHALL BE
SUBJECT TO THE FOLLOWING:

.......(I) THE BOARD OF DIRECTORS MAY REDESIGNATE A CLASS OR SERIES OF STOCK
WHETHER OR NOT SHARE OF SUCH CLASS OR SERIES ARE ISSUED AND OUTSTANDING,
PROVIDED THAT SUCH REDESIGNATION DOES NOT AFFECT THE PREFERENCES,
CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO
DIVIDENDS, QUALIFICATIONS OR TERMS OR CONDITIONS OF REDEMPTION OF SUCH
CLASS OR SERIES OF STOCK.

.......(II) THE ASSETS ATTRIBUTABLE TO EACH CLASS OR SERIES MAY BE INVESTED IN A
COMMON INVESTMENT PORTFOLIO. THE ASSETS AND LIABILITIES AND THE INCOME AND
EXPENSES OF EACH CLASS OR SERIES OF THE CORPORATION'S STOCK SHALL BE
DETERMINED SEPARATELY AND, ACCORDINGLY, THE NET ASSET VALUE OF SHARES OF
THE CORPORATION'S STOCK MAY VARY AMONG CLASSES OR SERIES. THE INCOME OR
GAIN AND THE EXPENSES OR LIABILITIES OF THE CORPORATION SHALL BE ALLOCATED
TO EACH CLASS OR SERIES OF STOCK AS DETERMINED BY OR UNDER THE DIRECTION OF
THE BOARD OF DIRECTORS.

.......(III) SHARES OF EACH CLASS OR SERIES OF STOCK SHALL BE ENTITLED TO SUCH
DIVIDENDS OR DISTRIBUTIONS, IN STOCK OR IN CASH OR BOTH, AS MAY BE DECLARED
FROM TIME TO TIME BY THE BOARD OF DIRECTORS WITH RESPECT TO SUCH CLASS OR
SERIES. DIVIDENDS OR DISTRIBUTIONS SHALL BE PAID ON SHARES OF A CLASS OR
SERIES OF STOCK ONLY OUT OF THE ASSETS BELONGING TO THAT CLASS OR SERIES.

.......(IV) IN THE EVENT OF THE LIQUIDATION OR DISSOLUTION OF THE CORPORATION,
THE STOCKHOLDERS OF A CLASS OR SERIES OF THE CORPORATION'S STOCK SHALL BE
ENTITLED TO RECEIVE, AS A CLASS OR SERIES, OUT OF THE ASSETS OF THE
CORPORATION AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS, THE ASSETS
BELONGING TO THAT CLASS OR SERIES LESS THE LIABILITIES ALLOCATED TO THAT
CLASS OR SERIES. THE ASSETS SO DISTRIBUTABLE TO THE STOCKHOLDERS OF A CLASS
OR SERIES SHALL BE DISTRIBUTED AMONG SUCH STOCKHOLDERS IN PROPORTION TO THE
NUMBER OF SHARES OF THAT CLASS OR SERIES HELD BY THEM AND RECORDED ON THE
BOOKS OF THE CORPORATION. IN THE EVENT THAT THERE ARE ANY ASSETS AVAILABLE
FOR DISTRIBUTION THAT ARE NOT ATTRIBUTABLE TO ANY PARTICULAR CLASS OR
SERIES OF STOCK, SUCH ASSETS SHALL BE ALLOCATED TO ALL CLASSES AND SERIES
IN PROPORTION TO THE NET ASSET VALUE OF THE RESPECTIVE CLASSES OR SERIES.

.......(V) ALL HOLDERS OF SHARES OF STOCK VOTE AS A SINGLE CLASS OR SERIES
EXCEPT WITH RESPECT TO ANY MATTER WHICH AFFECTS ONLY ONE OR MORE CLASSES OR
SERIES OF STOCK, IN WHICH CASE ONLY THE HOLDERS OF SHARES OF THE CLASSES OR
SERIES AFFECTED SHALL BE ENTITLED TO VOTE.

(C)....THE CORPORATION MAY ISSUE FRACTIONAL SHARES. ANY FRACTIONAL SHARES
SHALL CARRY PROPORTIONATELY ALL THE RIGHTS OF A WHOLE SHARE, EXCEPT
ANY RIGHT TO RECEIVE A CERTIFICATE EVIDENCING SUCH FRACTIONAL SHARE,
BUT INCLUDING, WITHOUT LIMITATION, THE RIGHT TO VOTE AND THE RIGHT
RECEIVE DIVIDENDS.

FIFTH: (A) THE NUMBER OF DIRECTORS OF THE CORPORATION SHALL BE THREE, OR
SUCH OTHER NUMBER AS MAY BE FROM TIME TO TIME FIXED IN THE MANNER
PROVIDED BY THE BY-LAWS OF THE CORPORATION BUT SHALL NEVER BE LESS
THAN THREE (3).

(B)....THE NAMES OF THE DIRECTORS WHO ARE CURRENTLY IN OFFICE ARE:

JOHN F. DONAHUE EDWARD L. FLAHERTY, JR.
JOHN T. CONROY, JR. PETER E. MADDEN
WILLIAM J. COPELAND GREGOR F. MEYER
J. CHRISTOPHER DONAHUE WESLEY W. POSVAR
JAMES E. DOWD MARJORIE P. SMUTS
LAWRENCE D. ELLIS, M.D.

SIXTH: THE BOARD OF DIRECTORS IS EMPOWERED TO AUTHORIZE THE ISSUANCE FROM TIME
TO TIME OF SHARES OF THE CORPORATION, WHETHER NOW OR HEREAFTER AUTHORIZED;
PROVIDED, HOWEVER, THAT THE CONSIDERATION PER SHARES TO BE RECEIVED BY THE
CORPORATION UPON THE ISSUANCE OR SALE OF ANY SHARES SHALL BE THE NET ASSET VALUE
PER SHARE DETERMINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE INVESTMENT
COMPANY ACT OF 1940 AND THE APPLICABLE RULES AND REGULATIONS OF THE SECURITIES
AND EXCHANGE COMMISSION (OR ANY SUCCEEDING GOVERNMENTAL AUTHORITY) AND IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRACTICES AND PRINCIPLES.

SEVENTH: (A) TO THE EXTENT THE CORPORATION HAS FUNDS OR PROPERTY LEGALLY
AVAILABLE THEREFOR, EACH SHAREHOLDER OF THE CORPORATION SHALL HAVE THE RIGHT AT
SUCH TIMES AS MAY BE PERMITTED BY THE CORPORATION, BUT NO LESS FREQUENTLY THAN
ONCE A WEEK, TO REQUIRE THE CORPORATION TO REDEEM ALL OR ANY PART OF ITS SHARES
AT A REDEMPTION PRICE EQUAL TO THE NET ASSET VALUE PER SHARE NEXT DETERMINED
AFTER THE SHARES ARE TENDERED FOR REDEMPTION; SAID DETERMINATION OF THE NET
ASSET VALUE PER SHARE TO BE MADE IN ACCORDANCE WITH THE REQUIREMENTS OF THE
INVESTMENT COMPANY ACT OF 1940 AND THE APPLICABLE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION (OR ANY SUCCEEDING GOVERNMENT AUTHORITY) AND
IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRACTICES AND PRINCIPLES.

NOTWITHSTANDING THE FOREGOING, THE CORPORATION MAY POSTPONE PAYMENT OR
DEPOSIT OF THE REDEMPTION PRICE AND MAY SUSPEND THE RIGHT OF THE SHAREHOLDERS

TO REQUIRE THE CORPORATION TO REDEEM DURING ANY PERIOD WHEN (I) THE NEW YORK
STOCK EXCHANGE IS CLOSED FOR OTHER THAN WEEKENDS AND HOLIDAYS; (II) THE
SECURITIES AND EXCHANGE COMMISSION HAS BY ORDER PERMITTED SUCH SUSPENSION; (III)
AN EMERGENCY AS DEFINED BY RULES OF THE SECURITIES AND EXCHANGE COMMISSION
EXISTS, MAKING DISPOSAL OF PORTFOLIO SECURITIES OR VALUATION OF NET ASSETS OF
THE CORPORATION NOT REASONABLY PRACTICABLE; OR (IV) TRADING ON THE NEW YORK
STOCK EXCHANGE IS RESTRICTED UNDER THE CONDITIONS SET FORTH IN THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION.

(B) THE CORPORATION SHALL HAVE THE RIGHT, EXERCISABLE AT THE
DISCRETION OF THE BOARD OF DIRECTORS, TO REDEEM SHARES OF ANY
SHAREHOLDER FOR THEIR THEN CURRENT NET ASSET VALUE PER SHARE IF
AT SUCH TIME THE SHAREHOLDER OWNS SHARES HAVING AN AGGREGATE NET
ASSET VALUE OF LESS THAN $1,000.00

(C) EACH SHARE IS SUBJECT TO REDEMPTION BY THE CORPORATION AT THE
REDEMPTION PRICE COMPUTED IN THE MANNER SET FORTH IN SUBPARAGRAPH
(A) OF ARTICLE SEVENTH OF THIS CHARTER AT ANY TIME IF THE BOARD
OF DIRECTORS, IN ITS SOLE DISCRETION, DETERMINES THAT FAILURE TO
DO SO MAY RESULT IN THE CORPORATION BEING CLASSIFIED AS A
PERSONAL HOLDING COMPANY AS DEFINED IN THE INTERNAL REVENUE CODE.

(D) TRANSFER OF SHARES WILL BE RECORDED ON THE STOCK TRANSFER RECORDS
OF THE CORPORATION AT THE REQUEST OF THE HOLDERS THEREOF AT ANY
TIME DURING NORMAL BUSINESS HOURS OF THE CORPORATION UNLESS THE
BOARD OF DIRECTORS OF THE CORPORATION DETERMINES, IN ITS SOLE
DISCRETION, THAT ALLOWING SUCH TRANSFER MAY RESULT IN THE
CORPORATION BEING CLASSIFIED AS A PERSONAL HOLDING COMPANY AS
DEFINED IN THE INTERNAL REVENUE CODE.

EIGHTH: THE FOLLOWING PROVISIONS ARE HEREBY ADOPTED FOR THE PURPOSE OF DEFINING,
LIMITING, AND REGULATING THE POWERS OF THE CORPORATION AND OF THE DIRECTORS
AND SHAREHOLDERS:

(A) NO SHAREHOLDER SHALL HAVE ANY PRE-EMPTIVE OR PREFERENTIAL RIGHT OF
SUBSCRIPTION TO ANY SHARES OF ANY CLASS WHETHER NOW OR HEREAFTER
AUTHORIZED. THE BOARD OF DIRECTORS MAY ISSUE SHARES WITHOUT OFFERING
THE SAME EITHER IN WHOLE OR IN PART TO THE SHAREHOLDERS.

(B) SHARES MAY BE PURCHASED, HELD AND DISPOSED OF BY THE OFFICERS AND
DIRECTORS OF THE CORPORATION, BY PARTNERSHIPS OF WHICH ANY SUCH
OFFICER OR DIRECTOR MAY BE A MEMBER AND BY CORPORATIONS OF WHICH ANY
OFFICER OR DIRECTOR OF THE CORPORATION MAY BE AN OFFICER OR DIRECTOR.
EXCEPT AS ABOVE SET FORTH, OR AUTHORIZED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICERS AND DIRECTORS OF THE CORPORATION AND
PARTNERSHIPS OR CORPORATIONS WHICH ARE AFFILIATES OF THE OFFICERS AND
DIRECTORS MAY NOT DEAL WITH THE CORPORATION AS PRINCIPALS IN THE
PURCHASE OR SALE OF ANY SECURITIES OR OTHER PROPERTY.

(C) THE CORPORATION MAY ENTER INTO EXCLUSIVE OR NON-EXCLUSIVE UNDERWRITING
CONTRACTS OR CONTRACTS FOR THE SALE OF ITS SHARES AND MAY ALSO ENTER
INTO CONTRACTS FOR INVESTMENT ADVISORY, MANAGEMENT AND ADMINISTRATIVE
SERVICES. THE TERMS AND CONDITIONS, METHODS OF AUTHORIZATION, RENEWAL,
AMENDMENT AND TERMINATION OF THE AFORESAID CONTRACTS SHALL BE AS
DETERMINED AT THE DISCRETION OF THE BOARD OF DIRECTORS; SUBJECT,
HOWEVER, TO THE PROVISIONS OF THE CHARTER OF THE CORPORATION, THE
BY-LAWS OF THE CORPORATION, APPLICABLE STATE LAW, AND THE INVESTMENT
COMPANY ACT OF 1940 AND THE RULES AND REGULATIONS OF THE SECURITIES
AND EXCHANGE COMMISSION.

(D) EXCEPT AS OTHERWISE PROVIDED BY LAW OR BY THE CHARTER OF THE
CORPORATION, NO CONTRACT OR OTHER TRANSACTION BETWEEN THE CORPORATION
AND ANY PERSON, PARTNERSHIP OR CORPORATION AND NO ACT OF THE
CORPORATION SHALL IN ANY WAY BE AFFECTED OR INVALIDATED BY THE FACT
THAT ANY OFFICER OR DIRECTOR OF THE CORPORATION IS PECUNIARILY OR
OTHERWISE INTERESTED THEREIN OR IS SUCH PERSON OR A MEMBER, OFFICER OR
DIRECTOR OF SUCH PARTNERSHIP OR OTHER CORPORATION, PROVIDED, THAT THE
FACT OF SUCH INTEREST SHALL BE KNOWN TO THE BOARD OF DIRECTORS OF THE
CORPORATION. SPECIFICALLY, BUT WITHOUT LIMITATION OF THE FOREGOING,
THE CORPORATION MAY:

(I) ENTER INTO A WRITTEN UNDERWRITING CONTRACT, MANAGEMENT CONTRACTS FOR
RESEARCH AND ADVISORY SERVICES WITH THE STANDARD FIRE INSURANCE
COMPANY OR ITS PARENT, AFFILIATES OR SUBSIDIARIES THEREOF, OR THEIR
RESPECTIVE SUCCESSORS, OR OTHERWISE DO BUSINESS WITH SUCH CORPORATION,
NOTWITHSTANDING THE FACT THAT ONE OR MORE OF THE DIRECTORS OF THE
CORPORATION AND SOME OR ALL OF ITS OFFICERS ARE, HAVE BEEN, OR MAY
BECOME DIRECTORS, OFFICERS, EMPLOYEES OR STOCKHOLDERS OF THE STANDARD
FIRE INSURANCE COMPANY OR ITS PARENT, AFFILIATES OR SUBSIDIARIES OR
SUCCESSORS, AND IN THE ABSENCE OF ACTUAL FRAUD THE CORPORATION MAY
DEAL FREELY WITH THE STANDARD FIRE INSURANCE COMPANY OR ITS PARENT,
AFFILIATES, SUBSIDIARIES OR SUCCESSORS, AND NEITHER SUCH UNDERWRITING
CONTRACT, MANAGEMENT CONTRACT OR CONTRACT FOR RESEARCH OR ADVISORY
SERVICES NOR ANY OTHER CONTRACT OR TRANSACTION BETWEEN THE CORPORATION
AND THE STANDARD FIRE INSURANCE COMPANY OR ITS PARENT, AFFILIATES,
SUBSIDIARIES OR SUCCESSORS SHALL BE INVALIDATED OR IN ANYWAY AFFECTED
THEREBY, NOR SHALL ANY DIRECTOR OR OFFICER OF THE CORPORATION BE
LIABLE TO THE CORPORATION OR ANY SHAREHOLDER OR CREDITOR OF THE
CORPORATION OR TO ANY OTHER PERSON FOR ANY LOSS INCURRED UNDER OR BY
REASON OF ANY SUCH CONTRACT OR TRANSACTION. ANYTHING IN THE FOREGOING
NOTWITHSTANDING, NO OFFICER OR DIRECTOR OR UNDERWRITER OR INVESTMENT
ADVISER OF THE CORPORATION SHALL BE PROTECTED AGAINST ANY LIABILITY TO
THE CORPORATION OR TO ITS SECURITY HOLDERS TO WHICH HE WOULD OTHERWISE
BE SUBJECT BY REASON OF WILLFUL MISFEASANCE, BAD FAITH, GROSS
NEGLIGENCE OR RECKLESS DISREGARD OF THE DUTIES INVOLVED IN THE CONDUCT
OF THIS OFFICE;

(E) NO OFFICER OR DIRECTOR OF THE CORPORATION OR OF ANY INVESTMENT
ADVISORY COMPANY OR MANAGEMENT COMPANY, NOR THE CORPORATION ITSELF,
NOR SUCH INVESTMENT ADVISORY OR MANAGEMENT COMPANY OR UNDERWRITER OF
THE CORPORATION SHALL TAKE LONG OR SHORT POSITIONS IN RESPECT OF ANY
SHARES ISSUED BY THE CORPORATION; PROVIDED, HOWEVER, THAT SUCH
PROHIBITION SHALL NOT PREVENT:

(I) ANY UNDERWRITER FROM PURCHASING FROM THE CORPORATION SHARES ISSUED BY
THE CORPORATION, PROVIDED THAT ORDERS TO PURCHASE FROM THE CORPORATION
ARE ENTERED WITH THE CORPORATION BY SUCH UNDERWRITER EITHER FOR
INVESTMENT OR UPON RECEIPT BY IT OF PURCHASE ORDERS FOR SHARES OF THE
CORPORATION, AND PROVIDED SUCH PURCHASES ARE NOT IN EXCESS OF PURCHASE
ORDERS RECEIVED BY SUCH UNDERWRITER;

(II) THE CORPORATION OR ANY DISTRIBUTOR OR UNDERWRITER FROM MAINTAINING A
MARKET FOR SHARES ISSUED BY THE CORPORATION;

(III)THE PURCHASE FROM THE CORPORATION OF SHARES BY THE OFFICERS OR
DIRECTORS OF THE CORPORATION OR OF ANY INVESTMENT ADVISORY, MANAGEMENT
COMPANY OR UNDERWRITER OR DISTRIBUTOR OF THE CORPORATION AT THE PRICES
AVAILABLE TO THE PUBLIC OR AS AUTHORIZED BY THE SECURITIES EXCHANGE
COMMISSION AT THE MOMENT OF SUCH PURCHASE.

F. THE CORPORATION SHALL INDEMNIFY ITS OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS AND ANY PERSON WHO SERVES AT THE REQUEST OF THE CORPORATION AS
A DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF ANOTHER CORPORATION,
PARTNERSHIP, JOINT VENTURE, TRUST OR OTHER ENTERPRISE TO THE EXTENT
PERMITTED BY MARYLAND LAW AS AMENDED FROM TIME TO TIME PROVIDED,
HOWEVER, THAT NO OFFICER OR DIRECTOR SHALL BE PROTECTED AGAINST ANY
LIABILITY TO THE CORPORATION OR ITS SHAREHOLDERS TO WHICH HE WOULD
OTHERWISE BE SUBJECT BY REASON OF WILLFUL MISFEASANCE, BAD FAITH,
GROSS NEGLIGENCE OR RECKLESS DISREGARD OF THE DUTIES INVOLVED IN THE
CONDUCT OF HIS OFFICE. IN ADDITION, THE CORPORATION MAY PURCHASE AND
MAINTAIN INSURANCE ON BEHALF OF ANY PERSON WHO IS OR WAS A DIRECTOR,
OFFICER, EMPLOYEE OR AGENT OF THE CORPORATION, OR WHO, WHILE A
DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF THE CORPORATION, IS OR WAS
SERVING AT THE REQUEST OF THE CORPORATION AS A DIRECTOR, OFFICER,
PARTNER, TRUSTEE, EMPLOYEE OR AGENT OF ANOTHER FOREIGN OR DOMESTIC
CORPORATION, PARTNERSHIP, JOINT VENTURE, TRUST, OTHER ENTERPRISE, OR
EMPLOYEE BENEFIT PLAN AGAINST ANY LIABILITY ASSERTED AGAINST AND
INCURRED BY SUCH PERSON IN ANY SUCH CAPACITY OR ARISING OUT OF SUCH
PERSON'S POSITION, WHETHER OR NOT THE CORPORATION WOULD HAVE THE POWER
TO INDEMNIFY AGAINST LIABILITY UNDER THE PROVISIONS OF THIS PARAGRAPH.

G. THE BOARD OF DIRECTORS SHALL, SUBJECT TO THE LAWS OF MARYLAND, HAVE
THE POWER TO DETERMINE, FROM TIME TO TIME, WHETHER AND TO WHAT EXTENT
AND AT WHAT TIMES AND PLACES AND UNDER WHAT CONDITIONS AND REGULATIONS
ANY ACCOUNTS AND BOOKS OF THE CORPORATION, OR ANY OF THEM, SHALL BE
OPEN TO THE INSPECTION OF THE SHAREHOLDERS.

H. NOTWITHSTANDING ANY PROVISION OF LAW REQUIRING A GREATER PROPORTION
THAN A MAJORITY OF THE VOTES OF ALL CLASSES OF SHARES ENTITLED TO BE
CAST, TO TAKE OR AUTHORIZE ANY ACTION, THE CORPORATION MAY TAKE OR
AUTHORIZE ANY SUCH ACTION UPON THE CONCURRENCE OF A MAJORITY OF THE
AGGREGATE NUMBER OF THE VOTES ENTITLED TO BE CAST THEREON.

I. THE CORPORATION RESERVES THE RIGHT FROM TIME TO TIME TO MAKE ANY
AMENDMENT OF ITS CHARTER NOW OR HEREAFTER AUTHORIZED BY LAW, INCLUDING
ANY AMENDMENT WHICH ALTERS THE CONTRACT RIGHTS, AS EXPRESSLY SET FORTH
IN ITS CHARTER, OF ANY OUTSTANDING SHARES, EXCEPT THAT NO ACTION
AFFECTING THE VALIDITY OR ASSESSIBILITY OF SUCH SHARES SHALL BE TAKEN
WITHOUT THE UNANIMOUS APPROVAL OF THE OUTSTANDING SHARES.

J. IN ADDITION TO THE POWERS AND AUTHORITY CONFERRED UPON THEM BY THE
CHARTER OF THE CORPORATION OR BY-LAWS, THE BOARD OF DIRECTORS MAY
EXERCISE ALL SUCH POWERS AND AUTHORITY AND DO ALL SUCH ACTS AND THINGS
AS MAY BE EXERCISED OR DONE BY THE CORPORATION, SUBJECT, NEVERTHELESS,
TO THE PROVISIONS OF APPLICABLE STATE LAW AND THE CHARTER AND BY-LAWS
OF THE CORPORATION.

K. THE BOARD OF DIRECTORS IS EXPRESSLY AUTHORIZED TO DETERMINE IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES
WHAT CONSTITUTES NET PROFITS, EARNING, SURPLUS OR NET ASSETS IN EXCESS
OF CAPITAL, AND TO DETERMINE WHAT ACCOUNTING PERIODS SHALL BE USED BY
THE CORPORATION FOR ANY PURPOSE, WHETHER ANNUAL OR ANY OTHER PERIOD,
INCLUDING DAILY; TO SET APART OUT OF ANY FUNDS OF THE CORPORATION SUCH
RESERVES FOR SUCH PURPOSES AS IT SHALL DETERMINE AND TO ABOLISH THE
SAME; TO DECLARE AND PAY DIVIDENDS AND DISTRIBUTIONS IN CASH,
SECURITIES OR OTHER PROPERTY FROM SURPLUS OR ANY FUNDS LEGALLY
AVAILABLE THEREFOR, AT SUCH INTERVALS (WHICH MAY BE AS FREQUENTLY AS
DAILY) OR ON SUCH OTHER PERIODIC BASIS, AS IT SHALL DETERMINE; TO
DECLARE SUCH DIVIDENDS OR DISTRIBUTIONS BY MEANS OF A FORMULA OR OTHER
METHOD OF DETERMINATION, AT MEETING HELD LESS FREQUENTLY THAN THE
FREQUENCY OF THE EFFECTIVENESS OF SUCH DECLARATIONS; TO ESTABLISH
PAYMENT DATES FOR DIVIDENDS OR ANY OTHER DISTRIBUTIONS ON ANY BASIS,
INCLUDING DATES OCCURRING LESS FREQUENTLY THAN THE EFFECTIVENESS OF
DECLARATIONS THEREOF; AND TO PROVIDE FOR THE PAYMENT OF DECLARED
DIVIDENDS ON A DATE EARLIER OR LATER THAN THE SPECIFIED PAYMENT DATE
IN THE CASE OF SHAREHOLDERS REDEEMING THEIR ENTIRE OWNERSHIP OF
SHARES.

NINTH: THE DURATION OF THE CORPORATION SHALL BE PERPETUAL.

SECOND:The restatement of the Charter was approved by a majority of the
entire Board of Directors.

THIRD: The provisions set forth in these Articles of Restatement are all
the provisions of the Charter currently in effect. The current address of the
principal office of the Corporation, the name and address of the Corporation's
current resident agent and the number of directors of the Corporation and the
names of those currently in office are as stated above.

FOURTH:The Charter is not amended by these Articles of Restatement.

IN WITNESS WHEREOF, Liberty Equity Income Fund, Inc. has caused these
Articles of Restatement to be signed in its name and on its behalf by its
President and attested by its Assistant Secretary on April 30, 1993. The
undersigned President acknowledges these Articles of Restatement to be the
corporate act of the Corporation and states to the best of his knowledge,
information and belief that the matters and facts set forth herein with respect
to authorization and approval are true in all material respects and that this
statement is made under the penalties of perjury.

WITNESS: LIBERTY EQUITY INCOME FUND, INC.

/S/ CHARLES H. FIELD By: /S/ RICHARD B. FISHER

Exhibit 23(a)(ii) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K

LIBERTY EQUITY INCOME FUND, INC.

ARTICLES OF AMENDMENT

LIBERTY EQUITY INCOME FUND, INC., a Maryland corporation having post
office addresses in the City of Pittsburgh, Pennsylvania and the City of
Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to
the State Department of Assessments and Taxation of Maryland that:

FIRST: The Articles of Incorporation of the Corporation are hereby amended
by striking Article FIRST and inserting the following in its place:

"FIRST: The name of the Corporation is Federated Equity Income Fund, Inc."

SECOND: The Board of Directors, in accordance with the authority granted
under subparagraph (b)(i) of paragraph FOURTH of the Corporation's Articles of
Restatement, dated April 30, 1993, hereby redesignates the classes of authorized
shares of common stock of the Corporation as:

Federated Equity Income Fund, Inc. Class A Shares
Federated Equity Income Fund, Inc. Class B Shares
Federated Equity Income Fund, Inc. Class C Shares
Federated Equity Income Fund, Inc. Class F Shares

THIRD: The foregoing amendment to the charter of the Corporation was
approved by a majority of the entire Board of Directors of the Corporation; the
charter amendment is limited to a change expressly permitted by Section 2-605 of
the Maryland General Corporation Law to be made without action by stockholders;
and the Corporation is registered as an open-end company under the Investment
Company Act of 1940, as amended.

FOURTH: These Articles of Amendment will become effective immediately upon
filing with the State Department of Assessments and Taxation of Maryland.

IN WITNESS WHEREOF, Liberty Equity Income Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its Secretary and
witnessed by its Assistant Secretary on March 29, 1996.

<PAGE>

The undersigned, John W. McGonigle, Executive Vice President and
Secretary of the Corporation, hereby acknowledges in the name and on behalf of
the Corporation the foregoing Articles of Amendment to be its corporate act and
further certifies to the best of his knowledge, information and belief, that the
matters and facts set forth herein with respect to the authorization and
approval hereof are true in all material respects and that this statement is
made under the penalties of perjury.

LIBERTY EQUITY INCOME FUND, INC.
ATTEST

/S/CHARLES H. FIELD /S/ JOHN W. MCGONIGLE
Charles H. Field John W. McGonigle
Assistant Secretary Executive Vice President and Secretary

Exhibit 23 (b)(iv) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

FEDERATED EQUITY INCOME FUND, INC.

(FORMERLY: LIBERTY EQUITY INCOME FUND, INC.)

AMENDMENT #6

TO THE BY-LAWS

(EFFECTIVE FEBRUARY 23, 1998)

Delete Sections 1, 2, 3, 4 & 5 from Article IV, OFFICERS, and replace with the
following:

Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall be
a President, one or more Vice Presidents, a Treasurer, and a Secretary.
The Board of Directors, in its discretion, may elect or appoint a
Chairman of the Board of Directors and other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries, and one or more Assistant Treasurers. A Vice President, the
Secretary or the Treasurer may appoint an Assistant Vice President, an
Assistant Secretary or an Assistant Treasurer, respectively, to serve
until the next election of Officers. Two or more offices may be held by
a single person except the offices of President and Vice President may
not be held by the same person concurrently. It shall not be necessary
for any Director or any Officer to be a holder of shares in any Series
or Class of the Corporation.

Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers
shall be elected annually by the Board of Directors at its Annual
Meeting. Each Officer shall hold office for one year and until the
election and qualification of his successor, or until earlier
resignation or removal. The Chairman of the Board of Directors, if there
is one, shall be elected annually by and from the Directors, and serve
until a successor is so elected and qualified, or until earlier
resignation or removal.

Section 3. REMOVAL. Any Officer elected by the Board of Directors or
whose appointment has been ratified by the Board of Directors may be
removed with or without cause at any time by a majority vote of all of
the Directors. Any other employee of the Corporation may be removed or
dismissed at any time by the President.

Section 4. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors. Any such resignation shall
take effect at the time specified therein or, if no time is specified,
at the time of receipt. Unless otherwise specified , the acceptance of
such resignation shall not be necessary to make it effective.

Section 5. VACANCIES. Any vacancy in any of the offices, whether by
resignation, removal or otherwise, may be filled for the unexpired
portion of the term by the President. A vacancy in the office of
Assistant Vice President may be filled by a Vice President; in the
office of by the Secretary; or in the office of Assistant Treasurer by
the Treasurer. Any appointment to fill any vacancy shall serve subject
to ratification by the Board of Directors at its next Regular Meeting.

Exhibit 23 (b)(v) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

FEDERATED EQUITY INCOME FUND, INC.

AMENDMENT #7

TO THE BY-LAWS

(EFFECTIVE FEBRUARY 27, 1998)

Delete Section 7 PROXIES of Article I, MEETINGS OF SHAREHOLDERS, and replace
with the following:

Section 7. PROXIES. Any Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy, but no proxy which
is dated more than eleven months before the meeting named therein shall
be accepted unless otherwise provided in the proxy. Every proxy shall be
in writing and signed by the Shareholder or his duly authorized agent or
be in such other form as may be permitted by the Maryland General
Corporation Law, including electronic transmissions from the shareholder
or his authorized agent. Authorization may be given orally, in writing,
by telephone, or by other means of communication. A copy, facsimile
transmission or other reproduction of the writing or transmission may be
substituted for the original writing or transmission for any purpose for
which the original transmission could be used. Every proxy shall be
dated, but need not be sealed, witnessed or acknowledged. Where Shares
are held of record by more than one person, any co-owner or co-fiduciary
may appoint a proxy holder, unless the Secretary of the Corporation is
notified in writing by any co-owner or co-fiduciary that the joinder of
more than one is to be required. All proxies shall be filed with and
verified by the Secretary or an Assistant Secretary of the Corporation,
or the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not
be valid after the final adjournment of such meeting.

Exhibit 23 (b)(vi) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

FEDERATED EQUITY INCOME FUND, INC.
AMENDMENT #8

TO THE BY-LAWS
(EFFECTIVE MAY 12, 1998)

Strike Section 3 - Place of Meetings from Article I - Meeting of Shareholder and
replace it with the following:

Section 3. PLACE OF MEETINGS. All meetings of the Shareholders of the
Corporation or a particular Series or Class, shall be held at such place
within or without the State of Maryland as may be fixed by the Board of
Directors.

Exhibit 23 (h)(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AMENDED & RESTATED

AGREEMENT

FOR

FUND ACCOUNTING SERVICES,

ADMINISTRATIVE SERVICES,

TRANSFER AGENCY SERVICES

AND

CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of March 1, 1996, and amended and restated as of September
1, 1997, by and between those investment companies listed on Exhibit 1 as may be
amended from time to time, having their principal office and place of business
at Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Investment
Company"), on behalf of the portfolios (individually referred to herein as a
"Fund" and collectively as "Funds") of the Investment Company, and FEDERATED
SERVICES COMPANY, a Pennsylvania corporation, having its principal office and
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 on behalf of itself and its subsidiaries (the "Company").

WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");

WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company desires to accept such appointment;

WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined), if
so indicated on Exhibit, and the Company desires to accept such appointment;

WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined) if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept such
appointment; and

WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and

NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:

SECTION ONE: FUND ACCOUNTING.

ARTICLE 1. APPOINTMENT.

The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the period
and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Article 3 of this Section. ARTICLE 2. THE
COMPANY'S DUTIES.

Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment Company
with regard to fund accounting for the Investment Company, and/or the Funds,
and/or the Classes, and in connection therewith undertakes to perform the
following specific services;

A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not provide a
price for a security which the Company believes should be available by
market quotation, the Company may obtain a price by calling brokers
designated by the investment adviser of the fund holding the security,
or if the adviser does not supply the names of such brokers, the
Company will attempt on its own to find brokers to price those
securities; thirdly, for securities for which no market price is
available, the Pricing Committee of the Board will determine a fair
value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to
exercise reasonable care in the supervision of the pricing agent. The
Company is not the guarantor of the securities prices received from
such agents and the Company is not liable to the Fund for potential
errors in valuing a Fund's assets or calculating the net asset value
per share of such Fund or Class when the calculations are based upon
such prices. All of the above sources of prices used as described are
deemed by the Company to be authorized sources of security prices. The
Company provides daily to the adviser the securities prices used in
calculating the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has comment.
Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents;

B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;

C. Calculate the net income of each of the Funds, if any;

D. Calculate realized capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;

E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;

F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Investment
Company are the property of the Investment Company and further agrees
to surrender promptly to the Investment Company such records upon the
Investment Company's request;

G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other
applicable laws and regulations; and

H. Such other similar services as may be reasonably requested by the
Investment Company.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."

ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.

A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items agreed upon between the parties from time to time.

B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees of
Trustees or Directors of the Investment Company; independent auditors
expenses; legal and audit department expenses billed to the Company for
work performed related to the Investment Company, the Funds, or the
Classes; law firm expenses; organizational expenses; or other expenses
not specified in this Article 3 which may be properly payable by the
Funds and/or Classes.

C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.

D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.

E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.

F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in
performing Fund Accounting Services. Such person or persons may be
affiliates of the Company, third-party service providers, or they may
be officers and employees who are employed by both the Company and the
Investment Company; provided, however, that the Company shall be as
fully responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company and no
obligation shall be incurred on behalf of the Investment Company, the
Funds, or the Classes in such respect.

SECTION TWO: ADMINISTRATIVE SERVICES.

ARTICLE 4. APPOINTMENT.

The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth in
Article 5 of this Agreement in return for the compensation set forth in Article
9 of this Agreement.

ARTICLE 5. THE COMPANY'S DUTIES.

As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:

A. prepare, file, and maintain the Investment Company's governing
documents and any amendments thereto, including the Charter (which has
already been prepared and filed), the By-laws and minutes of meetings
of the Board and Shareholders;

B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements
for the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous
offering of its shares;

C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;

D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;

E. prepare and file the Investment Company's tax returns;

F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;

G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;

H. assist with the design, development, and operation of the Investment
Company and the Funds;

I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who
will be responsible for the management of certain of the Investment
Company's affairs as determined by the Investment Company's Board; and

J. consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."

ARTICLE 6. RECORDS.

The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company's
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.

ARTICLE 7. DUTIES OF THE FUND.

The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules
and regulations of government authorities having jurisdiction.

ARTICLE 8. EXPENSES.

The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Administrative Services to the Investment Company, including the compensation of
the Company employees who serve as trustees or directors or officers of the
Investment Company. The Investment Company shall be responsible for all other
expenses incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, or other professional services, organizational expenses,
insurance premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the Funds and/or
the Classes.

ARTICLE 9. COMPENSATION.

For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
Fund, as specified below.

The compensation and out of pocket expenses attributable to the Fund shall
be accrued by the Fund and paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will maintain
detailed information about the compensation and out of pocket expenses by the
Fund.

MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS

.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)

However, in no event shall the administrative fee received during any year
of the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in this
Article 9 may increase annually upon each March 1 anniversary of this Agreement
over the minimum fee during the prior 12 months, as calculated under this
agreement, in an amount equal to the increase in Pennsylvania Consumer Price
Index (not to exceed 6% annually) as last reported by the U.S. Bureau of Labor
Statistics for the twelve months immediately preceding such anniversary.

ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.

A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
The Company shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. Any person, even though also
an officer, director, trustee, partner, employee or agent of the
Company, who may be or become an officer, director, trustee, partner,
employee or agent of the Investment Company, shall be deemed, when
rendering services to the Investment Company or acting on any business
of the Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be rendering
such services to or acting solely for the Investment Company and not
as an officer, director, trustee, partner, employee or agent or one
under the control or direction of the Company even though paid by the
Company.

B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained in
this Article 10 shall apply, however, it is understood that if in any
case the Investment Company may be asked to indemnify or hold the
Company harmless, the Investment Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question,
and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning
any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend the
Company against any claim which may be the subject of this
indemnification. In the event that the Investment Company so elects,
it will so notify the Company and thereupon the Investment Company
shall take over complete defense of the claim, and the Company shall
in such situation initiate no further legal or other expenses for
which it shall seek indemnification under this Article. The Company
shall in no case confess any claim or make any compromise in any case
in which the Investment Company will be asked to indemnify the Company
except with the Investment Company's written consent.

SECTION THREE: TRANSFER AGENCY SERVICES.

ARTICLE 11. TERMS OF APPOINTMENT.

Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company agrees
to act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.

ARTICLE 12. DUTIES OF THE COMPANY.

The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:

A. Purchases

(1) The Company shall receive orders and payment for the purchase
of shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the "Custodian"). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.

(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.

(3) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.

B. Distribution

(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the
provisions of its governing document and the then-current
Prospectus of the Fund. The Company shall prepare and mail or
credit income, capital gain, or any other payments to
Shareholders. As the Dividend Disbursing Agent, the Company
shall, on or before the payment date of any such distribution,
notify the Custodian of the estimated amount required to pay
any portion of said distribution which is payable in cash and
request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is entitled to
receive additional Shares by virtue of any such distribution or
dividend, appropriate credits shall be made to the
Shareholder's account; and

(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class and
its Shareholders as to the foregoing.

C. Redemptions and Transfers

(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company by
the Custodian for redemptions.

(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to
procedures described in the then-current Prospectus of the
Fund.

(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor,
and shall effect such redemption at the price applicable to the
date and time of receipt of documents complying with said
procedures.

(4) The Company shall effect transfers of Shares by the registered
owners thereof.

(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.

D. Recordkeeping

(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the
total number of Shares of the Fund and/or Class which are
authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also provide the Fund
on a regular basis or upon reasonable request with the total
number of Shares which are authorized and issued and
outstanding, but shall have no obligation when recording the
issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Funds.

(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:

(a) Name, address and tax identification number (and whether such
number has been certified);

(b) Number of Shares held;

(d) Any stop or restraining order placed against the account;

(e) Information with respect to withholding in the case of a foreign
account or an account for which withholding is required by the
Internal Revenue Code;

(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current maintenance of
the account;

(g) Certificate numbers and denominations for any Shareholder holding
certificates;

(h) Any information required in order for the Company to perform the
calculations contemplated or required by this Agreement.

(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall forthwith
upon the Fund's demand, turn over to the Fund and cease to
retain in the Company's files, records and documents created
and maintained by the Company pursuant to this Agreement, which
are no longer needed by the Company in performance of its
services or for its protection. If not so turned over to the
Fund, such records and documents will be retained by the
Company for six years from the year of creation, during the
first two of which such documents will be in readily accessible
form. At the end of the six year period, such records and
documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.

E. Confirmations/Reports

(1) The Company shall furnish to the Fund periodically the following
information:

(a) A copy of the transaction register;

(b) Dividend and reinvestment blotters;

(c) The total number of Shares issued and outstanding in
each state for "blue sky" purposes as determined
according to Proper Instructions delivered from time to
time by the Fund to the Company;

(d) Shareholder lists and statistical information;

(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;

(f) Such other information as may be agreed upon from time to
time.

(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies,
and, if required, mail to Shareholders, such notices for
reporting dividends and distributions paid as are required to
be so filed and mailed and shall withhold such sums as are
required to be withheld under applicable federal and state
income tax laws, rules and regulations.

(3) In addition to and not in lieu of the services set forth above,
the Company shall:

(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited
to: maintaining all Shareholder accounts, mailing
Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien
accounts), preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms required
with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and
providing Shareholder account information; and

(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund (and/or Class) sold in
each state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky
reporting for each state and (ii) verify the classification
of transactions for each state on the system prior to
activation and thereafter monitor the daily activity for
each state. The responsibility of the Company for each
Fund's (and/or Class's) state blue sky registration status
is limited solely to the recording of the initial
classification of transactions or accounts with regard to
blue sky compliance and the reporting of such transactions
and accounts to the Fund as provided above.

F. Other Duties

(1) The Company shall answer correspondence from Shareholders relating to
their Share accounts and such other correspondence as may from time to
time be addressed to the Company;

(2) The Company shall prepare Shareholder meeting lists, mail proxy cards
and other material supplied to it by the Fund in connection with
Shareholder meetings of each Fund; receive, examine and tabulate
returned proxies, and certify the vote of the Shareholders;

(3) The Company shall establish and maintain faclities and procedures for
safekeeping of check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such forms and devices.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."

ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.

A. Compliance

The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.

B. Distributions

The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.

ARTICLE 14. COMPENSATION AND EXPENSES.

A. Annual Fee

For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as
agreed upon between the parties and as may be added to or amended from
time to time. Such fees may be changed from time to time subject to
written agreement between the Investment Company and the Company.
Pursuant to information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund into
Classes or other sub-components for recordkeeping purposes. The Company
will charge the Fund the same fees for each such Class or sub-component
the same as if each were a Fund.

B. Reimbursements

In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time.
In addition, any other expenses incurred by the Company at the request
or with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.

C. Payment

The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.

SECTION FOUR: CUSTODY SERVICES PROCUREMENT.

ARTICLE 15. APPOINTMENT.

The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian").

The Company accepts such appointment.

ARTICLE 16. THE COMPANY AND ITS DUTIES.

Subject to the review, supervision and control of the Board, the Company
shall:

A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and
has been approved by the Board as being eligible for selection by the
Company as an Eligible Custodian;

B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;

C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;

D. monitor and evaluate the nature and the quality of services provided
by Eligible Custodians;

E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature
and amount of disbursements made on account of the each Fund with
respect to each custodial agreement; and (iii) such other information
as the Board shall reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and 36(b) of the 1940 Act
and other duties and obligations thereof;

F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian; and

The foregoing, along with any additional services that Company shall agree
in writing to perform for the Fund under this Section Four, shall hereafter be
referred to as "Custody Services Procurement."

ARTICLE 17. FEES AND EXPENSES.

A. Annual Fee

For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.

B. Reimbursements

In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time.
In addition, any other expenses incurred by the Company at the request
or with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.

C. Payment

ARTICLE 18. REPRESENTATIONS.

The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter into
this arrangement and to provide the services contemplated in Section Four of
this Agreement.

SECTION FIVE: GENERAL PROVISIONS.

ARTICLE 19. PROPER INSTRUCTIONS.

As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral instructions to
be confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Proper Instructions
may only be amended in writing.

ARTICLE 20. ASSIGNMENT.

Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.

A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.

B. With regard to Transfer Agency Services, the Company may without
further consent on the part of the Investment Company subcontract for
the performance of Transfer Agency Services with

(1) its subsidiary, Federated Shareholder Service Company, a
Delaware business trust, which is duly registered as a transfer
agent pursuant to Section 17A(c)(1) of the Securities Exchange
Act of 1934, as amended, or any succeeding statute ("Section
17A(c)(1)"); or

(2) such other provider of services duly registered as a transfer
agent under Section 17A(c)(1) as Company shall select.

The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.

C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent
on the part of the Investment Company subcontract for the performance
of such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.

D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with
an Agent selected by the Investment Company, other than as described in
B. and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.

ARTICLE 21. DOCUMENTS.

A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following documents:

(1) A copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;

(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;

(3) Printed documentation from the recordkeeping system representing
outstanding Share certificates of the Investment Company or the
Funds;

(4) All account application forms and other documents relating to
Shareholders accounts; and

(5) A copy of the current Prospectus for each Fund.

B. The Fund will also furnish from time to time the following documents:

(1) Each resolution of the Board of the Investment Company
authorizing the original issuance of each Fund's, and/or Class's
Shares;

(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;

(3) A certified copy of each amendment to the governing document and
the By-Laws of the Investment Company;

(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;

(5) Such other certifications, documents or opinions which the
Company may, in its discretion, deem necessary or appropriate in
the proper performance of its duties; and

(6) Revisions to the Prospectus of each Fund.

ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company

The Company represents and warrants to the Fund that:

(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;

(2) It is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires such
qualification, and in the Commonwealth of Pennsylvania;

(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement;

(4) all requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this
Agreement;

(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;

(6) it is in compliance with federal securities law requirements and
in good standing as an administrator and fund accountant; and

B. Representations and Warranties of the Investment Company

The Investment Company represents and warrants to the Company that:

(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;

(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this
Agreement;

(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;

(4) The Investment Company is an open-end investment company
registered under the 1940 Act; and

(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each Fund
being offered for sale.

ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.

A. Standard of Care

With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on
all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice, provided that such action is
not in violation of applicable federal or state laws or regulations,
and is in good faith and without negligence.

B. Indemnification by Investment Company

The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:

(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company
or Fund,

(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which

(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;

(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of the
Funds; or

(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Investment Company of Fund
for use in the performance of services under this Agreement;

(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.

(3) The reliance on, or the carrying out by the Company or its agents or
subcontractors of Proper Instructions of the Investment Company or the
Fund.

(4) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.

Provided, however, that the Company shall not be protected by
this Article 23.B. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties or failure to
meet the standard of care set forth in 23.A. above.

C. Reliance

At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate Fund for any
action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such action
is not in violation of applicable federal or state laws or regulations.
The Company, its agents and subcontractors shall be protected and
indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Investment Company or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.

D. Notification

In order that the indemnification provisions contained in this Article
23 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.

ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.

This Agreement shall be effective from September 1, 1997, and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue for 18
month terms. The Agreement can be terminated by either party upon 18 months
notice to be effective as of the end of such 18 month period. In the event,
however, of willful misfeasance, bad faith, negligence or reckless disregard of
its duties by the Company, the Investment Company has the right to terminate the
Agreement upon 60 days written notice, if Company has not cured such willful
misfeasance, bad faith, negligence or reckless disregard of its duties within 60
days. The termination date for all original or after-added Investment companies
which are, or become, a party to this Agreement. shall be coterminous.
Investment Companies that merge or dissolve during the Term, shall cease to be a
party on the effective date of such merger or dissolution.

Should the Investment Company exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination.

The provisions of Articles 10 and 23 shall survive the termination of this
Agreement.

ARTICLE 25. AMENDMENT.

This Agreement may be amended or modified by a written agreement executed by
both parties.

ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.

In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, PROVIDED that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.

ARTICLE 27. GOVERNING LAW.

This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts

ARTICLE 28. NOTICES.

Except as otherwise specifically provided herein, Notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, PA, 15222-3779, or to the Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such other address
as the Investment Company or the Company may hereafter specify, shall be deemed
to have been properly delivered or given hereunder to the respective address.

ARTICLE 29. COUNTERPARTS.

This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original. ARTICLE 30.
LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE COMPANY.

The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.

ARTICLE 31. MERGER OF AGREEMENT.

This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.

ARTICLE 32. SUCCESSOR AGENT.

If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.

In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.

ARTICLE 33. FORCE MAJEURE.

The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.

ARTICLE 34. ASSIGNMENT; SUCCESSORS.

This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all of
or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing in
this Article 34 shall prevent the Company from delegating its responsibilities
to another entity to the extent provided herein.

ARTICLE 35. SEVERABILITY.

In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.

ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
INVESTMENT COMPANY.

The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the Declaration of Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

INVESTMENT COMPANIES

(LISTED ON EXHIBIT 1)

By: /S/ S. ELLIOTT COHAN

Name: S. Elliott Cohan
Title: Assistant Secretary

FEDERATED SERVICES COMPANY

By: /S/ THOMAS J. WARD

Name: Thomas J. Ward
Title: Secretary

<PAGE>

EXHIBIT 1

Federated Equity Income Fund, Inc.
Class A Shares
Class B Shares
Class C Shares
Class F Shares

Exhibit 23 (h)(iii) under Form N-1A
Exhibit 10 under Item 601 Reg. S/K

SHAREHOLDER SERVICES AGREEMENT

THIS AGREEMENT, amended and restated as of the first day of September,
1995, (originally made and entered into as of the first day of March, 1994), by
and between those investment companies listed on Exhibit 1, as may be amended
from time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 and who have
approved this form of Agreement (individually referred to herein as a "Fund" and
collectively as "Funds") and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS").

1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts
of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, FSS is hereby appointed
the Funds' agent to select, negotiate and subcontract for the
performance of Services. FSS hereby accepts such appointments. FSS
agrees to provide or cause to be provided Services which, in its best
judgment (subject to supervision and control of the Funds' Boards of
Trustees or Directors, as applicable), are necessary or desirable for
shareholders of the Funds. FSS further agrees to provide the Funds, upon
request, a written description of the Services which FSS is providing
hereunder.

2. During the term of this Agreement, each Fund will pay FSS and FSS agrees
to accept as full compensation for its services rendered hereunder a fee
at an annual rate, calculated daily and payable monthly, up to 0.25% of
1% of average net assets of each Fund.

For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that
this Agreement is in effect with respect to such Fund during the month.

3. This Agreement shall continue in effect for one year from the date of
its execution, and thereafter for successive periods of one year only if
the form of this Agreement is approved at least annually by the Board of
each Fund, including a majority of the members of the Board of the Fund
who are not interested persons of the Fund ("Independent Board Members")
cast in person at a meeting called for that purpose.

4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:

(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a vote of
a majority of the outstanding voting securities of any Fund as defined
in the Investment Company Act of 1940 on sixty (60) days' written
notice to the parties to this Agreement;

(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and

(c) by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to
terminate.

5. FSS agrees to obtain any taxpayer identification number certification
from each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its
designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.

6. FSS shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. FSS shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for
such Fund) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Any
person, even though also an officer, trustee, partner, employee or
agent of FSS, who may be or become a member of such Fund's Board,
officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such
Fund and not as an officer, trustee, partner, employee or agent or one
under the control or direction of FSS even though paid by FSS.

This Section 6 shall survive termination of this Agreement.

7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.

8. FSS is expressly put on notice of the limitation of liability as set
forth in the Declaration of Trust of each Fund that is a Massachusetts
business trust and agrees that the obligations assumed by each such Fund
pursuant to this Agreement shall be limited in any case to such Fund and
its assets and that FSS shall not seek satisfaction of any such
obligations from the shareholders of such Fund, the Trustees, Officers,
Employees or Agents of such Fund, or any of them.

9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.

10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Fund and to such Fund at the following address: Federated Investors
Tower, Pittsburgh, PA 15222-3779, Attention: President and if delivered
to FSS at Federated Investors Tower, Pittsburgh, PA 15222-3779,
Attention: President.

11. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written. If any provision of this Agreement shall
be held or made invalid by a court or regulatory agency decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Sections 3 and 4, hereof,
this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed
by Pennsylvania law; provided, however, that nothing herein shall be
construed in a manner inconsistent with the Investment Company Act of
1940 or any rule or regulation promulgated by the Securities and
Exchange Commission thereunder.

12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and
the same instrument.

13. This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the
Funds in the case of assignment by FSS, except that any party may assign
to a successor all of or a substantial portion of its business to a
party controlling, controlled by, or under common control with such
party. Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

Attest: Investment Companies (listed on Exhibit 1)

/S/ JOHN W. MCGONIGLE By:/S/ JOHN F. DONAHUE
John W. McGonigle John F. Donahue
Secretary Chairman

Attest: Federated Shareholder Services

/S/ JOSEPH M. HUBER By: /S/ JOHN W. MCGONIGLE
Joseph M. Huber John W. McGonigle
Secretary President

<PAGE>

Exhibit 1

Federated Equity Income Fund, Inc.
Class A Shares
Class B Shares
Class C Shares
Class F Shares

Exhibit 23 (p)(ii) 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 Secretaries of FEDERATED EQUITY INCOME
FUND, INC. 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/J. THOMAS MADDEN Chief Investment Officer March 3, 1999
- -----------------------------
J. Thomas Madden

Sworn to and subscribed before me this 3 day of MARCH, 1999
----- -----

/S/CHERI S. GOOD
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries

Exhibit 23 (p)(iii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

POWER OF ATTORNEY

SIGNATURES TITLE DATE

/S/RICHARD J. THOMAS Treasurer 12/11/98
Richard J. Thomas (Principal Financial and
Accounting Officer)

Sworn to and subscribed before me this 11 day of DECEMBER, 1998
------ --------

/S/CHERI S. GOOD
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries

Exhibit 23 (p)(iv) 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 Secretaries of FEDERATED EQUITY INCOME
FUND, INC.

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. CUNNINGHAM Director March 3, 1999

John F. Cunningham

Sworn to and subscribed before me this 3 day of MARCH, 1999
----- -----

/S/CHERI S. GOOD
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries

Exhibit 23 (p)(v) 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 Secretaries of FEDERATED EQUITY INCOME
FUND, INC

SIGNATURES TITLE DATE

/S/JOHN S. WALSH Director March 3, 1999

John S. Walsh

Sworn to and subscribed before me this 3 day of MARCH, 1999
----- -----

/S/CHERI S. GOOD
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries

Exhibit 23 (p)(vi) 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 Secretaries of FEDERATED EQUITY INCOME
FUND, INC.

SIGNATURES TITLE DATE

/S/CHARLES F. MANSFIELD, JR. Director March 3, 1999
- ----------------------------------------
Charles F. Mansfield, Jr.

Sworn to and subscribed before me this 3 day of MARCH, 1999
----- -----

/S/CHERI S. GOOD
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries