Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated Strategic Value Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

March 23, 2005

CLASS A SHARES
CLASS C SHARES

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A mutual fund seeking to provide income and long-term capital appreciation by investing primarily in income-producing value stocks.

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

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 9

What Do Shares Cost? 12

How is the Fund Sold? 19

How to Purchase Shares 20

How to Redeem and Exchange Shares 23

Account and Share Information 26

Who Manages the Fund? 29

Legal Proceedings 30

Financial Information 31

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide income and long-term 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?

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The Fund pursues its investment objective by investing primarily in income-producing value stocks. The Fund emphasizes mid-cap value stocks, although both large-cap value and small-cap value stocks may also be held. Mid-cap companies are defined as those with market capitalizations similar to companies in the Russell Mid Cap Value Index, which as of October 31, 2004 ranged from $477 million to $19.96 billion. These securities will typically be dividend-paying stocks, and the Fund seeks to maintain a dividend yield that is substantially higher than the market average. Generally the Fund's securities selection process involves analysis of numerical data to prioritize stocks for further review. The Fund then uses fundamental research to select stocks for the portfolio.

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

• Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
  
• Risks Related to Investing for Value. 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.
  
• Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base, and limited access to capital, they may be more likely to fail than larger companies.
  

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

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• Currency Risks. Because the exchange rates for currencies fluctuate daily, prices of the foreign securities in which the Fund invests are more volatile than prices of securities traded exclusively in the United States.
  

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• Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
  
• Liquidity Risks. The equity securities which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
  

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• Risks of Investing in Derivative Contracts. Changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Also, derivative contracts may involve other risks described in this prospectus or the Statement of Additional Information, such as stock market, interest rate, credit, liquidity, and leverage risks.
  

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

Risk/Return Bar Chart and Table

A performance bar chart and total return information for the Fund will be provided after the Fund has been in operation for a full calendar year.

What are the Fund's Fees and Expenses?

FEDERATED STRATEGIC VALUE FUND

FEES AND EXPENSES

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

Shareholder Fees	Class A	Class C
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None
Exchange Fee	None	None
Annual Fund Operating Expenses (Before Reimbursements/Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2	0.75%	0.75%
Distribution (12b-1) Fee	0.25% 3	0.75%
Shareholder Services Fee	0.25%	0.25%
Other Expenses	0.76%	0.76%
Total Annual Fund Operating Expenses 4	2.01%	2.51%
1 The percentages shown above are annualized based on anticipated expenses for the entire fiscal period ending October 31, 2005. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the Adviser and its affiliates expect to waive and reimburse certain amounts. Shown below are the anticipated waivers and reimbursements, along with the annualized net expenses the Fund expects to pay for the month ending October 31, 2005.
Total Reimbursements/Waivers of Fund Expenses	1.51%	1.26%
Total Anticipated Annualized Fund Operating Expenses (after reimbursements/waivers)	0.50%	1.25%
During the year ending October 31, 2005, it is anticipated that the Adviser and its affiliates will waive their fees and reimburse fund expenses at the rates necessary to result in total expenses after reimbursements and waivers for the month ending March 31, 2005 of 0.35% for Class A Shares and 1.10% for Class C Shares and that the waivers and reimbursements will be adjusted so that total expenses after reimbursements and waivers will increase 0.05% bi-monthly thereafter until reaching the amounts shown above for the month ending October 31, 2005. It is further anticipated that adjustments to the voluntary waivers and reimbursements will continue until total expenses after waivers and reimbursements are 1.24% for Class A Shares and 1.99% for Class C Shares. This may occur at any time on or before March 31, 2008. Although these anticipated voluntary waivers and reimbursements can be terminated at any time, it is presently anticipated that total expenses after waivers and reimbursements will continue at thes e levels thereafter.
2 The Adviser expects to voluntarily waive a portion of the management fee. The adviser can terminate this anticipated voluntary waiver at any time. The management fee to be paid by the Fund (after the anticipated voluntary waiver) is expected to be 0.00% for the fiscal period ending October 31, 2005.
3 The Fund has no present intention of paying or accruing the distribution (12b-1) fee for the Class A Shares for the fiscal period ending October 31, 2005.
4 The Adviser expects to voluntarily reimburse certain operating expenses of the Fund. The Adviser can terminate these anticipated voluntary reimbursements at any time. Annualized total other expenses to be paid by the Fund (after the anticipated voluntary reimbursement) are expected to be 0.25% for the month ending October 31, 2005. See footnote 1 above.

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EXAMPLE

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

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The Example assumes that you invest $10,000 in the Fund's Class A Shares and Class C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A Shares and Class C Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

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	<R>1 Year</R>	<R>3 Years</R>
<R>Class A Shares:</R>
<R>Expenses assuming redemption</R>	<R>$743</R>	<R>$1,146</R>
<R>Expenses assuming no redemption</R>	<R>$743</R>	<R>$1,146</R>
<R>Class C Shares:</R>
<R>Expenses assuming redemption</R>	<R>$452</R>	<R>$ 874</R>
<R>Expenses assuming no redemption</R>	<R>$352</R>	<R>$ 874</R>

What are the Fund's Investment Strategies?

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The Fund's strategy seeks to produce high dividend yield with low correlation to the S&P 500 Index. As a result, the pattern of price movements of the Fund's investments is expected to differ from that of the S&P 500. The strategy seeks to maintain a dividend yield which is substantially higher than the market average. Additionally, the strategy seeks to achieve favorable returns relative to the S&P 500 Index and the Russell Mid Cap Value Index over time, while targeting significantly less risk.

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The Fund's investment adviser (Adviser) believes a strategic emphasis on high dividend yielding stocks can enhance both relative and absolute performance over time. Additionally, investment results can be enhanced by focusing on stocks possessing strong value characteristics as well as catalysts for positive investor sentiment change.

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The Fund's investment approach is bottom-up, emphasizing overlooked stocks that exhibit strong income and total return potential. The Fund emphasizes, but is not limited to, mid-cap value stocks. The Fund may also invest in large-cap value and small-cap value stocks. Mid-cap companies are defined as those with market capitalizations similar to companies in the Russell Mid Cap Value Index, which as of October 31, 2004 ranged from $477 million to $19.96 billion.

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Stocks selected from a broad market universe of companies are subjected to a disciplined quantitative process that prioritizes stocks based on a set of proprietary investment criteria, including:

• Dividend yield
  
• Dividend growth
  
• Performance during periods of market weakness
  
• Valuation
  
• Investor neglect
  
• Financial condition
  
• Management concern for shareholder value
  
• Prospects for positive investor sentiment change
  

Highly ranked stocks are rigorously analyzed to identify potential candidates for purchase. This process is driven primarily by bottom-up fundamental proprietary research. Broad macroeconomic trends that can influence the outlook of sectors and industries are also taken into account.

The Adviser's focus on stocks with high dividend yields is designed to reduce risk. In addition, diversification is sought by exposure to multiple sectors and industries. The Fund generally adheres to position size limits which may be adjusted over time designed to further control portfolio risk.

The Adviser's sell discipline is a critical component of the investment process. Generally a stock is reviewed for sale when one or more of the following occur:

• The target price is reached
  
• The stock no longer ranks attractively in our screening system
  

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• The reasons for the original purchase no longer apply
  

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• An alternate investment with superior upside potential is identified
  
• The stocks weighting in the portfolio exceeds internal guidelines
  

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

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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 :

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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.

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Real Estate Investment Trusts (REITs)

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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.

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FOREIGN SECURITIES

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

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

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

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• 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.
  

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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.

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American Depositary Receipts (ADRs) and Domestically Traded Securities of Foreign Issuers

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ADRs, which are traded in U.S. markets, represent interests in underlying securities issued by a foreign company and not traded in the United States. ADRs provide a way to buy shares of foreign-based companies in the United States rather than in overseas markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange transactions. The Fund may also invest in securities issued directly by foreign companies and traded in U.S. dollars in U.S. markets.

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DERIVATIVE CONTRACTS

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Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, commodities, currencies, financial indices, or other assets or instruments. 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 or instrument. The other party to a derivative contract is referred to as a counterparty.

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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.

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 on how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset or instrument, derivative contracts may increase or decrease the Fund's exposure to stock market 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, including combinations thereof:

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. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts. The Fund can buy or sell index futures.

Options

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Options are rights to buy or sell an underlying asset or instrument for a specified price (the "exercise price") during, or at the end of, a specified period. The seller (or "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. 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. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of underlying assets or instruments, including financial indices, individual securities, and other derivative instruments, such as futures contracts.

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SPECIAL TRANSACTIONS

Repurchase Agreements

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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.

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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.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

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

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

RISKS RELATED TO INVESTING FOR VALUE

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.

RISKS RELATED TO COMPANY SIZE

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

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

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RISKS OF FOREIGN INVESTING

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Foreign securities, including ADRs and domestically traded securities of foreign issuers, 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.

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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 U.S. 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.

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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.

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CURRENCY RISKS

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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 United States.

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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.

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SECTOR RISKS

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

LIQUIDITY RISKS

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

RISKS OF INVESTING IN DERIVATIVE CONTRACTS

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivatives contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus or the Statement of Additional Information, such as stock market, credit, liquidity, and leverage risks.

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What Do Shares Cost?

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You can purchase, redeem, or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined as of the end of regular trading on the NYSE (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."

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The Fund generally values equity securities according to the last sale price reported by the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges. If prices are not available from an independent pricing service, securities and derivatives contracts traded in the OTC market are generally valued according to the mean between the last bid and the last asked price for the security or contract as provided by an investment dealer or other financial institution that deals in the security or contract.

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Where a last sale price or market quotation for a portfolio security is not readily available, and no independent pricing service furnishes a price, the value of the security used in computing NAV is its fair value as determined in good faith under procedures approved by the Fund's Board. The Fund may use the fair value of a security to calculate its NAV when, for example : (1) a portfolio security is not traded in a public market or the principal market in which the security trades is closed ; (2) trading in a portfolio security is suspended and not resumed prior to the normal market close ; (3) a portfolio security is not traded in significant volume for a substantial period ; or (4) the Fund's Adviser determines that the quotation or price for a portfolio security provided by a dealer or independent pricing service is inaccurate.

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Fair valuation procedures are also used where a significant event affecting the value of a portfolio security is determined to have occurred between the time as of which the price of the portfolio security is determined and the NYSE closing time as of which the Fund's NAV is computed. An event is considered significant if there is both an affirmative expectation that the security's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Significant events include significant general securities market movements occurring between the times as of which the price of the portfolio security is determined and the close of trading on the NYSE. For securities normally priced at their last sale price in a foreign market, such events can occur between the close of trading in the foreign market and the close of trading on the NYSE. In such cases, use of fair valuation can reduce an investor's ability to seek to profit by estimating the Fund's NAV in advance of the time as of which NAV is calculated.

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In some cases, events affecting the issuer of a portfolio security may be considered significant events. Announcements concerning earnings, acquisitions, new products, management changes, litigation developments, a strike or natural disaster affecting the company's operations or regulatory changes, or market developments affecting the issuer's industry occurring between the time as of which the price of the portfolio security is determined and the close of trading on the NYSE are examples of potentially significant events. For securities of foreign issuers, such events could also include political or other developments affecting the economy or markets in which the issuer conducts its operations or its securities are traded.

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There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to calculate the Fund's NAV. In the case of fair valued portfolio securities, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a portfolio security's present value. Fair valuations generally remain unchanged until new information becomes available. Consequently, changes in the fair valuation of portfolio securities may be less frequent and of greater magnitude than changes in the price of portfolio securities valued at their last sale price, or based on market quotations.

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

	Minimum Initial/Subsequent Investment Amounts 1	Maximum Sales Charges
Shares Offered		Front-End Sales Charge 2	Contingent Deferred Sales Charge 3
Class A	$1,500/$100	5.50%	0.00%
Class C	$1,500/$100	1.00%	1.00%

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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 ( SIPs) is $50. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $1 million or more of Class C Shares will be invested in Class A Shares instead of Class C 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.

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

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3 See "Sales Charge When You Redeem."

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As shown in the table above, each class of Shares has a different sales charge structure. In addition, the ongoing annual operating expenses ( expense ratios ), as well as the compensation payable to investment professionals, also vary among the classes. Before you decide which class to purchase, you should review the different charges and expenses of each class carefully, in light of your personal circumstances, and consult with your investment professional.

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Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares. Among other ways, Class A Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") On the other hand, Class C Shares bear a relatively low front-end sales charge and a contingent deferred sales charge only if redeemed within one year after purchase; however, the asset-based 12b-1 fees charged to Class C Shares are greater than those charged to Class A Shares.

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You should also consider that the expense ratio for Class A Shares will be lower than that for Class C Shares. Thus, the fact that a relatively low front -end charge is imposed on purchases of Class C Shares does not always make them preferable to Class A Shares.

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The Fund also offers by separate prospectus an additional class of Shares which may be preferable for investors purchasing $50,000 or more. For more information concerning the additional Share class, contact your investment professional or call 1-800-341-7400.

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SALES CHARGE WHEN YOU PURCHASE

The following tables list the sales charges which will be applied to your Share purchase, subject to the breakpoint discounts indicated in the tables and described below.

Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater 1	0.00%	0.00%
Class C Shares:
All Purchases	1.00%	1.01%

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

REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

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Your investment may qualify for a reduction or elimination of the sales charge, also known as a "breakpoint discount ." The breakpoint discounts offered by the Fund are indicated in the table above. You or your investment professional must notify the Fund's Transfer Agent of eligibility for any applicable breakpoint discount at the time of purchase.

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In order to receive the applicable breakpoint discount, it may be necessary at the time of purchase for you to inform your investment professional or the Transfer Agent of the existence of other accounts in which there are holdings eligible to be aggregated to meet a sales charge breakpoint ( Qualifying Accounts ). Qualifying Accounts mean those Share accounts in the Federated funds held directly or through an investment professional or through a single-participant retirement account by you, your spouse, your parents (if you are under age 21) and/or your children under age 21, which can be linked using tax identification numbers (TINs), social security numbers (SSNs ), or (effective March 1, 2005) broker identification numbers (BINs). Accounts held through 401(k) plans and similar multi-participant retirement plans, or through "Section 529" college savings plans or those accounts which cannot be linked using TINs, SSNs, or BINs, are not Qualifying Accounts.

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In order to verify your eligibility for a breakpoint discount, you will be required to provide to your investment professional or the Transfer Agent certain information on your New Account Form and may be required to provide account statements regarding Qualifying Accounts. If you purchase through an investment professional, you may be asked to provide additional information and records as required by the investment professional. Failure to provide proper notification or verification of eligibility for a breakpoint discount may result in your not receiving a breakpoint discount to which you are otherwise entitled. Breakpoint discounts apply only to your current purchase and do not apply retroactively to previous purchases. The sales charges applicable to the Shares offered in this prospectus, and the breakpoint discounts offered with respect to such Shares, are described in full in this prospectus. Because the prospectus is available on Federated's website free of charge, Federated does not disclose this inf ormation separately on the website.

Contingent upon notification to the Transfer Agent, the sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

Larger Purchases

• purchasing Class A Shares in greater quantities to reduce the applicable sales charge;
  

Concurrent and Accumulated Purchases

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• combining concurrent purchases of and/or current investments in Class A, Class B, Class C, Class F, and Class K Shares of any Federated fund made or held by Qualifying Accounts; the purchase amount used in determining the sales charge on your additional Share purchase will be calculated by multiplying the maximum public offering price times the number of Class A, Class B, Class C, Class F, and Class K Shares of any Federated fund currently held in Qualifying Accounts and adding the dollar amount of your current purchase; or
  

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Letter of Intent

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• signing a letter of intent to purchase a qualifying amount of Class A Shares within 13 months. ( Call your investment professional or the Fund for more information .) 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.
  

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ELIMINATING THE SALES CHARGE

Contingent upon notification to the Transfer Agent, the sales charge will be eliminated when you purchase Shares:

• through a financial intermediary that did not receive a dealer reallowance on the purchase;
  
• with reinvested dividends or capital gains;
  
• as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;
  
• as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account) (Class A Shares only);
  

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• as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any investment professional that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals, or a trust, pension or profit-sharing plan for these individuals; or
  

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• pursuant to the exchange privilege.
  

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).

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

• Shares that are not subject to a CDSC; and
  

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• 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.)
  

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

<R>Class A Shares: </R>

If you make a purchase of Class A Shares in the amount of $1 million or more and your investment professional received an advance commission on the sale, you will pay a 0.75% CDSC on any such shares redeemed within 24 months of the purchase.

Class C Shares:

You will pay a 1% CDSC if you redeem Shares within 12 months of the purchase date.

If your investment qualifies for a reduction or elimination of the CDSC, you or your investment professional must notify the Transfer Agent at the time of redemption. If the Transfer Agent is not notified, the CDSC will apply.

Contingent upon notification to the Transfer Agent, you will not be charged a CDSC when redeeming Shares:

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• following the death of the last surviving shareholder on the account or your post-purchase disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986. ( The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder on the account.);
  

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• 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;
  
• purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;
  
• purchased by Trustees and employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of an investment professional that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;
  
• purchased through an investment professional that did not receive an advance commission on the purchase;
  
• purchased with reinvested dividends or capital gains;
  
• redeemed by the Fund when it closes an account for not meeting the minimum balance requirements; and
  

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• purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period. ( The holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange.)
  

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How is the Fund Sold?

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The Fund offers three Share classes: Class A Shares, Class C Shares, and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class A and Class C Shares. All Share classes have 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.

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

When the Distributor receives marketing fees and sales charges, it may pay some or all of them to investment professionals. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

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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, administration, and customer servicing of the Fund's 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.

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SERVICE FEES

The Fund may pay fees (Service Fees) to financial institutions or to Federated Shareholder Services Company (FSSC), a subsidiary of Federated, for providing services to shareholders and maintaining shareholder accounts. Under certain agreements, rather than paying financial institutions directly, the Fund may pay Service Fees to FSSC and FSSC will use the fees to compensate financial institutions.

ADDITIONAL PAYMENTS TO FINANCIAL INSTITUTIONS

The Distributor may pay out of its own resources amounts (including items of material value) to certain financial institutions that support the sale of Shares or provide services to Fund shareholders. The amounts of these payments could be significant, and may create an incentive for the financial institution or its employees or associated persons to recommend or sell Shares of the Fund to you. In some cases, such payments may be made by or funded from the resources of companies affiliated with the Distributor (including the Adviser). These payments are not reflected in the fees and expenses listed in the fee table section of the Fund's prospectus because they are not paid by the Fund.

These payments are negotiated and may be based on such factors as the number or value of Shares that the financial institution sells or may sell; the value of client assets invested; or the type and nature of services or support furnished by the financial institution. These payments may be in addition to payments made by the Fund to the financial institution under a Rule 12b-1 Plan and/or Service Fees arrangement. You can ask your financial institution for information about any payments it receives from the Distributor or the Fund and any services provided.

How to Purchase Shares

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

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

THROUGH AN INVESTMENT PROFESSIONAL

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

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

DIRECTLY FROM THE FUND

• Establish your account with the Fund by submitting a completed New Account Form; and
  
• Send your payment to the Fund by Federal Reserve wire or check.
  

You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or State Street Bank and Trust Company, the Fund's Transfer Agent.

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

By Wire

Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

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

By Check

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

The Federated Funds
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, send it to:

The Federated Funds
66 Brooks Drive
Braintree, MA 02184

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

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.

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BY SYSTEMATIC INVESTMENT PROGRAM (SIP)

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Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP 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:

• through an investment professional if you purchased Shares through an investment professional; or
  
• directly from the Fund if you purchased Shares directly from the Fund.
  

THROUGH AN INVESTMENT PROFESSIONAL

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

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

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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.

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By Mail

You may redeem or exchange Shares by sending 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:

The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

The Federated Funds
66 Brooks Drive
Braintree, MA 02184

All requests must include:

• Fund Name and Share Class, account number and account registration;
  
• amount to be redeemed or exchanged;
  
• signatures of all shareholders exactly as registered; and
  
• if exchanging , the Fund Name and Share Class, account number and account registration into which you are exchanging.
  

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

Signature Guarantees

Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

• your redemption will be sent to an address other than the address of record;
  
• your redemption will be sent to an address of record that was changed within the last 30 days;
  
• a redemption is payable to someone other than the shareholder(s) of record; or
  
• if exchanging (transferring) into another fund with a different shareholder registration.
  

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

PAYMENT METHODS FOR REDEMPTIONS

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

• an electronic transfer to your account at a financial institution that is an ACH member; or
  
• wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.
  

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

• to allow your purchase to clear;
  
• during periods of market volatility; or
  
• when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.
  

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGE

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

• ensure that the account registrations are identical;
  
• meet any minimum initial investment requirements; and
  
• receive a prospectus for the fund into which you wish to exchange.
  

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

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The Fund may modify or terminate the exchange privilege at any time. In addition, the Fund may terminate your exchange privilege if your exchange activity is found to be excessive under the Fund's frequent trading policies. See "Account and Share Information-Frequent Trading Policies."

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

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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 does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

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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 the record date for 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 record date for 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

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Due to the high cost of maintaining accounts with low balances, nonretirement 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.

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TAX INFORMATION

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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.

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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.

FREQUENT TRADING POLICIES

Frequent or short-term trading into and out of the Fund can have adverse consequences for the Fund and shareholders who use the Fund as a long-term investment vehicle. Such trading in significant amounts can disrupt the Fund's investment strategies (e.g., by requiring it to sell investments at inopportune times or maintain excessive short-term or cash positions to support redemptions), increase brokerage and administrative costs and affect the timing and amount of taxable gains distributed by the Fund. Investors engaged in such trading may also seek to profit by anticipating changes in the Fund's NAV in advance of the time as of which NAV is calculated.

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The Fund's Board has approved policies and procedures intended to discourage excessive frequent or short-term trading of the Fund's Shares. The Fund's fair valuation procedures are intended in part to discourage short-term trading strategies by reducing the potential for these strategies to succeed. See "What do Shares Cost?" The Fund monitors trading in Fund Shares in an effort to identify potential disruptive trading activity. The Fund monitors trades into and out of the fund within a period of 30 days or less. The size of Share transactions subject to monitoring varies. However, where it is determined that a shareholder has exceeded the detection amounts twice within a period of 12 months, the shareholder will be precluded from making further purchases or exchanges of Fund Shares. The Fund may also monitor trades into and out of the Fund over periods longer than 30 days, and if potentially disruptive trading activity is detected, the shareholder will be precluded from making further purchases of Fund Sha res. Whether or not the specific monitoring limits are exceeded, the Fund's management or Adviser may determine from the amount, frequency, or pattern of purchases and redemptions or exchanges that a shareholder is engaged in excessive trading that is or could be detrimental to the Fund and other shareholders and may preclude the shareholder from making further purchases or exchanges of Fund Shares. No matter how the Fund defines its limits on frequent trading of Fund Shares, other purchases and sales of Fund Shares may have adverse effects on the management of the Fund's portfolio and its performance.

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The Fund's objective is that its restrictions on short-term trading should apply to all shareholders, regardless of the number or type of accounts in which Shares are held. However, the Fund anticipates that limitations on its ability to identify trading activity to specific shareholders, particularly where shares are held through intermediaries in multiple or omnibus accounts, will mean that these restrictions may not be able to be applied uniformly in all cases.

PORTFOLIO HOLDINGS INFORMATION

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Information concerning the Fund's portfolio holdings is available in the "Products" section of Federated's website at FederatedInvestors.com . A complete listing of the Fund's portfolio holdings as of the end of each calendar quarter is posted on the website 30 days (or the next business day) after the end of the quarter and remains posted until replaced by the information for the succeeding quarter. Summary portfolio composition information as of the close of each month (except for recent purchase and sale transaction information, which is updated quarterly) is posted on the website 15 days (or the next business day) after month-end and remains until replaced by the information for the succeeding month. The summary portfolio composition information may include identification of the Fund's top ten holdings, recent purchase and sale transactions, and a percentage breakdown of the portfolio by sector.

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To access this information from the "Products" section of the website, click on "Portfolio Holdings" and select the appropriate link opposite the name of the Fund, or select the name of the Fund from the menus on the "Products" section, and from the Fund's page click on the "Portfolio Holdings" or "Composition" link. A user is required to register on the website the first time the user accesses this information.

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You may also access from the "Products" section of the website portfolio information as of the end of the Funds' fiscal quarters. The Fund's annual and semi-annual reports, which contain complete listings of the Fund's portfolio holdings as of the end of the Fund's second and fourth fiscal quarters, may be accessed by selecting the name of the Fund, clicking on "Prospectuses and Regulatory Reports" and selecting the link to the appropriate PDF. Complete listings of the Fund's portfolio holdings as of the end of the Fund's first and third fiscal quarters may be accessed by selecting "Portfolio Holdings" from the "Products" section and then selecting the appropriate link opposite the name of the Fund. Fiscal quarter information is made available on the website within 70 days after the end of the fiscal quarter. This information is also available in reports filed with the SEC at the SEC's website at www.sec.gov.

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Who Manages the Fund?

The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated Equity Management Company of Pennsylvania. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 133 equity, fixed-income, and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $ 179 billion in assets as of December 31, 2004. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1, 385 employees. Federated provides investment products to more than 5, 700 investment professionals and institutions.

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THE FUND'S PORTFOLIO MANAGERS ARE:

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Walter Bean

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Walter C. Bean has been the Fund's Portfolio Manager since inception. Mr. Bean is a Senior Vice President, Senior Portfolio Manager and Director of Investments for Managed Accounts. Mr. Bean joined Federated in 2000. Mr. Bean is responsible for the investment process for the managed account portfolios. His previous associations included: Chief Investment Officer and Portfolio Manager at C.S. McKee & Company; various investment management and research positions with First Chicago Investment Advisors, CIGNA Investment Advisors, and Mellon Bank. Mr. Bean is a Chartered Financial Analyst. Mr. Bean earned a Bachelors Degree in Business Administration from Ohio University and an M.B.A. from Pennsylvania State University. Mr. Bean has 35 years of investment experience.

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John L. Nichol

John L. Nichol has been the Fund's Portfolio Manager since inception. Mr. Nichol joined Federated in September 2000 as an Assistant Vice President/Senior Investment Analyst. He has been a Portfolio Manager since December 2000 and was named a Vice President of the Fund's Adviser in July 2001. Mr. Nichol served as a portfolio manager and analyst for the Public Employees Retirement System of Ohio from 1992 through August 2000. Mr. Nichol is a Chartered Financial Analyst. He received has M.B.A. with an emphasis in Finance and Management and Information Science from the Ohio State University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% 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.

Legal Proceedings

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Like many other mutual fund companies, in September 2003, Federated Investors, Inc., the parent company of the Federated funds' advisers and distributor (collectively, "Federated"), received detailed requests for information on shareholder trading activities in the Federated funds ( Funds ) from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Since that time, Federated has received additional inquiries from regulatory authorities on these and related matters, and more such inquiries may be received in the future.

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As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Feder ated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website at FederatedInvestors.com , and any future press releases on this subject will also be posted there.

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Shortly after Federated's first public announcement concerning the foregoing matters, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Funds were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders.

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Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts.

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The Board of the Funds has retained the law firm of Dickstein, Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

Financial Information

FINANCIAL HIGHLIGHTS

The Fund's fiscal year end is October 31. As this is the Fund's first fiscal year, financial information is not yet available.

A Statement of Additional Information (SAI) dated March 23, 2005, includes additional information about the Fund and is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The SAI contains a description of the Fund's policies and procedures with respect to the disclosure of its portfolio securities. To obtain the SAI and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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These documents, as well as additional information about the Fund (including portfolio holdings, performance, and distributions), are also available on Federated's website at FederatedInvestors.com.

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

Investment Company Act File No. 811-4017

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Federated
World-Class Investment Manager

Federated Strategic Value Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
FederatedInvestors.com
Contact us at 1-800-341-7400 or
FederatedInvestors.com/contact

Federated Securities Corp., Distributor

Cusip 314172586
Cusip 314172578</R>
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32101 (3/05)

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Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated Strategic Value Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

March 23, 2005

INSTITUTIONAL SHARES

A mutual fund seeking to provide income and long-term capital appreciation by investing primarily in income producing value stocks.

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

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 9

What Do Shares Cost? 11

How is the Fund Sold? 13

How to Purchase Shares 15

How to Redeem Shares 17

Account and Share Information 19

Who Manages the Fund? 22

Legal Proceedings 23

Financial Information 24

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide income and long-term 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?

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The Fund pursues its investment objective by investing primarily in income producing value stocks. The Fund emphasizes mid cap value stocks, although both large cap value and small cap value stocks may also be held. Mid cap companies are defined as those with market capitalizations similar to companies in the Russell Mid Cap Value Index, which as of October 31, 2004 ranged from $477 million to $19.96 billion. These securities will typically be dividend paying stocks, and the Fund seeks to maintain a dividend yield that is substantially higher than the market average. Generally the Fund's securities selection process involves analysis of numerical data to prioritize stocks for further review. The Fund then uses fundamental research to select stocks for the portfolio.

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

• Stock Market Risks . The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
  
• Risks Related to Investing for Value . 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.
  
• Risks Related to Company Size . Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base, and limited access to capital, they may be more likely to fail than larger companies.
  

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

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• Currency Risks . Because the exchange rates for currencies fluctuate daily, prices of the foreign securities in which the Fund invests are more volatile than prices of securities traded exclusively in the United States.
  

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• Sector Risks . Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
  
• Liquidity Risks . The equity securities which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
  
• Risks of Investing in Derivative Contracts . Changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or, if they are correlated, may move in the opposite direction than originally anticipated. Also, derivative contracts may involve other risks described in this prospectus or the Statement of Additional Information, such as stock market, interest rate, credit, liquidity and leverage risks.
  

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

Risk/Return Bar Chart and Table

A performance bar chart and total return information for the Fund will be provided after the Fund has been in operation for a full calendar year.

What are the Fund's Fees and Expenses?

FEDERATED STRATEGIC VALUE FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold Institutional Shares of the Fund.

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None
Exchange Fee	None
Annual Fund Operating Expenses (Before Reimbursements/Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2	0.75%
Distribution (12b-1) Fee	None
Shareholder Services Fee	None
Other Expenses	0.76%
Total Annual Fund Operating Expenses 3	1.51%
1 The percentages shown above are annualized based on anticipated expenses for the entire fiscal period ending October 31, 2005. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the Adviser and its affiliates expect to waive and reimburse certain amounts. Shown below are the anticipated waivers and reimbursements, along with the annualized net expenses the Fund expects to pay for the month ending October 31, 2005.
Total Reimbursements/Waivers of Fund Expenses	1.26%
Total Anticipated Annualized Fund Operating Expenses (after reimbursements/waivers)	0.25%
During the year ending October 31, 2005, it is anticipated that the Adviser and its affiliates will waive their fees and reimburse fund expenses at the rates necessary to result in total expenses after reimbursements and waivers for the month ending March 31, 2005 of 0.10% for Institutional Shares and that the waivers and reimbursements will be adjusted so that total expenses after reimbursements and waivers will increase 0.05% bi-monthly thereafter until reaching the amounts shown above for the month ending October 31, 2005. It is further anticipated that adjustments to the voluntary waivers and reimbursements will continue until total expenses after waivers and reimbursements are 0.99% for Institutional Shares. This may occur at any time on or before March 31, 2008. Although these anticipated voluntary waivers and reimbursements can be terminated at any time, it is presently anticipated that total expenses after waivers and reimbursements will continue at these levels thereafter.
2 The Adviser expects to voluntarily waive a portion of the management fee. The adviser can terminate this anticipated voluntary waiver at any time. The management fee to be paid by the Fund (after the anticipated voluntary waiver) is expected to be 0.00% for the fiscal period ending October 31, 2005.
3 The Adviser expects to voluntarily reimburse certain operating expenses of the Fund. The Adviser can terminate these anticipated voluntary reimbursements at any time. Annualized total other expenses to be paid by the Fund (after the anticipated voluntary reimbursement) are expected to be 0.25% for the month ending October 31, 2005. See footnote 1, above.

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EXAMPLE

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

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The Example assumes that you invest $10,000 in the Fund's Institutional Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

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<R>1 Year</R>	<R>$154</R>
<R>3 Years</R>	<R>$477</R>

What are the Fund's Investment Strategies?

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The Fund's strategy seeks to produce high dividend yield with low correlation to the S&P 500 Index. As a result, the pattern of price movements of the Fund's investments is expected to differ from that of the S&P 500. The strategy seeks to maintain a dividend yield which is substantially higher than the market average. Additionally, the strategy seeks to achieve favorable returns relative to the S&P 500 Index and the Russell Mid Cap Value Index over time, while targeting significantly less risk.

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The Fund's investment adviser (Adviser) believes a strategic emphasis on high dividend yielding stocks can enhance both relative and absolute performance over time. Additionally, investment results can be enhanced by focusing on stocks possessing strong value characteristics as well as catalysts for positive investor sentiment change.

The Fund's investment approach is bottom-up, emphasizing overlooked stocks that exhibit strong income and total return potential. The Fund emphasizes, but is not limited to, mid cap value stocks. The Fund may also invest in large cap value and small cap value stocks. Mid cap companies are defined as those with market capitalizations similar to companies in the Russell Mid Cap Value Index, which as of October 31, 2004 ranged from $477 million to $19.96 billion.

Stocks selected from a broad market universe of companies are subjected to a disciplined quantitative process that prioritizes stocks based on a set of proprietary investment criteria, including:

• Dividend yield
  
• Dividend growth
  
• Performance during periods of market weakness
  
• Valuation
  
• Investor neglect
  
• Financial condition
  
• Management concern for shareholder value
  
• Prospects for positive investor sentiment change
  

Highly ranked stocks are rigorously analyzed to identify potential candidates for purchase. This process is driven primarily by bottom-up fundamental proprietary research. Broad macroeconomic trends that can influence the outlook of sectors and industries are also taken into account.

The Adviser's focus on stocks with high dividend yields is designed to reduce risk. In addition, diversification is sought by exposure to multiple sectors and industries. The Fund generally adheres to position size limits which may be adjusted over time that are designed to further control portfolio risk.

The Adviser's sell discipline is a critical component of the investment process. Generally a stock is reviewed for sale when one or more of the following occur:

• The target price is reached
  
• The stock no longer ranks attractively in our screening system
  

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• The reasons for the original purchase no longer apply
  

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• An alternate investment with superior upside potential is identified
  
• The stock's weighting in the portfolio exceeds internal guidelines
  

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

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.

Real Estate Investment Trusts

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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 REITs' ability to respond to changes in the commercial real estate market.

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FOREIGN SECURITIES

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

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

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

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• 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.
  

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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.

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American Depositary Receipts (ADRs) and Domestically Traded Securities of Foreign Issuers

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ADRs, which are traded in United States markets, represent interests in underlying securities issued by a foreign company and not traded in the United States. ADRs provide a way to buy shares of foreign based companies in the United States rather than in overseas markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange transactions. The Fund may also invest in securities issued directly by foreign companies and traded in U.S. dollars in United States markets.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, commodities, currencies, financial indices or other assets or instruments. 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 or instrument. 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.

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 on how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset or instrument, derivative contracts may increase or decrease the Fund's exposure to stock market 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, including combinations thereof:

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. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts. The Fund can buy or sell index futures.

Options

Options are rights to buy or sell an underlying asset or instrument for a specified price (the exercise price) during, or at the end of, a specified period. The seller (or 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. 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. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of underlying assets or instruments, including financial indices, individual securities, and other derivative instruments, such as futures contracts.

SPECIAL TRANSACTIONS

Repurchase Agreements

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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.

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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.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

• The value of equity securities in the Fund's portfolio will rise and fall. These fluctuations could be a sustained trend or a drastic movement. The Fund's portfolio will reflect changes in prices of individual portfolio stocks or general changes in stock valuations. Consequently, the Fund's Share price may decline.
  
• The Adviser attempts to manage market risk by limiting the amount the Fund invests in each company's equity securities. However, diversification will not protect the Fund against widespread or prolonged declines in the stock market.
  

RISKS RELATED TO INVESTING FOR VALUE

• 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.
  

RISKS RELATED TO COMPANY SIZE

• Generally, the smaller the market capitalization of a company, the fewer the number of shares traded daily, the less liquid its stock and the more volatile its price. Market capitalization is determined by multiplying the number of its outstanding shares by the current market price per share.
  
• Companies with smaller market capitalizations also tend to have unproven track records, a limited product or service base and limited access to capital. These factors also increase risks and make these companies more likely to fail than companies with larger market capitalizations.
  

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RISKS OF FOREIGN INVESTING

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• Foreign securities, including ADRs and domestically traded securities of foreign issuers, 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.
  

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• 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 U.S. 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.
  

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• 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.
  

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CURRENCY RISKS

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• 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 United States.
  

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• 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.
  

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SECTOR RISKS

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

LIQUIDITY RISKS

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

RISKS OF INVESTING IN DERIVATIVE CONTRACTS

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• The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivatives contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus or the Statement of Additional Information, such as stock market, credit, liquidity, and leverage risks.
  

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What Do Shares Cost?

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You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined as of the end of regular trading on the NYSE (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."

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The Fund generally values equity securities according to the last sale price reported by the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). Futures contracts and options are generally valued at market values established by the exchanges on which they are traded at the close of trading on such exchanges. If prices are not available from an independent pricing service, securities and derivatives contracts traded in the OTC market are generally valued according to the mean between the last bid and the last asked price for the security or contract as provided by an investment dealer or other financial institution that deals in the security or contract.

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Where a last sale price or market quotation for a portfolio security is not readily available, and no independent pricing service furnishes a price, the value of the security used in computing NAV is its fair value as determined in good faith under procedures approved by the Fund's Board. The Fund may use the fair value of a security to calculate its NAV when, for example : (1) a portfolio security is not traded in a public market or the principal market in which the security trades is closed ; (2) trading in a portfolio security is suspended and not resumed prior to the normal market close ; (3) a portfolio security is not traded in significant volume for a substantial period ; or (4) the Fund's Adviser determines that the quotation or price for a portfolio security provided by a dealer or independent pricing service is inaccurate.

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Fair valuation procedures are also used where a significant event affecting the value of a portfolio security is determined to have occurred between the time as of which the price of the portfolio security is determined and the NYSE closing time as of which the Fund's NAV is computed. An event is considered significant if there is both an affirmative expectation that the security's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Significant events include significant general securities market movements occurring between the times as of which the price of the portfolio security is determined and the close of trading on the NYSE. For securities normally priced at their last sale price in a foreign market, such events can occur between the close of trading in the foreign market and the close of trading on the NYSE. In such cases, use of fair valuation can reduce an investor's ability to seek to profit by estimating the Fund's NAV in advance of the time as of which NAV is calculated.

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In some cases, events affecting the issuer of a portfolio security may be considered significant events. Announcements concerning earnings, acquisitions, new products, management changes, litigation developments, a strike or natural disaster affecting the company's operations or regulatory changes or market developments affecting the issuer's industry occurring between the time as of which the price of the portfolio security is determined and the close of trading on the NYSE are examples of potentially significant events. For securities of foreign issuers, such events could also include political or other developments affecting the economy or markets in which the issuer conducts its operations or its securities are traded.

There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to calculate the Fund's NAV. In the case of fair valued portfolio securities, lack of information and uncertainty as to the significance of information may lead to a conclusion that a prior valuation is the best indication of a portfolio security's present value. Fair valuations generally remain unchanged until new information becomes available. Consequently, changes in the fair valuation of portfolio securities may be less frequent and of greater magnitude than changes in the price of portfolio securities valued at their last sale price, or based on market quotations.

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The required minimum initial investment for Fund Shares is $ 50,000. There is no required minimum subsequent investment amount.

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An account may be opened with a smaller amount as long as the $ 50,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

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How is the Fund Sold?

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The Fund offers three Share classes: Class A Shares, Class C Shares, and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Shares. All Share classes have 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.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to accounts for which financial institutions act in a fiduciary capacity or to individuals, directly or through 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).

SERVICE FEES

The Fund may pay fees (Service Fees) to financial institutions or to Federated Shareholder Services Company (FSSC), a subsidiary of Federated, for providing services to shareholders and maintaining shareholder accounts. Under certain agreements, rather than paying financial institutions directly, the Fund may pay Service Fees to FSSC and FSSC will use the fees to compensate financial institutions.

ADDITIONAL PAYMENTS TO FINANCIAL INSTITUTIONS

The Distributor may pay out of its own resources amounts (including items of material value) to certain financial institutions that support the sale of Shares or provide services to Fund shareholders. The amounts of these payments could be significant, and may create an incentive for the financial institution or its employees or associated persons to recommend or sell Shares of the Fund to you. In some cases, such payments may be made by or funded from the resources of companies affiliated with the Distributor (including the Adviser). These payments are not reflected in the fees and expenses listed in the fee table section of the Fund's prospectus because they are not paid by the Fund.

These payments are negotiated and may be based on such factors as the number or value of Shares that the financial institution sells or may sell; the value of client assets invested; or the type and nature of services or support furnished by the financial institution. These payments may be in addition to payments made by the Fund to the financial institution under a Rule 12b-1 Plan and/or Service Fees arrangement. You can ask your financial institution for information about any payments it receives from the Distributor or the Fund and any services provided.

How to Purchase Shares

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

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

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

DIRECTLY FROM THE FUND

• Establish your account with the Fund by submitting a completed New Account Form; and
  
• Send your payment to the Fund by Federal Reserve wire or check.
  

You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or State Street Bank and Trust Company, the Fund's Transfer Agent.

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

By Wire

Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

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

By Check

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

The Federated Funds
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, send it to:

The Federated Funds
66 Brooks Drive
Braintree, MA 02184

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

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.

How to Redeem Shares

You should redeem Shares:

• through an investment professional if you purchased Shares through an investment professional; or
  
• directly from the Fund if you purchased Shares directly from the Fund.
  

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption 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 Shares by simply calling the Fund at 1-800-341-7400.

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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.

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By Mail

You may redeem Shares by sending 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:

The Federated Funds
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

The Federated Funds
66 Brooks Drive
Braintree, MA 02184

All requests must include:

• Fund Name and Share Class, account number and account registration;
  
• amount to be redeemed; and
  
• signatures of all shareholders exactly as registered.
  

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

Signature Guarantees

Signatures must be guaranteed by a financial institution which is a participant in a Medallion signature guarantee program if:

• your redemption will be sent to an address other than the address of record;
  
• your redemption will be sent to an address of record that was changed within the last 30 days; or
  
• a redemption is payable to someone other than the shareholder(s) of record.
  

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

PAYMENT METHODS FOR REDEMPTIONS

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

• an electronic transfer to your account at a financial institution that is an ACH member; or
  
• wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.
  

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

• to allow your purchase to clear;
  
• during periods of market volatility; or
  
• when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.
  

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

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 does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, 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 the record date for 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 record date for 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, accounts may be closed if redemptions 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

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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.

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

FREQUENT TRADING POLICIES

Frequent or short-term trading into and out of the Fund can have adverse consequences for the Fund and shareholders who use the Fund as a long-term investment vehicle. Such trading in significant amounts can disrupt the Fund's investment strategies (e.g., by requiring it to sell investments at inopportune times or maintain excessive short-term or cash positions to support redemptions), increase brokerage and administrative costs and affect the timing and amount of taxable gains distributed by the Fund. Investors engaged in such trading may also seek to profit by anticipating changes in the Fund's NAV in advance of the time as of which NAV is calculated.

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The Fund's Board has approved policies and procedures intended to discourage excessive frequent or short-term trading of the Fund's Shares. The Fund's fair valuation procedures are intended in part to discourage short-term trading strategies by reducing the potential for these strategies to succeed. See "What Do Shares Cost?" The Fund monitors trading in Fund Shares in an effort to identify potential disruptive trading activity. The Fund monitors trades into and out of the fund within a period of 30 days or less. The size of Share transactions subject to monitoring varies. However, where it is determined that a shareholder has exceeded the detection amounts twice within a period of 12 months, the shareholder will be precluded from making further purchases of Fund Shares. The Fund may also monitor trades into and out of the Fund over periods longer than 30 days, and if potentially disruptive trading activity is detected, the shareholder will be precluded from making further purchases of Fund Shares. Whether or not the specific monitoring limits are exceeded, the Fund's management or Adviser may determine from the amount, frequency or pattern of purchases and redemptions that a shareholder is engaged in excessive trading that is or could be detrimental to the Fund and other shareholders and may preclude the shareholder from making further purchases of Fund Shares. No matter how the Fund defines its limits on frequent trading of Fund Shares, other purchases and sales of Fund Shares may have adverse effects on the management of the Fund's portfolio and its performance.

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The Fund's objective is that its restrictions on short-term trading should apply to all shareholders, regardless of the number or type of accounts in which Shares are held. However, the Fund anticipates that limitations on its ability to identify trading activity to specific shareholders, particularly where shares are held through intermediaries in multiple or omnibus accounts, will mean that these restrictions may not be able to be applied uniformly in all cases.

PORTFOLIO HOLDINGS INFORMATION

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Information concerning the Fund's portfolio holdings is available in the "Products" section of Federated's website at FederatedInvestors.com . A complete listing of the Fund's portfolio holdings as of the end of each calendar quarter is posted on the website 30 days (or the next business day) after the end of the quarter and remains posted until replaced by the information for the succeeding quarter. Summary portfolio composition information as of the close of each month (except for recent purchase and sale transaction information, which is updated quarterly) is posted on the website 15 days (or the next business day) after month-end and remains until replaced by the information for the succeeding month. The summary portfolio composition information may include identification of the Fund's top ten holdings, recent purchase and sale transactions and a percentage breakdown of the portfolio by sector.

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To access this information from the "Products" section of the website, click on "Portfolio Holdings" and select the appropriate link opposite the name of the Fund, or select the name of the Fund from the menus on the "Products" section, and from the Fund's page click on the "Portfolio Holdings" or "Composition" link. A user is required to register on the website the first time the user accesses this information.

You may also access from the "Products" section of the website portfolio information as of the end of the Funds' fiscal quarters. The Fund's annual and semiannual reports, which contain complete listings of the Fund's portfolio holdings as of the end of the Fund's second and fourth fiscal quarters, may be accessed by selecting the name of the Fund, clicking on "Prospectuses and Regulatory Reports" and selecting the link to the appropriate PDF. Complete listings of the Fund's portfolio holdings as of the end of the Fund's first and third fiscal quarters may be accessed by selecting "Portfolio Holdings" from the "Products" section and then selecting the appropriate link opposite the name of the Fund. Fiscal quarter information is made available on the website within 70 days after the end of the fiscal quarter. This information is also available in reports filed with the SEC at the SEC's website at www.sec.gov.

Who Manages the Fund?

The Board of Trustees (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated Equity Management Company of Pennsylvania. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 133 equity, fixed-income, and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $ 179 billion in assets as of December 31, 2004. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1, 385 employees. Federated provides investment products to more than 5, 700 investment professionals and institutions.

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THE FUND'S PORTFOLIO MANAGERS ARE:

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Walter C. Bean

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Walter C. Bean has been the Fund's Portfolio Manager since inception. Mr. Bean is a Senior Vice President, Senior Portfolio Manager and Director of Investments for Managed Accounts. Mr. Bean joined Federated in 2000. Mr. Bean is responsible for the investment process for the managed account portfolios. His previous associations included: Chief Investment Officer and Portfolio Manager at C.S. McKee & Company; various investment management and research positions with First Chicago Investment Advisors, CIGNA Investment Advisors and Mellon Bank. Mr. Bean is a Chartered Financial Analyst. Mr. Bean earned a Bachelors Degree in Business Administration from Ohio University and an M.B.A. from Pennsylvania State University. Mr. Bean has 35 years of investment experience.

John L. Nichol

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John L. Nichol has been the Fund's Portfolio Manager since inception. Mr. Nichol joined Federated in September 2000 as an Assistant Vice President/Senior Investment Analyst. He has been a Portfolio Manager since December 2000 and was named a Vice President of the Fund's Adviser in July 2001. Mr. Nichol served as a portfolio manager and analyst for the Public Employees Retirement System of Ohio from 1992 through August 2000. Mr. Nichol is a Chartered Financial Analyst . He received has M.B.A. with an emphasis in Finance and Management and Information Science from the Ohio State University.

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ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% 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.

Legal Proceedings

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Like many other mutual fund companies, in September 2003, Federated Investors, Inc., the parent company of the Federated funds' advisers and distributor (collectively, "Federated"), received detailed requests for information on shareholder trading activities in the Federated funds ( Funds ) from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Since that time, Federated has received additional inquiries from regulatory authorities on these and related matters, and more such inquiries may be received in the future.

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As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Federated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website at FederatedInvestors.com , and any future press releases on this subject will also be posted there.

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Shortly after Federated's first public announcement concerning the foregoing matters, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Funds were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders.

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Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts.

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The Board of the Funds has retained the law firm of Dickstein, Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

Financial Information

FINANCIAL HIGHLIGHTS

The Fund's fiscal year end is October 31. As this is the Fund's first fiscal year, financial information is not yet available.

A Statement of Additional Information (SAI) dated March 23, 2005, includes additional information about the Fund and is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The SAI contains a description of the Fund's policies and procedures with respect to the disclosure of its portfolio securities. To obtain the SAI and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

These documents, as well as additional information about the Fund (including portfolio holdings, performance and distributions), are also available on Federated's website at FederatedInvestors.com.

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

Investment Company Act File No. 811-4017

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Federated
World-Class Investment Manager

Federated Strategic Value Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
FederatedInvestors.com
Contact us at 1-800-341-7400 or
FederatedInvestors.com/contact

Federated Securities Corp., Distributor

Cusip 314172560

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32103 (3/05)

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Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

FEDERATED STRATEGIC VALUE FUND
A Portfolio of Federated Equity Funds


STATEMENT OF ADDITIONAL INFORMATION


MARCH 23, 2005

CLASS A SHARES
CLASS C SHARES
INSTITUTIONAL SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Class A Shares, Class C
Shares and Institutional Shares of Federated Strategic Value Fund (Fund),
dated March 23, 2005. Obtain the prospectus without charge by calling
1-800-341-7400.









CONTENTS
How is the Fund Organized?...............1
Securities in Which the Fund Invests.....1
What Do Shares Cost?.....................8
How is the Fund Sold?....................8
Exchanging Securities for Shares.........6
Subaccounting Services..................10
Redemption in Kind......................10
Massachusetts Partnership Law...........11
Account and Share Information...........11
Tax Information.........................11
Who Manages and Provides
  Services to the Fund?.................12
How Does the Fund Measure
Performance?............................23
Who is Federated Investors, Inc.?.......24
Addresses...............................26
Appendix................................27





HOW IS THE FUND ORGANIZED?

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

The Board of Trustees (the "Board") has established three classes of
shares of the Fund, known as Class A Shares, Class C Shares and
Institutional Shares (Shares). This SAI relates to all classes of Shares.
The Fund's investment adviser is Federated Equity Management Company of
Pennsylvania (Adviser).


SECURITIES IN WHICH THE FUND INVESTS

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


SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES
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.




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.




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.

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

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

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

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

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




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.


ADRs and Domestically Traded Securities of Foreign Issuers
ADRs, which are traded in United States markets, represent interests in
underlying securities issued by a foreign company and not traded in the
United States.  ADRs provide a way to buy shares of foreign based
companies in the United States rather than in overseas markets.  ADRs are
also traded in U.S. dollars, eliminating the need for foreign exchange
transactions.  The Fund may also invest in securities issued directly by
foreign companies and traded in U.S. dollars in United States markets.




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 stock market, 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,
including combinations thereof:


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. The Fund has claimed an exclusion from the definition of the
term "commodity pool operator" under the Commodity Exchange Act and,
therefore, is not subject to registration or regulation as a commodity
pool operator under that Act.  Futures contracts traded OTC are frequently
referred to as forward contracts. The Fund can buy or sell index futures.


Options
Options are rights to buy or sell an underlying asset or instrument for a
specified price (the exercise price) during, or at the end of, a specified
period. The seller (or 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. Options can trade on exchanges or in
the OTC market and may be bought or sold on a wide variety of underlying
assets or instruments, including financial indices, individual securities,
and other derivative instruments, such as futures contracts.  Options that
are written on futures contracts will be subject to margin requirements
similar to those applied to futures contracts.


Call Options
A call option gives the holder (buyer) the right to buy the underlying
asset from the seller (writer) of the option. The Fund may use call
options in the following ways:

Buy call options on indices,  individual  securities  and index  futures in
   anticipation  of an  increase  in the value of the  underlying  asset or
   instrument; and

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


Put Options
A put option gives the holder the right to sell the underlying asset to
the writer of the option. The Fund may use put options in the following
ways:

Buy put  options on indices,  individual  securities  and index  futures in
   anticipation of a decrease in the value of the underlying asset; and

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

The Fund may also buy or write options, as needed, to close out existing
option positions.


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.


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



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

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

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

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


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.  These other investment companies are managed
independently of the Fund and incur additional expenses.  Therefore, any
such investment by the Fund may be subject to duplicate expenses.
However, the Adviser believes that the benefits and efficiencies of this
approach should outweigh the additional expenses.


Inter-Fund Borrowing and Lending Arrangements
The Securities and Exchange Commission (SEC) has granted an exemption that
permits the Fund and all other funds advised by subsidiaries of Federated
Investors, Inc. (Federated funds) to lend and borrow money for certain
temporary purposes directly to and from other Federated funds.
Participation in this inter-fund lending program is voluntary for both
borrowing and lending Federated funds, and an inter-fund loan is only made
if it benefits each participating Federated fund.  Federated Investors,
Inc. (Federated) administers the program according to procedures approved
by the Fund's Board, and the Board monitors the operation of the program.
Any inter-fund loan must comply with certain conditions set out in the
exemption, which are designed to assure fairness and protect all
participating Federated funds.

For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed"
trades.  All inter-fund loans must be repaid in seven days or less.  The
Fund's participation in this program must be consistent with its
investment policies and limitations, and must meet certain percentage
tests.  Inter-fund loans may be made only when the rate of interest to be
charged is more attractive to the lending Federated fund than
market-competitive rates on overnight repurchase agreements (Repo Rate)
and more attractive to the borrowing Federated fund than the rate of
interest that would be charged by an unaffiliated bank for short-term
borrowings (Bank Loan Rate), as determined by the Board.  The interest
rate imposed on inter-fund loans is the average of the Repo Rate and the
Bank Loan Rate.


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


Stock Market Risks
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 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.

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 companies with larger market
   capitalizations.


Risks of Foreign Investing
o     Foreign securities, including ADRs and domestically traded
   securities of foreign issuers, 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.

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 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.

Leverage Risks
o     Leverage risk is created when an investment exposes the Fund to a
   level of risk that exceeds the amount invested. Changes in the value of
   such an investment magnify the Fund's risk of loss and potential for
   gain.
o     Investments can have these same results if their returns are based
   on a multiple of a specified index, security, or other benchmark.

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.

Risks of Investing in Derivative Contracts
o     The Fund's use of derivative contracts involves risks different
   from, or possibly greater than, the risks associated with investing
   directly in securities and other traditional investments.  First,
   changes in the value of the derivative contracts in which the Fund
   invests may not be correlated with changes in the value of the
   underlying asset or if they are correlated, may move in the opposite
   direction than originally anticipated. Second, while some strategies
   involving derivatives may reduce the risk of loss, they may also reduce
   potential gains or, in some cases, result in losses by offsetting
   favorable price movements in portfolio holdings.  Third, there is a
   risk that derivative contracts may be mispriced or improperly valued
   and, as a result, the Fund may need to make increased cash payments to
   the counterparty.  Finally, derivative contracts may cause the Fund to
   realize increased ordinary income or short-term capital gains (which
   are treated as ordinary income for Federal income tax purposes) and, as
   a result, may increase taxable distributions to shareholders.
   Derivative contracts may also involve other risks described in this
   SAI, such as stock market, credit, liquidity and leverage risks.




FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment  objective is to provide income and long-term capital
appreciation.  The  investment  objective  may not be changed by the Fund's
Board without shareholder approval.


INVESTMENT LIMITATIONS

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

Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the Investment Company
Act of 1940 (1940 Act), any rule or order thereunder, or any SEC staff
interpretation thereof.

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

Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the
Fund may purchase securities of companies that deal in commodities. For
purposes of this restriction, investments in transactions involving
futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of cash
are not deemed to be investments in commodities.

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

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

Concentration
The Fund will not make investments that will result in the concentration
of its investments in the securities of issuers primarily engaged in the
same industry. For purposes of this restriction, the term concentration
has the meaning set forth in the 1940 Act, any rule or order thereunder,
or any SEC staff interpretation thereof. Government securities and
municipal securities will not be deemed to constitute an industry.

The above limitations cannot be changed unless authorized by the Board and
by the "vote of a majority of its outstanding voting securities," as
defined by the 1940 Act. The following limitations, however, may be
changed by the Board without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes
effective.

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


Investing in 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.   These  other  investment   companies  are  managed
independently of the Fund and incur  additional  expenses.  Therefore,  any
such  investment  by  the  Fund  may  be  subject  to  duplicate  expenses.
However,  the Adviser  believes that the benefits and  efficiencies of this
approach should outweigh the additional expenses.

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

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

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

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


DETERMINING MARKET VALUE OF SECURITIES

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

o     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;

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

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

o     for fixed income securities, according to the mean between bid and
  asked prices as furnished by an independent pricing service, except that
  fixed income securities with remaining maturities of less than 60 days
  at the time of purchase may be valued at amortized cost; and

o     for all other securities at fair value as determined in accordance
  with procedures established by and under the general supervision of 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 net
asset value (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 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.


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 pays a portion of this charge to investment professionals
that are eligible to receive it (the "Dealer Reallowance") and retains any
remaining portion of the front-end sales charge.

When an investment professional's customer purchases Shares, the
investment professional may receive a Dealer Reallowance as follows:


Class A Shares

                                           Dealer
                                        Reallowance
Purchase Amount                       as a percentage
                                             of
                                      Public Offering
                                           Price
Less than $50,000                          5.00%
$50,000 but less than $100,000             4.00%
$100,000 but less than $250,000            3.25%
$250,000 but less than $500,000            2.25%
$500,000 but less than $1 million          1.80%
$1 million or greater                      0.00%

Class C Shares
All Purchase Amounts                       1.00%


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


ADVANCE COMMISSIONS
When an investment professional's customer purchases Shares, the
investment professional may receive an advance commission as follows:




Class A Shares (for purchases over $1 million)
                              Advance Commission
                              as a Percentage of
Purchase Amount                Public Offering
                                    Price
First $1 million - $5               0.75%
million
Next $5 million - $20               0.50%
million
Over $20 million                    0.25%
Advance commissions are calculated on a year by year basis based on
amounts invested during that year. Accordingly, with respect to additional
purchase amounts, the advance commission breakpoint resets 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 commission will be
paid only on those purchases that were not previously subject to a
front-end sales charge or dealer advance commission. Certain retirement
accounts may not be eligible for this program.



                              Advance Commission
                              as a Percentage of
Class C Shares                  Public Offering
                                     Price
All Purchase Amounts                 1.00%


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

RULE 12B-1 PLAN (CLASS A AND CLASS C SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor for activities principally intended to result in the sale of
Shares such as advertising and marketing of Shares (including printing and
distributing prospectuses and sales literature to prospective shareholders
and financial institutions) and providing incentives to investment
professionals to sell Shares.  The Plan is also designed to cover the cost
of administrative services performed in conjunction with the sale of
Shares, including, but not limited to, shareholder services, recordkeeping
services and educational services, as well as the costs of implementing
and operating the Plan.  The Rule 12b-1 Plan allows the Distributor to
contract with investment professionals to perform activities covered by
the Plan. The Rule 12b-1 Plan is expected to benefit the Fund in a number
of ways. For example, it is anticipated that the Plan will help the Fund
attract and retain assets, thus providing cash for orderly portfolio
management and Share redemptions and possibly helping to stabilize or
reduce other operating expenses. In addition, the Plan is integral to the
multiple class structure of the Fund, which promotes the sale of Shares by
providing a range of options to investors. 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.


ADDITIONAL PAYMENTS TO FINANCIAL INSTITUTIONS
The Distributor may pay out of its own resources amounts (including items
of material value) to certain financial institutions.  In some cases, such
payments may be made by, or funded from the resources of, companies
affiliated with the Distributor (including the Adviser).  While NASD
regulations limit the sales charges that you may bear, there are no limits
with regard to the amounts that the Distributor may pay out of its own
resources.  In addition to the payments which are generally described
herein and in the prospectus, the financial institution also may receive
payments under the Rule 12b-1 Plan and/or Service Fees.

You can ask your financial institution for information about any payments
it receives from the Distributor or the Federated funds and any services
provided.

The following examples illustrate the types of instances in which the
Distributor may make additional payments to financial institutions.


Supplemental Payments
The Distributor may make supplemental payments to certain financial
institutions that are holders or dealers of record for accounts in one or
more of the Federated funds.  These payments may be based on such factors
as the number or value of Shares the financial institution sells or may
sell; the value of client assets invested; or the type and nature of
services or support furnished by the financial institution.


Processing Support Payments
The Distributor may make payments to financial institutions that sell
Federated fund shares to help offset their costs associated with client
account maintenance support, statement processing and transaction
processing.  The types of payments that the Distributor may make under
this category include payment of ticket charges on a per transaction
basis; payment of networking fees; and payment for ancillary services such
as setting up funds on the financial institution's mutual fund trading
system.

Retirement Plan Program Servicing Payments
The Distributor may make payments to certain financial institutions who
sell Federated fund shares through retirement plan programs.  A financial
institution may perform retirement plan program services itself or may
arrange with a third party to perform retirement plan program services.
In addition to participant recordkeeping, reporting, or transaction
processing, retirement plan program services may include services rendered
to a plan in connection with fund/investment selection and monitoring;
employee enrollment and education; plan balance rollover or separation, or
other similar services.


Other Benefits to Financial Institutions
From time to time, the Distributor, at its expense, may provide additional
compensation to financial institutions that sell or arrange for the sale
of Shares.  Such compensation may include financial assistance to
financial institutions that enable the Distributor to participate in or
present at conferences or seminars, sales or training programs for invited
employees, client and investor events and other financial
institution-sponsored events.

The Distributor also may hold or sponsor, at its expense, sales events,
conferences and programs for employees or associated persons of financial
institutions and may pay the travel and lodging expenses of attendees.
The Distributor also may provide, at its expense, meals and entertainment
in conjunction with meetings with financial institutions.  Other
compensation may be offered to the extent not prohibited by applicable
laws, regulations or the rules of any self-regulatory agency, such as the
NASD.


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 1940
Act, the Fund is obligated to pay Share redemptions to any one shareholder
in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

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

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


MASSACHUSETTS PARTNERSHIP LAW

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

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


ACCOUNT AND SHARE INFORMATION


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

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

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


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 be subject to federal corporate income tax.

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



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

Distributions from a Fund may be based on estimates of book income for the
year. Book income generally consists solely of the income generated by the
securities in the portfolio, whereas tax-basis income includes, in
addition, 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 will qualify for certain Code provisions that allow its shareholders
to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Code may limit a shareholder's ability to claim a foreign tax
credit. Shareholders who elect to deduct their portion of the Fund's
foreign taxes rather than take the foreign tax credit must itemize
deductions on their income tax returns.




WHO MANAGES AND PROVIDES SERVICES TO THE FUND?


BOARD OF TRUSTEES


The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the
shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of each
person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA.  As of December 31, 2004, the Trust comprised seven
portfolios, and the Federated Fund Complex consisted of 44 investment
companies (comprising 133 portfolios). Unless otherwise noted, each
Officer is elected annually. Unless otherwise noted, each Board member
oversees all portfolios in the Federated Fund Complex and serves for an
indefinite term.




INTERESTED TRUSTEES BACKGROUND AND COMPENSATION


Name
Birth Date                                                                  Total
Address                                                   Aggregate     Compensation
Positions Held with   Principal Occupation(s) for Past   Compensation  From Trust and
Trust                 Five Years, Other Directorships     From Fund    Federated Fund
Date Service Began    Held and Previous Position(s)         (past          Complex
                                                            fiscal     (past calendar
                                                            year)+          year)
                      Principal Occupations: Chairman         $0
John F. Donahue*      and Director or Trustee of the                         $0
Birth Date: July      Federated Fund Complex; Chairman
28, 1924              and Director, Federated
CHAIRMAN AND TRUSTEE  Investors, Inc.
Began serving:        ---------------------------------
April 1984
                      Previous Positions: Trustee,
                      Federated Investment Management
                      Company and Chairman and
                      Director, Federated Investment
                      Counseling.

                      Principal Occupations: Principal        $0
J. Christopher        Executive Officer and President                        $0
Donahue*              of the Federated Fund Complex;
Birth Date: April     Director or Trustee of some of
11, 1949              the Funds in the Federated Fund
PRESIDENT AND         Complex; President, Chief
TRUSTEE               Executive Officer and Director,
Began serving:        Federated Investors, Inc.;
January 2000          Chairman and Trustee, Federated
                      Investment Management Company;
                      Trustee, Federated Investment
                      Counseling; Chairman and
                      Director, Federated Global
                      Investment Management Corp.;
                      Chairman, Federated Equity
                      Management Company of
                      Pennsylvania, Passport Research,
                      Ltd. and Passport Research II,
                      Ltd.; Trustee, Federated
                      Shareholder Services Company;
                      Director, Federated Services
                      Company.

                      Previous Positions: President,
                      Federated Investment Counseling;
                      President and Chief Executive
                      Officer, Federated Investment
                      Management Company, Federated
                      Global Investment Management
                      Corp. and Passport Research, Ltd.

                      Principal Occupations: Director        N/A
Lawrence D. Ellis,    or Trustee of the Federated Fund                    $148,500
M.D.*                 Complex; Professor of Medicine,
Birth Date: October   University of Pittsburgh;
11, 1932              Medical Director, University of
3471 Fifth Avenue     Pittsburgh Medical Center
Suite 1111            Downtown; Hematologist,
Pittsburgh, PA        Oncologist and Internist,
TRUSTEE               University of Pittsburgh Medical
Began serving:        Center.
August 1987
                      Other Directorships Held:
                      Member, National Board of
                      Trustees, Leukemia Society of
                      America.

                      Previous Positions: Trustee,
                      University of Pittsburgh;
                      Director, University of
                      Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F.
Donahue is the father of J. Christopher Donahue; both are "interested" due
to the positions they hold with Federated and its subsidiaries. Lawrence
D. Ellis, M.D. is "interested" because his son-in-law is employed by the
Fund's principal underwriter, Federated Securities Corp.
---------------------------------------------------------------------------
+ Because the Fund is a new portfolio of the Trust, Trustee compensation
has not yet been earned and will be reported following the Fund's next
fiscal year.


INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION


Name
Birth Date                                                                  Total
Address                                                   Aggregate     Compensation
Positions Held with   Principal Occupation(s) for Past   Compensation  From Trust and
Trust                 Five Years, Other Directorships     From Fund    Federated Fund
Date Service Began    Held and Previous Position(s)         (past          Complex
                                                            fiscal     (past calendar
                                                            year)+          year)
                      Principal Occupation: Director         N/A          $163,350
Thomas G. Bigley      or Trustee of the Federated Fund
Birth Date:           Complex.
February 3, 1934
15 Old Timber Trail   Other Directorships Held:
Pittsburgh, PA        Director, Member of Executive
TRUSTEE               Committee, Children's Hospital
Began serving:        of Pittsburgh; Director,
October 1995          University of Pittsburgh.

                      Previous Position: Senior
                      Partner, Ernst & Young LLP.

                      Principal Occupations: Director        N/A          $163,350
John T. Conroy, Jr.   or Trustee of the Federated Fund
Birth Date: June      Complex; Chairman of the Board,
23, 1937              Investment Properties
Grubb &               Corporation; Partner or Trustee
Ellis/Investment      in private real estate ventures
Properties            in Southwest Florida.
Corporation
3838 North Tamiami    Previous Positions: President,
Trail                 Investment Properties
Suite 402             Corporation; Senior Vice
Naples, FL            President, John R. Wood and
TRUSTEE               Associates, Inc., Realtors;
Began serving:        President, Naples Property
November 1991         Management, Inc. and Northgate
                      Village Development Corporation.

                      Principal Occupation: Director         N/A          $163,350
Nicholas P.           or Trustee of the Federated Fund
Constantakis          Complex.
Birth Date:
September 3, 1939     Other Directorships Held:
175 Woodshire Drive   Director and Member of the Audit
Pittsburgh, PA        Committee, Michael Baker
TRUSTEE               Corporation (engineering and
Began serving:        energy services worldwide).
February 1998
                      Previous Position: Partner,
                      Anderson Worldwide SC.

                      Principal Occupation: Director         N/A          $148,500
John F. Cunningham    or Trustee of the Federated Fund
Birth Date: March     Complex.
5, 1943
353 El Brillo Way     Other Directorships Held:
Palm Beach, FL        Chairman, President and Chief
TRUSTEE               Executive Officer, Cunningham &
Began serving:        Co., Inc. (strategic business
January 1999          consulting); Trustee Associate,
                      Boston College.

                      Previous Positions: Director,
                      Redgate Communications and EMC
                      Corporation (computer storage
                      systems); 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.

                      Principal Occupation: Director         N/A          $148,500
                      or Trustee of the Federated Fund
--------------------  Complex.

Peter E. Madden       Other Directorships Held: Board
Birth Date: March     of Overseers, Babson College.
16, 1942
One Royal Palm Way    Previous Positions:
100 Royal Palm Way    Representative, Commonwealth of
Palm Beach, FL        Massachusetts General Court;
TRUSTEE               President, State Street Bank and
Began serving:        Trust Company and State Street
November 1991         Corporation (retired); Director,
                      VISA USA and VISA International;
                      Chairman and Director,
                      Massachusetts Bankers
                      Association; Director,
                      Depository Trust Corporation;
                      Director, The Boston Stock
                      Exchange.

                      Principal Occupations: Director        N/A          $163,350
Charles F.            or Trustee of the Federated Fund
Mansfield, Jr.        Complex; Management Consultant;
Birth Date: April     Executive Vice President, DVC
10, 1945              Group, Inc. (marketing,
80 South Road         communications and technology)
Westhampton Beach,    (prior to 9/1/00).
NY
TRUSTEE               Previous Positions: Chief
Began serving:        Executive Officer, PBTC
January 1999          International Bank; Partner,
                      Arthur Young & Company (now
                      Ernst & Young LLP); Chief
                      Financial Officer of Retail
                      Banking Sector, Chase Manhattan
                      Bank; Senior Vice President,
                      HSBC Bank USA (formerly, Marine
                      Midland Bank); Vice President,
                      Citibank; Assistant Professor of
                      Banking and Finance, Frank G.
                      Zarb School of Business, Hofstra
                      University.

                      Principal Occupations: Director        N/A          $178,200
John E. Murray,       or Trustee of the Federated Fund
Jr., J.D., S.J.D.     Complex; Chancellor and Law
Birth Date:           Professor, Duquesne University;
December 20, 1932     Partner, Murray, Hogue & Lannis.
Chancellor,
Duquesne University   Other Directorships Held:
Pittsburgh, PA        Director, Michael Baker Corp.
TRUSTEE               (engineering, construction,
Began serving:        operations and technical
February 1995         services).

                      Previous Positions: President,
                      Duquesne University; Dean and
                      Professor of Law, University of
                      Pittsburgh School of Law; Dean
                      and Professor of Law, Villanova
                      University School of Law.

                      Principal Occupations:  Director       N/A          $148,500
Marjorie P. Smuts     or Trustee of the Federated Fund
Birth Date: June      Complex; Public
21, 1935              Relations/Marketing
4905 Bayard Street    Consultant/Conference
Pittsburgh, PA        Coordinator.
TRUSTEE
Began serving:        Previous Positions: National
April 1984            Spokesperson, Aluminum Company
                      of America; television producer;
                      President, Marj Palmer Assoc.;
                      Owner, Scandia Bord.

                      Principal Occupations:  Director       N/A          $148,500
John S. Walsh         or Trustee of the Federated Fund
Birth Date:           Complex; President and Director,
November 28, 1957     Heat Wagon, Inc. (manufacturer
2604 William Drive    of construction temporary
Valparaiso, IN        heaters); President and
TRUSTEE               Director, Manufacturers
Began serving:        Products, Inc. (distributor of
January 1999          portable construction heaters);
                      President, Portable Heater
                      Parts, a division of
                      Manufacturers Products, Inc.

                      Previous Position: Vice
                      President, Walsh & Kelly, Inc.

+ Because the Fund is a new portfolio of the Trust, Trustee compensation
has not yet been earned and will be reported following the Fund's next
fiscal year.
---------------------------------------------------------------------------



OFFICERS**

Name
Birth Date
Address
Positions Held with Trust
-----------------------------    Principal Occupation(s) and Previous Position(s)
Date Service Began
                                 Principal Occupations: Executive Vice President
John W. McGonigle                and Secretary of the Federated Fund Complex;
Birth Date: October 26, 1938     Executive Vice President, Secretary and Director,
EXECUTIVE VICE PRESIDENT AND     Federated Investors, Inc.
SECRETARY
Began serving: April 1984        Previous Positions: Trustee, Federated Investment
                                 Management Company and Federated Investment
                                 Counseling; Director, Federated Global Investment
                                 Management Corp., Federated Services Company and
                                 Federated Securities Corp.

                                 Principal Occupations: Principal Financial
Richard J. Thomas                Officer and Treasurer of the Federated Fund
Birth Date: June 17, 1954        Complex; Senior Vice President, Federated
TREASURER                        Administrative Services.
Began serving: November 1998
                                 Previous Positions: Vice President, Federated
                                 Administrative Services; held various management
                                 positions within Funds Financial Services
                                 Division of Federated Investors, Inc.

                                 Principal Occupations: Vice Chairman or Vice
Richard B. Fisher                President of some of the Funds in the Federated
Birth Date: May 17, 1923         Fund Complex; Vice Chairman, Federated Investors,
VICE PRESIDENT                   Inc.; Chairman, Federated Securities Corp.
Began serving: April 1984
                                 Previous Positions: President and Director or
                                 Trustee of some of the Funds in the Federated
                                 Fund Complex; Executive Vice President, Federated
                                 Investors, Inc. and Director and Chief Executive
                                 Officer, Federated Securities Corp.

                                 Principal Occupations: Chief Investment Officer
Stephen F. Auth                  of this Fund and various other Funds in the
Birth Date: September 3, 1956    Federated Fund Complex; Executive Vice President,
CHIEF INVESTMENT OFFICER         Federated Investment Counseling, Federated Global
Began serving: November 2002     Investment Management Corp., Federated Equity
                                 Management Company of Pennsylvania and Passport
                                 Research II, Ltd.

                                 Previous Positions: Executive Vice President,
                                 Federated Investment Management Company, and
                                 Passport Research, Ltd.; Senior Vice President,
                                 Global Portfolio Management Services Division;
                                 Senior Vice President, Federated Investment
                                 Management Company and Passport Research, Ltd.;
                                 Senior Managing Director and Portfolio Manager,
                                 Prudential Investments.

---------------------------------------------------------------------------------------
                                 Lawrence Auriana is Vice President of the Trust.
Lawrence Auriana                 Mr. Auriana joined Federated in April 2001 as
Birth Date: January 8, 1944      Co-Head of Investments/Federated Kaufmann. From
VICE PRESIDENT                   August 1984 to April 2001, Mr. Auriana was
Began serving: November 2001     President and Treasurer of Edgemont Asset
                                 Management Corp., and Chairman of the Board and
                                 Portfolio Manager to The Kaufmann Fund, Inc.
                                 (predecessor to the Federated Kaufmann Fund). Mr.
                                 Auriana earned a B.S. in economics from Fordham
                                 University and has been engaged in the securities
                                 business since 1965.
                              -----------------------------------------------------


                                 James E. Grefenstette is Vice President of the
James E. Grefenstette            Trust. Mr. Grefenstette joined Federated in 1992
Birth Date: November 7, 1962     and has been a Portfolio Manager since 1994. Mr.
VICE PRESIDENT                   Grefenstette became a Senior Vice President of
Began serving: November 1998     the Fund's Adviser in January 2000. He served as
                                 a Vice President of the Fund's Adviser from 1996
                                 through 1999 and was an Assistant Vice President
                                 of the Fund's Adviser from 1994 until 1996. Mr.
                                 Grefenstette is a Chartered Financial Analyst; he
                                 received his M.S. in Industrial Administration
                                 from Carnegie Mellon University.

                                 Hans P. Utsch is Vice President of the Trust. Mr.
Hans P. Utsch                    Utsch joined Federated in April 2001 as Co-Head
Birth Date: July 3, 1936         of Investments/Federated Kaufmann. From August
VICE PRESIDENT                   1984 to April 2001, Mr. Utsch was Chairman of the
Began serving: November 2001     Board and Secretary of Edgemont Asset Management
                                 Corp., and President and Portfolio Manager to The
                                 Kaufmann Fund, Inc. (predecessor to the Federated
                                 Kaufmann Fund). Mr. Utsch graduated from Amherst
                                 College and holds an M.B.A. from Columbia
                                 University. He has been engaged in the securities
                                 business since 1962.

**    Officers do not receive any compensation from the Fund.
---------------------------------------------------------------------------



COMMITTEES OF THE BOARD
                                                                           Meetings
Board     Committee                                                           Held
Committee Members             Committee Functions                          During
                                                                              Last
                                                                           Fiscal
                                                                              Year
Executive                     In between meetings of the full Board,          Six
          John F. Donahue     the Executive Committee generally may
          John E. Murray,     exercise all the powers of the full Board
          Jr., J.D., S.J.D.   in the management and direction of the
                              business and conduct of the affairs of
                              the Trust/in such manner as the Executive
                              Committee shall deem to be in the best
                              interests of the Trust.  However, the
                              Executive Committee cannot elect or
                              remove Board members, increase or
                              decrease the number of Trustees, elect or
                              remove any Officer, declare dividends,
                              issue shares or recommend to shareholders
                              any action requiring shareholder approval.

Audit                         The purposes of the Audit Committee are         Six
          Thomas G. Bigley    to oversee the accounting and financial
          John T. Conroy,     reporting process of the Fund, the Fund`s
          Jr.                 internal control over financial
          Nicholas P.         reporting, and the quality, integrity and
          Constantakis        independent audit of the Fund`s financial
          Charles F.          statements.  The Committee also oversees
          Mansfield, Jr.      or assists the Board with the oversight
                              of compliance with legal requirements
                              relating to those matters, approves the
                              engagement and reviews the
                              qualifications, independence and
                              performance of the Fund`s independent
                              registered public accounting firm, acts
                              as a liaison between the independent
                              registered public accounting firm and the
                              Board and reviews the Fund`s internal
                              audit function.

Nominating                                                                    One
          Thomas G. Bigley    The Nominating Committee, whose members
          John T. Conroy,     consist of all Independent Trustees,
          Jr.                 selects and nominates persons for
          Nicholas P.         election to the Fund`s Board when
          Constantakis        vacancies occur. The Committee will
          John F.             consider candidates recommended by
          Cunningham          shareholders, Independent Trustees,
          Peter E. Madden     officers or employees of any of the
          Charles F.          Fund`s agents or service providers and
          Mansfield, Jr.      counsel to the Fund. Any shareholder who
          John E. Murray,     desires to have an individual considered
          Jr.                 for nomination by the Committee must
          Marjorie P. Smuts   submit a recommendation in writing to the
          John S. Walsh       Secretary of the Fund, at the Fund's
                              address appearing on the back cover of
                              this Statement of Additional Information.
                              The recommendation should include the
                              name and address of both the shareholder
                              and the candidate and detailed
                              information concerning the candidate's
                              qualifications and experience. In
                              identifying and evaluating candidates for
                              consideration, the Committee shall
                              consider such factors as it deems
                              appropriate.  Those factors will
                              ordinarily include:  integrity,
                              intelligence, collegiality, judgment,
                              diversity, skill, business and other
                              experience, qualification as an
                              "Independent Trustee," the existence of
                              material relationships which may create
                              the appearance of a lack of independence,
                              financial or accounting knowledge and
                              experience, and dedication and
                              willingness to devote the time and
                              attention necessary to fulfill Board
                              responsibilities.



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


BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF
INVESTMENT COMPANIES AS OF DECEMBER 31, 2004


                                                                               Aggregate
                                                                         Dollar Range of
                                             Dollar Range of             Shares Owned in
Interested                                    Shares Owned                     Federated
Board Member Name                                in Fund                       Family of
                                                                              Investment
                                                                               Companies
John F. Donahue                                   None                     Over $100,000
J. Christopher Donahue                            None                     Over $100,000
Lawrence D. Ellis, M.D.                           None                     Over $100,000

Independent
Board Member Name                      ---------------------------

Thomas G. Bigley                                  None                     Over $100,000
John T. Conroy, Jr.                               None                     Over $100,000
Nicholas P. Constantakis                          None                     Over $100,000
John F. Cunningham                                None                     Over $100,000
Peter E. Madden                                   None                     Over $100,000
Charles F. Mansfield, Jr.                         None                     $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D.                 None                     Over $100,000
Marjorie P. Smuts                                 None                     Over $100,000
John S. Walsh                                     None                     Over $100,000


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

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

The Adviser is a wholly owned subsidiary of Federated.

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

As required by the 1940 Act, the Fund's Board has reviewed the Fund's
investment advisory contract.  The Board's decision to approve the
contract reflects the exercise of its business judgment on whether to
continue the existing arrangements.  During its review of the contract,
the Board considers many factors, among the most material of which are:
the Fund's investment objectives and long term performance; the Adviser's
management philosophy, personnel and processes; the preferences and
expectations of Fund shareholders and their relative sophistication; the
continuing state of competition in the mutual fund industry; comparable
fees in the mutual fund industry; the range and quality of services
provided to the Fund and its shareholders by the Federated organization in
addition to investment advisory services; and the Fund's relationship to
the Federated funds.

In assessing the Adviser's performance of its obligations, the Board also
considers whether there has occurred a circumstance or event that would
constitute a reason for it to not renew an advisory contract.  In this
regard, the Board is mindful of the potential disruptions of the Fund's
operations and various risks, uncertainties and other effects that could
occur as a result of a decision to terminate or not renew an advisory
contract.  In particular, the Board recognizes that most shareholders have
invested in the Fund on the strength of the Adviser's industry standing
and reputation and in the expectation that the Adviser will have a
continuing role in providing advisory services to the Fund.

The Board also considers the compensation and benefits received by the
Adviser.  This includes fees received for services provided to the Fund by
other entities in the Federated organization and research services
received by the Adviser from brokers that execute fund trades, as well as
advisory fees.  In this regard, the Board is aware that various courts
have interpreted provisions of the 1940 Act and have indicated in their
decisions that the following factors may be relevant to an Adviser's
compensation:  the nature and quality of the services provided by the
Adviser, including the performance of the Fund; the Adviser's cost of
providing the services; the extent to which the Adviser may realize
"economies of scale" as the Fund grows larger; any indirect benefits that
may accrue to the Adviser and its affiliates as a result of the Adviser's
relationship with the Fund; performance and expenses of comparable funds;
and the extent to which the independent Board members are fully informed
about all facts bearing on the Adviser's service and fee.  The Fund's
Board is aware of these factors and takes them into account in its review
of the Fund's advisory contract.

The Board considers and weighs these circumstances in light of its
substantial accumulated experience in governing the Fund and working with
Federated on matters relating to the Federated funds, and is assisted in
its deliberations by the advice of independent legal counsel.  In this
regard, the Board requests and receives a significant amount of
information about the Fund and the Federated organization.  Federated
provides much of this information at each regular meeting of the Board,
and furnishes additional reports in connection with the particular meeting
at which the Board's formal review of the advisory contracts occurs.  In
between regularly scheduled meetings, the Board may receive information on
particular matters as the need arises.  Thus, the Board's evaluation of an
advisory contract is informed by reports covering such matters as: the
Adviser's investment philosophy, personnel, and processes; the Fund's
short- and long-term performance (in absolute terms as well as in
relationship to its particular investment program and certain competitor
or "peer group" funds), and comments on the reasons for performance; the
Fund's expenses (including the advisory fee itself and the overall expense
structure of the Fund, both in absolute terms and relative to similar
and/or competing funds, with due regard for contractual or voluntary
expense limitations); the use and allocation of brokerage commissions
derived from trading the Fund's portfolio securities; the nature and
extent of the advisory and other services provided to the Fund by the
Adviser and its affiliates; compliance and audit reports concerning the
Federated funds and the Federated companies that service them; and
relevant developments in the mutual fund industry and how the Federated
funds and/or Federated are responding to them.

The Board also receives financial information about Federated, including
reports on the compensation and benefits Federated derives from its
relationships with the Federated funds.  These reports cover not only the
fees under the advisory contracts, but also fees received by Federated's
subsidiaries for providing other services to the Federated funds under
separate contracts (e.g., for serving as the Federated funds'
administrator).  The reports also discuss any indirect benefit Federated
may derive from its receipt of research services from brokers who execute
Federated fund trades.

The Board bases its decision to approve an advisory contract on the
totality of the circumstances and relevant factors, and with a view to
past and future long-term considerations.  Not all of the factors and
considerations identified above are relevant to every Federated fund, nor
does the Board consider any one of them to be determinative.  Because the
totality of circumstances includes considering the relationship of each
Federated fund, the Board does not approach consideration of every
Federated fund's advisory contract as if that were the only Federated fund.


Services Agreement
Federated Advisory Services Company, an affiliate of the Adviser, provides
research, quantitative analysis, equity trading and transaction settlement
and certain support services to the Adviser.  The fee for these services
is paid by the Adviser and not by 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.


CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

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


VOTING PROXIES ON FUND PORTFOLIO SECURITIES
The Board has delegated to the Adviser authority to vote proxies on the
securities held in the Fund's portfolio.  The Board has also approved the
Adviser's policies and procedures for voting the proxies, which are
described below.


Proxy Voting Policies
The Adviser's general policy is to cast proxy votes in favor of proposals
that the Adviser anticipates will enhance the long-term value of the
securities being voted.  Generally, this will mean voting for proposals
that the Adviser believes will: improve the management of a company;
increase the rights or preferences of the voted securities; and/or
increase the chance that a premium offer would be made for the company or
for the voted securities.

The following examples illustrate how these general policies may apply to
proposals submitted by a company's board of directors.  However, whether
the Adviser supports or opposes a proposal will always depend on the
specific circumstances described in the proxy statement and other
available information.

On matters of corporate governance, generally the Adviser will vote for
proposals to: require independent tabulation of proxies and/or
confidential voting by shareholders; reorganize in another jurisdiction
(unless it would reduce the rights or preferences of the securities being
voted); and repeal a shareholder rights plan (also known as a "poison
pill").  The Adviser will generally vote against the adoption of such a
plan (unless the plan is designed to facilitate, rather than prevent,
unsolicited offers for the company).

On matters of capital structure, generally the Adviser will vote: against
proposals to authorize or issue shares that are senior in priority or
voting rights to the securities being voted; for proposals to grant
preemptive rights to the securities being voted; and against proposals to
eliminate such preemptive rights.

On matters relating to management compensation, generally the Adviser will
vote: for stock incentive plans that align the recipients' interests with
the interests of shareholders without creating undue dilution; and against
proposals that would permit the amendment or replacement of outstanding
stock incentives with new stock incentives having more favorable terms.

On matters relating to corporate transactions, the Adviser will vote
proxies relating to proposed mergers, capital reorganizations, and similar
transactions in accordance with the general policy, based upon its
analysis of the proposed transaction.  The Adviser will vote proxies in
contested elections of directors in accordance with the general policy,
based upon its analysis of the opposing slates and their respective
proposed business strategies.  Some transactions may also involve proposed
changes to the company's corporate governance, capital structure or
management compensation.  The Adviser will vote on such changes based on
its evaluation of the proposed transaction or contested election.  In
these circumstances, the Adviser may vote in a manner contrary to the
general practice for similar proposals made outside the context of such a
proposed transaction or change in the board.  For example, if the Adviser
decides to vote against a proposed transaction, it may vote for
anti-takeover measures reasonably designed to prevent the transaction,
even though the Adviser typically votes against such measures in other
contexts.

The Adviser generally votes against proposals submitted by shareholders
without the favorable recommendation of a company's board.  The Adviser
believes that a company's board should manage its business and policies,
and that shareholders who seek specific changes should strive to convince
the board of their merits or seek direct representation on the board.

In addition, the Adviser will not vote if it determines that the
consequences or costs outweigh the potential benefit of voting.  For
example, if a foreign market requires shareholders casting proxies to
retain the voted shares until the meeting date (thereby rendering the
shares "illiquid" for some period of time), the Adviser will not vote
proxies for such shares.


Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee), to
exercise all voting discretion granted to the Adviser by the Board in
accordance with the proxy voting policies.  The Adviser has hired Investor
Responsibility Research Center (IRRC) to obtain, vote, and record proxies
in accordance with the Proxy Committee's directions.  The Proxy Committee
directs IRRC by means of Proxy Voting Guidelines, and IRRC may vote any
proxy as directed in the Proxy Voting Guidelines without further direction
from the Proxy Committee (and may make any determinations required to
implement the Proxy Voting Guidelines).  However, if the Proxy Voting
Guidelines require case-by-case direction for a proposal, IRRC will
provide the Proxy Committee with all information that it has obtained
regarding the proposal and the Proxy Committee will provide specific
direction to IRRC.  The Adviser's proxy voting procedures generally permit
the Proxy Committee to amend the Proxy Voting Guidelines, or override the
directions provided in such Guidelines, whenever necessary to comply with
the proxy voting policies.


Conflicts of Interest
The Adviser has adopted procedures to address situations where a matter on
which a proxy is sought may present a potential conflict between the
interests of the Fund (and its shareholders) and those of the Adviser or
Distributor.  This may occur where a significant business relationship
exists between the Adviser (or its affiliates) and a company involved with
a proxy vote.  A company that is a proponent, opponent, or the subject of
a proxy vote, and which to the knowledge of the Proxy Committee has this
type of significant business relationship, is referred to as an
"Interested Company."

The Adviser has implemented the following procedures in order to avoid
concerns that the conflicting interests of the Adviser have influenced
proxy votes.  Any employee of the Adviser who is contacted by an
Interested Company regarding proxies to be voted by the Adviser must refer
the Interested Company to a member of the Proxy Committee, and must inform
the Interested Company that the Proxy Committee has exclusive authority to
determine how the Adviser will vote.  Any Proxy Committee member contacted
by an Interested Company must report it to the full Proxy Committee and
provide a written summary of the communication.  Under no circumstances
will the Proxy Committee or any member of the Proxy Committee make a
commitment to an Interested Company regarding the voting of proxies or
disclose to an Interested Company how the Proxy Committee has directed
such proxies to be voted.  If the Proxy Voting Guidelines already provide
specific direction on the proposal in question, the Proxy Committee shall
not alter or amend such directions.  If the Proxy Voting Guidelines
require the Proxy Committee to provide further direction, the Proxy
Committee shall do so in accordance with the proxy voting policies,
without regard for the interests of the Adviser with respect to the
Interested Company.  If the Proxy Committee provides any direction as to
the voting of proxies relating to a proposal affecting an Interested
Company, it must disclose to the Fund's Board information regarding: the
significant business relationship; any material communication with the
Interested Company; the matter(s) voted on; and how, and why, the Adviser
voted as it did.

If the Fund holds shares of another investment company for which the
Adviser (or an affiliate) acts as an investment adviser, the Proxy
Committee will vote the Fund's proxies in the same proportion as the votes
cast by shareholders who are not clients of the Adviser at any
shareholders' meeting called by such investment company, unless otherwise
directed by the Board.



Proxy Voting Report
A report on "Form N-PX" of how the Fund voted any proxies during the most
recent 12-month period ended June 30 is available through Federated's
website.  Go to FederatedInvestors.com; select "Products;" select the
Fund; then use the link to "Prospectuses and Regulatory Reports" to access
the link to Form N-PX.


PORTFOLIO HOLDINGS INFORMATION
Information concerning the Fund's portfolio holdings is available in the
"Products" section of the Federated Investors website at
FederatedInvestors.com.  A complete listing of the Fund's portfolio
holdings as of the end of each calendar quarter is posted on the website
30 days (or the next business day) after the end of the quarter and
remains posted until replaced by the information for the succeeding
quarter.  Summary portfolio composition information as of the close of
each month (except for recent purchase and sale transaction information,
which is updated quarterly) is posted on the website 15 days (or the next
business day) after month-end and remains until replaced by the
information for the succeeding month.  The summary portfolio composition
information may include identification of the Fund's top ten holdings,
recent purchase and sale transactions and a percentage breakdown of the
portfolio by sector.



To access this information from the "Products" section of the website,
click on "Portfolio Holdings" and select the appropriate link opposite the
name of the Fund, or select the name of the Fund from the menus on the
"Products" section, and from the Fund's page click on the "Portfolio
Holdings" or "Composition" link.  A user is required to register on the
website the first time the user accesses this information.

You may also access from the "Products" section of the website portfolio
information as of the end of the Funds' fiscal quarters.  The Fund's
annual and semiannual reports, which contain complete listings of the
Fund's portfolio holdings as of the end of the Fund's second and fourth
fiscal quarters, may be accessed by selecting the name of the Fund,
clicking on "Prospectuses and Regulatory Reports" and selecting the link
to the appropriate PDF.  Complete listings of the Fund's portfolio
holdings as of the end of the Fund's first and third fiscal quarters may
be accessed by selecting "Portfolio Holdings" from the "Products" section
and then selecting the appropriate link opposite the name of the Fund.
Fiscal quarter information is made available on the website within 70 days
after the end of the fiscal quarter.  This information is also available
in reports filed with the SEC at the SEC's website at www.sec.gov.

The disclosure policy of the Fund and the Adviser prohibits the disclosure
of portfolio holdings information to any investor or intermediary before
the same information is made available to other investors.  Employees of
the Adviser or its affiliates who have access to nonpublic information
concerning the Fund's portfolio holdings are prohibited from trading
securities on the basis of this information.  Such persons must report all
personal securities trades and obtain pre-clearance for all personal
securities trades other than mutual fund shares.

Firms that provide administrative, custody, financial, accounting, legal
or other services to the Fund may receive nonpublic information about Fund
portfolio holdings for purposes relating to their services.  The Fund may
also provide portfolio holdings information to publications that rate,
rank or otherwise categorize investment companies.  Traders or portfolio
managers may provide "interest" lists to facilitate portfolio trading if
the list reflects only that subset of the portfolio for which the trader
or portfolio manager is seeking market interest.  A list of service
providers, publications and other third parties who may receive nonpublic
portfolio holdings information appears in the Appendix to this SAI.

The furnishing of nonpublic portfolio holdings information to any third
party (other than authorized governmental or regulatory personnel)
requires the prior approval of the President of the Adviser and of the
Chief Compliance Officer of the Fund.  The President of the Adviser and
the Chief Compliance Officer will approve the furnishing of nonpublic
portfolio holdings information to a third party only if they consider the
furnishing of such information to be in the best interests of the Fund and
its shareholders.  In that regard, and to address possible conflicts
between the interests of Fund shareholders and those of the Adviser and
its affiliates, the following procedures apply.  No consideration may be
received by the Fund, the Adviser, any affiliate of the Adviser or any of
their employees in connection with the disclosure of portfolio holdings
information.  Before information is furnished, the third party must sign a
written agreement that it will safeguard the confidentiality of the
information, will use it only for the purposes for which it is furnished
and will not use it in connection with the trading of any security.
Persons approved to receive nonpublic portfolio holdings information will
receive it as often as necessary for the purpose for which it is
provided.  Such information may be furnished as frequently as daily and
often with no time lag between the date of the information and the date it
is furnished.  The Board receives and reviews annually a list of the
persons who receive nonpublic portfolio holdings information and the
purposes for which it is furnished.


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).  The Adviser may also direct certain
portfolio trades to a broker that, in turn, pays a portion of the Fund's
operating expenses.  The Adviser makes decisions on portfolio transactions
and selects brokers and dealers subject to review by the Fund's Board.

Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. Except as noted below, 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.  Investments for Federated
Kaufmann Fund and other accounts managed by that fund's portfolio managers
in initial public offerings ("IPO") are made independently from any other
accounts, and much of their non-IPO trading may also be conducted
independently from other accounts.


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.


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

                           Average Aggregate Daily
      Maximum                 Net Assets of the
 Administrative Fee            Federated Funds
    0.150 of 1%            on the first $5 billion
    0.125 of 1%             on the next $5 billion
    0.100 of 1%            on the next $10 billion
    0.075 of 1%           on assets over $20 billion

The administrative fee received during any fiscal year shall be at least
$150,000 per portfolio and $40,000 per each additional class of Shares.
FAS may voluntarily waive a portion of its fee and may reimburse the Fund
for expenses.
---------------------------------------------------------------------------

FAS 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
State Street Bank and Trust Company, the Fund's registered transfer agent,
maintains all necessary shareholder records.


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm for the Fund, Ernst &
Young LLP, conducts its audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States), which require
it to plan and perform its audits to provide reasonable assurance about
whether the Fund's financial statements and financial highlights are free
of material misstatement.


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


HOW DOES THE FUND MEASURE PERFORMANCE?

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

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

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


AVERAGE ANNUAL TOTAL RETURNS AND YIELD

TOTAL RETURN
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 $10,000 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 $10,000, less any
applicable sales charge, adjusted over the period by any additional
Shares, assuming the annual reinvestment of all dividends and
distributions.  Total returns after taxes are calculated in a similar
manner, but reflect additional standard assumptions required by the SEC.

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


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

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


PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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

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

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

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

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

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

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


Russell Mid Cap Value Index
The Russell Mid Cap Value Index measures the performance of those Russell
Mid Cap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000 Value index.


S&P 500 Index
An unmanaged capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries.

Lipper, Inc.
Lipper, Inc. ranks funds in various fund categories by making comparative
calculations using total return. Total return assumes the reinvestment of
all capital gains distributions and income dividends and takes into
account any change in net asset value over a specified period of time.
Morningstar, Inc.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values, which rates more than
1,000 NASDAQ-listed mutual funds of all types according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.

WHO IS FEDERATED INVESTORS, INC.?



Federated and its subsidiaries are dedicated to providing you with
world-class investment management.  From offices in Pittsburgh, New York
City and Frankfurt, Federated is a firm with independent research, product
breadth and industry standing.

Federated seeks to achieve superior and sustainable investment performance
for a broad array of global clients through a disciplined investment
process and an information advantage created by proprietary fundamental
research.  Federated is distinctive in our disciplined process that
integrates proprietary research with trading and portfolio management.


FEDERATED FUNDS OVERVIEW

Equities
As of December 31, 2004, Federated managed 34 equity funds totaling
approximately $26.0 billion in assets across growth, value, equity income,
international, index and sector allocation styles.


Taxable Fixed Income
As of December 31, 2004, Federated managed 31 taxable bond funds
including: high-yield, multi-sector, mortgage-backed, U.S. government,
U.S. corporate and international, with assets approximating $17.7 billion.


Tax Free Fixed Income
As of December 31, 2004, Federated managed 15 municipal bond funds with
approximately $3.4 billion in assets and 22 municipal money market funds
with approximately $24.4 billion in total assets.


Money Market Funds
As of December 31, 2004, Federated managed $110.6 billion in assets across
53 money market funds, including 19 government, 11 prime, 22 municipal and
1 euro-denominated with assets approximating $43.9 billion, $42.1 billion,
$24.4 billion and $58.9 million.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: Stephen F. Auth, CFA for Global
Equity; Robert J. Ostrowski, CFA for Taxable Fixed Income; Mary Jo Ochson,
CFA for Tax Free Fixed Income; and Deborah A. Cunningham, CFA for Money
Market Funds.






ADDRESSES

FEDERATED STRATEGIC VALUE FUND

Class A Shares
Class C Shares
Institutional 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 Equity Management Company of Pennsylvania
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


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


Independent Registered Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072



APPENDIX

The following is a list of persons other than the Adviser and its
affiliates that may receive nonpublic portfolio holdings information
concerning the Fund:


CUSTODIAN
State Street Bank and Trust Company


SECURITIES LENDING AGENT
State Street Bank and Trust Company


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP


LEGAL COUNSEL
Dicksten Shapiro Morin & Oshinsky LLP
Reed Smith LLP


SERVICE PROVIDERS
Bloomberg
FactSet
Institutional Shareholder Services, Inc.
Investor Responsibility Research Center
Wilshire Associates, Inc.


SECURITY PRICING SERVICES
FT Interactive Data
Reuters


RATINGS AGENCIES
Standard & Poor's


PERFORMANCE REPORTING/PUBLICATIONS
Fidelity-Strategic Advisors
Lipper, Inc.
Morningstar, Inc.
Morningstar Associates
NASDAQ
Value Line
Wisenberger/Thomson Financial


OTHER
Investment Company Institute