FEDERATED EQUITY FUNDS

485BPOS 1 fefform.htm FEDERATED EQUITY FUNDS

                                                       1933 Act File No. 2-91090
                                                      1940 Act File No. 811-4017

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             X

    Pre-Effective Amendment No.

    Post-Effective Amendment No.  64 .......................        X

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X

    Amendment No.  58 ......................................        X

                             FEDERATED EQUITY FUNDS

               (Exact Name of Registrant as Specified in Charter)

                            Federated Investors Funds
                              5800 Corporate Drive
                       Pittsburgh, Pennsylvania 15237-7000
                    (Address of Principal Executive Offices)

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

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

It is proposed that this filing will become effective:

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

If appropriate, check the following box:

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

                                    Copy to:

                           Matthew G. Maloney, Esquire
                   Dickstein Shapiro Morin & Oshinsky, LLP
                                2101 L Street, NW
                              Washington, DC 20037

[Logo of Federated Investors]

Federated Capital
Appreciation Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

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December 31, 2003

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CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

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

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

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Risk/Return Summary		1
What are the Fund's Fees and Expenses?		4
What are the Fund's Investment Strategies?		5
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?		10
How is the Fund Sold?		14
How to Purchase Shares		15
How to Redeem and Exchange Shares		17
Account and Share Information		21
Who Manages the Fund?		22
Legal Proceedings		23
Financial Information		24

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Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

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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.

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Liquidity Risks. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base and limited access to capital, they may be more likely to fail than larger companies.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.

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Risks of Investing in American Depositary Receipts. Because the Fund may invest in American Depositary Receipts 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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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.

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Risk/Return Bar Chart

The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

The total returns shown in the bar chart do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.

The Fund's Class A Shares total return for the nine-month period from January 1, 2003 to September 30, 2003 was 10.53%.

Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 27.57% (quarter ended December 31, 1999). Its lowest quarterly return was (17.40)% (quarter ended September 30, 2002).

Average Annual Total Return Table

The Average Annual Total Returns for the Fund's Class A, Class B and Class C Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for Class A Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Standard & Poor's 500 Index (S&P 500), a broad-based market index and the Lipper Large Cap Core Funds Average (LLCCFA), an average of funds with similar objectives. Index and average returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes and averages are unmanaged, and it is not possible to invest directly in an index or average.

(For the periods ended December 31, 2002)

	1 Year	5 Years	10 Years	Start of Performance¹
Class A Shares:
Return Before Taxes	(23.22)%	3.60%	10.88%	--
Return After Taxes on Distributions²	(23.36)%	2.77%	9.31%	--
Return After Taxes on Distributions and Sale of Fund Shares²	(14.25)%	2.89%	8.68%	--
Class B Shares:
Return Before Taxes	(23.81)%	3.60%	--	9.15%
Class C Shares:
Return Before Taxes	(20.19)%	4.00%	--	9.15%
S&P 500	(22.10)%	(0.59)%	9.34%	--
LLCCFA	(23.97)%	(3.19)%	6.71%	--

1 The Fund's Class B and Class C Shares start of performance date was January 4, 1996.

2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class B and Class C Shares will differ from those shown above for Class A Shares. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

What are the Fund's Fees and Expenses?

FEDERATED CAPITAL APPRECIATION FUND

FEES AND EXPENSES

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

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

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


1 Although not contractually obligated to do so, the distributor waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 2003.
Total Waiver of Fund Expenses	0.25%	0.00%	0.00%
Total Actual Annual Fund Operating Expenses (after waiver)	1.27%	2.02%	2.02%
2 Class A Shares did not pay or accrue the distribution (12b-1) fee for the fiscal year ended October 31, 2003. Class A Shares have no present intention of paying or accruing the distribution (12b-1) fee for the fiscal year ending October 31, 2004.
3 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A, Class B and Class C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, Class B, and Class C Shares operating expenses are before the waiver 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:

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	$696	$1,004	$1,333	$2,263
Expenses assuming no redemption	$696	$1,004	$1,333	$2,263
Class B:
Expenses assuming redemption	$755	$1,034	$1,288	$2,220
Expenses assuming no redemption	$205	$ 634	$1,088	$2,220
Class C:
Expenses assuming redemption	$403	$ 727	$1,177	$2,425
Expenses assuming no redemption	$303	$ 727	$1,177	$2,425

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What are the Fund's Investment Strategies?

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

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

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The Fund may also seek capital appreciation by buying securities in initial public offerings. The Fund will participate in such offerings without regard to the issuer's market capitalizations. The Adviser may select initial public offerings based on its fundamental analysis of the issuer.

PORTFOLIO TURNOVER

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

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Equity securities represent a share of an issuer's earning and assets, after the issuer pays its liabilities. The Fund cannot predict the income it will receive from equity securities because issuers generally have discretion as to the payment of any dividends or distributions. However, equity securities offer greater potential for appreciation 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 may invest.

Common Stocks

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

American Depositary Receipts

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

Convertible Securities

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

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

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

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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.

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 interest rate, stock market and currency risks, and may also expose the fund to liquidity and leverage risks.

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 financial futures and 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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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.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

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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.

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

LIQUIDITY RISKS

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

RISKS RELATED TO COMPANY SIZE

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

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

SECTOR RISKS

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

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

Because the Fund may invest in American Depositary Receipts 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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RISKS OF INVESTING IN DERIVATIVES CONTRACTS

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 Fund's Statement of Additional Information, such as stock market, credit, liquidity and leverage risks.

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What Do Shares Cost?

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

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

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.

Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A Shares	$1,500/$100	5.50%	0.00%
Class B Shares	$1,500/$100	None	5.50%
Class C Shares	$1,500/$100	1.00%	1.00%

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

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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 greater¹	0.00%	0.00%

1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

Class C Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
All Purchases	1.00%	1.01%

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

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The sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Federated funds (other than money market funds);
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.)

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The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;

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

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

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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;

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through investment professionals that receive no portion of the sales charge;
as a Federated Life Member (Class A Shares only) and their immediate family members; or
as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.

SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

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

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

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.

How is the Fund Sold?

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The Fund offers four Share classes: Class A Shares, Class B Shares, Class C Shares and Class K Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class A Shares, Class B Shares and Class C Shares. 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 and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

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

How to Purchase Shares

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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.

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THROUGH AN INVESTMENT PROFESSIONAL

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

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

DIRECTLY FROM THE FUND

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

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

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

By Wire

Send your wire to:

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

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

By Check

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

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

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

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

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund 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

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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

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)

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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.

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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. If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you will receive a redemption amount based on that day's NAV.

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

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

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

Signature Guarantees

Signatures must be guaranteed if:

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGE

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

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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. The Fund's management or Adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading that is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other Federated funds.

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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 Shares or Class C Shares subject to a sales charge while redeeming Shares using this program.

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Systematic Withdrawal Program (SWP) on Class B Shares

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

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

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

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

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

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

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

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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.

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ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

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

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

Who Manages the Fund?

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The Board of Trustees (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.

The Adviser and other subsidiaries of Federated advise approximately 138 mutual funds and a variety of separate accounts, which totaled approximately $195 billion in assets as of December 31, 2002. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,700 employees. More than 5,000 investment professionals make Federated funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

David P. Gilmore

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David P. Gilmore has been the Fund's Portfolio Manager since September 2000. Mr. Gilmore joined Federated in August 1997 as an Investment Analyst. He was promoted to Senior Investment Analyst in July 1999 and became a Vice President of the Fund's Adviser in July 2001. Mr. Gilmore was a Senior Associate with Coopers & Lybrand from January 1992 to May 1995. Mr. Gilmore is a Chartered Financial Analyst and attended the University of Virginia, where he earned his M.B.A., from September 1995 to May 1997. Mr. Gilmore has a B.S. from Liberty University.

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Linda A. Duessel

Linda A. Duessel has been the Fund's Portfolio Manager since November 2001. Ms. Duessel joined Federated in 1991 and has been a Portfolio Manager since 1995. She became a Senior Vice President of the Fund's Adviser in January 2000 and served as a Vice President of the Fund's Adviser from 1995 through 1999. Ms. Duessel was a Senior Investment Analyst and an Assistant Vice President of the Fund's Adviser from 1991 until 1995. Ms. Duessel is a Chartered Financial Analyst and received her M.S. in Industrial Administration from Carnegie Mellon University.

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.

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Legal Proceedings

Like many other mutual fund companies, in September 2003, Federated, the parent company of the Federated funds' Adviser and distributor, received detailed requests for information on shareholder trading activities in the Federated funds from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Federated immediately retained the law firm of Reed Smith LLP to conduct an internal investigation, which is ongoing. Additionally, attorneys from the law firm of Dickstein Shapiro Morin & Oshinsky LLP, independent counsel to the Federated funds, are participating in the investigation and are reporting to the independent directors of the Federated funds on their progress.

The internal investigation is examining, among other things, circumstances in which it appears that a few Federated fund investors were granted exceptions to Federated's internal procedures for limiting frequent transactions, and that some of these investors made additional investments in other Federated funds. The investigation is also examining instances in which it appears that orders for Federated funds with variable NAVs were placed and accepted after the Federated funds' closing time at 4:00 p.m. Federated is taking steps to ensure that Federated fund shareholder trading policies are adhered to.

On October 22, 2003, Federated issued a press release that discusses these matters and announces that Federated is committed to taking remedial actions when and as appropriate, including compensating the Federated funds for any detrimental impact these transactions may have had on them. Based upon the progress of the investigation to date, Federated does not have sufficient information regarding these transactions to make a reasonable estimate of the amount, if any, by which the Federated funds have been impacted. The press release is available in the "About Us" section of Federated's website www.federatedinvestors.com , and any future press releases on this subject will also be posted there.

Shortly after the press release was issued, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Federated funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated 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. Federated and the Federated funds are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. Although we do not believe that these lawsuits will have a material adverse effect on the Federated 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 Federated fund redemptions, reduced sales of Federated fund shares, or other adverse consequences for the Federated funds.

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Financial Information

FINANCIAL HIGHLIGHTS

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

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

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Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$19.40		$22.48		$29.05		$25.36		$18.73
Income From Investment Operations:
Net investment income	0.09		0.13	¹	0.17		0.11		0.06
Net realized and unrealized gain (loss) on investments, futures contracts and options	3.17		(3.04	)¹	(4.97	)	4.96		7.46

TOTAL FROM INVESTMENT OPERATIONS	3.26		(2.91	)	(4.80	)	5.07		7.52

Less Distributions:
Distributions from net investment income	(0.08	)	(0.17	)	(0.08	)	(0.07	)	(0.07	)
Distributions from net realized gain on investments	--		--		(1.69	)	(1.31	)	(0.82	)

TOTAL DISTRIBUTIONS	(0.08	)	(0.17	)	(1.77	)	(1.38	)	(0.89	)

Net Asset Value, End of Period	$22.58		$19.40		$22.48		$29.05		$25.36

Total Return²	16.89	%	(13.10	)%	(17.25	)%	20.61	%	41.17	%


Ratios to Average Net Assets:

Expenses	1.27	%³	1.23	%³	1.23	%	1.24	%	1.27	%

Net investment income	0.62	%	0.76	%¹	0.80	%	0.41	%	0.26	%

Expense waiver/reimbursement⁴	0.00	%⁵	0.00	%⁵	0.00	%⁵	0.00	%⁵	0.00	%⁵

Supplemental Data:
Net assets, end of period (000 omitted)	$2,179,111		$1,337,564		$699,510		$637,523		$262,083

Portfolio turnover	40	%	71	%	61	%	126	%	55	%

1 Effective November 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. For the year ended October 31, 2002, this change had no effect on the net investment income per share, the net realized and unrealized gain/loss on investments per share or the ratio of net investment income to average net assets. Per share, ratios and supplemental data for the periods prior to November 1, 2001 have not been restated to reflect this change in presentation.

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

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements.

4 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

5 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report dated October 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$18.95		$21.99		$28.58		$25.09		$18.62
Income From Investment Operations:
Net investment income (net operating loss)	(0.02	)	0.03	¹	0.04		0.01		(0.07	)
Net realized and unrealized gain (loss) on investments, futures contracts and options	3.05		(3.05	)¹	(4.94	)	4.79		7.36

TOTAL FROM INVESTMENT OPERATIONS	3.03		(3.02	)	(4.90	)	4.80		7.29

Less Distributions:
Distributions from net investment income	--		(0.02	)	--		--		--
Distributions from net realized gain on investments	--		--		(1.69	)	(1.31	)	(0.82	)

TOTAL DISTRIBUTIONS	--		(0.02	)	(1.69	)	(1.31	)	(0.82	)

Net Asset Value, End of Period	$21.98		$18.95		$21.99		$28.58		$25.09

Total Return²	15.99	%	(13.76	)%	(17.88	)%	19.71	%	40.12	%


Ratios to Average Net Assets:

Expenses	2.02	%³	1.98	%³	1.98	%	1.99	%	2.02	%

Net investment income (net operating loss)	(0.14	)%	0.01	%¹	0.06	%	(0.32	)%	(0.49	)%

Expense waiver/reimbursement⁴	0.00	%⁵	0.00	%⁵	0.00	%⁵	0.00	%⁵	0.00	%⁵

Supplemental Data:
Net assets, end of period (000 omitted)	$528,029		$378,336		$299,814		$266,173		$106,528

Portfolio turnover	40	%	71	%	61	%	126	%	55	%

1 Effective November 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. For the year ended October 31, 2002, this change had no effect on the net investment income per share, the net realized and unrealized gain/loss on investments per share or the ratio of net investment income to average net assets. Per share, ratios and supplemental data for the periods prior to November 1, 2001 have not been restated to reflect this change in presentation.

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

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements.

4 This expense decrease is reflected in both the expense and the net investment income (net operating loss) ratios shown above.

5 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$18.94		$21.98		$28.55		$25.07		$18.61
Income From Investment Operations:
Net investment income (net operating loss)	(0.02	)	0.04	¹	0.04		0.03		(0.07	)
Net realized and unrealized gain (loss) on investments, futures contracts and options	3.04		(3.05	)¹	(4.92	)	4.76		7.35

TOTAL FROM INVESTMENT OPERATIONS	3.02		(3.01	)	(4.88	)	4.79		7.28

Less Distributions:
Distributions from net investment income	--		(0.03	)	--		--		--
Distributions in excess of net realized gain on investments	--		--		(1.69	)	(1.31	)	(0.82	)

TOTAL DISTRIBUTIONS	--		(0.03	)	(1.69	)	(1.31	)	(0.82	)

Net Asset Value, End of Period	$21.96		$18.94		$21.98		$28.55		$25.07

Total Return²	15.95	%	(13.73	)%	(17.83	)%	19.68	%	40.09	%


Ratios to Average Net Assets:

Expenses	2.02	%³	1.98	%³	1.98	%	1.99	%	2.02	%

Net investment income (net operating loss)	(0.13	)%	0.01	%¹	0.05	%	(0.31	)%	(0.49	)%

Expense waiver/reimbursement⁴	0.00	%⁵	0.00	%⁵	0.00	%⁵	0.00	%⁵	0.00	%⁵

Supplemental Data:
Net assets, end of period (000 omitted)	$176,633		$100,576		$51,497		$41,797		$12,866

Portfolio turnover	40	%	71	%	61	%	126	%	55	%

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

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements.

4 This expense decrease is reflected in both the expense and the net investment income (net operating loss) ratios shown above.

5 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

A Statement of Additional Information (SAI) dated December 31, 2003 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 Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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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 Internet site 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.

[Logo of Federated Investors]

Federated CapitalAppreciation Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Federated Securities Corp., Distributor

Investment Company Act File No. 811-4017

Federated is a registered mark of Federated Investors, Inc.
2003 ©Federated Investors, Inc.

Cusip 314172701
Cusip 314172800
Cusip 314172883

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G01489-01 (12/03)

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[Logo of Federated Investors]

Federated Capital Appreciation Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

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December 31, 2003

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CLASS K SHARES

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

Not FDIC Insured * May Lose Value * No Bank Guarantee

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Risk/Return Summary		1
What are the Fund's Fees and Expenses?		4
What are the Fund's Investment Strategies?		5
What are the Principal Securities in Which the Fund Invests?		6
What are the Specific Risks of Investing in the Fund?		8
What Do Shares Cost?		9
How is the Fund Sold?		10
How to Purchase Shares		11
How to Redeem and Exchange Shares		13
Account and Share Information		16
Who Manages the Fund?		17
Legal Proceedings		18
Financial Information		19

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Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
Liquidity Risks. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base and limited access to capital, they may be more likely to fail than larger companies.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Risks of Investing in American Depositary Receipts. Because the Fund may invest in American Depositary Receipts 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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Risk/Return Bar Chart

The Fund's Class K Shares is a new class of shares, which commenced operations on April 8, 2003. The Fund offers three other classes of shares: Class A Shares, Class B Shares and Class C Shares. For the period prior to the commencement of operations of the Class K Shares, the performance information shown in the bar chart below is for the Fund's Class A Shares, adjusted to reflect the expenses of Class K Shares.This performance information will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class K Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

The Fund's Class K Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon net asset value.

The Fund's Class K Shares total return for the nine-month period from January 1, 2003 to September 30, 2003, was 10.24%.

Within the period shown in the bar chart, the Fund's Class K Shares highest quarterly return was 27.44% (quarter ended December 31, 1999). Its lowest quarterly return was (17.51)% (quarter ended September 30, 2002).

Average Annual Total Return Table

As previously discussed, the Fund's Class K Shares is a new class of shares, which had commenced operations on April 8, 2003. Accordingly, for the period prior to the commencement of operations, the performance information shown in the Average Annual Total Return Table is for the Fund's Class A Shares, adjusted to reflect the expenses of Class K Shares. The Table shows returns averaged over the stated periods and includes comparative performance information in the form of returns for the Standard & Poor's 500 Index (S&P 500), a broad-based market index and the Lipper Large Cap Core Funds Average (LLCCFA), an average of funds with similar objectives. Index and average returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes and averages are unmanaged, and it is not possible to invest directly in an index or average.

(For the periods ended December 31, 2002)

	1 Year	5 Years	10 Years
Class K Shares
Return Before Taxes	(19.16)%	4.29%	11.00%
Return After Taxes on Distributions¹	(19.16)%	3.64%	9.66%
Return After Taxes on Distributions and Sale of Fund Shares¹	(11.77)%	3.55%	8.96%
S&P 500	(22.10)%	(0.59)%	9.34%
LLCCFA	(23.97)%	(3.19)%	6.71%

1 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

What are the Fund's Fees and Expenses?

FEDERATED CAPITAL APPRECIATION FUND

FEES AND EXPENSES

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

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
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee		0.75%
Distribution (12b-1) Fee		0.50%
Shareholder Services Fee		None
Other Expenses		0.49%
Total Actual Annual Fund Operating Expenses		1.74%

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class K 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 K Shares operating expenses are 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:

1 Year	$	177
3 Years	$	548
5 Years	$	944
10 Years	$	2,052

What are the Fund's Investment Strategies?

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PORTFOLIO TURNOVER

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

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

American Depositary Receipts

Convertible Securities

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

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DERIVATIVE CONTRACTS

Futures Contracts

Options

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

LIQUIDITY RISKS

RISKS RELATED TO COMPANY SIZE

SECTOR RISKS

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

Because the Fund may invest in American Depositary Receipts 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.

What Do Shares Cost?

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RISKS OF INVESTING IN DERIVATIVES CONTRACTS

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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). From time to time the Fund may purchase 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. The Fund's Class K Shares do not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market).

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

The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively.

A retirement plan'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.

How is the Fund Sold?

The Fund offers four Share classes: Class A Shares, Class B Shares, Class C Shares and Class K Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class K 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.

The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus generally to 401(k) plans, 457 plans, employer sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans and IRA Rollovers from such plans, directly or through investment professionals. Class K Shares are generally available only to retirement plans where plan level omnibus accounts are held on the books of the Fund

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

RULE 12B-1 PLAN

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

How to Purchase Shares

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.

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:

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

By Check

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

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

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

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

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

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

BY AUTOMATED CLEARING HOUSE (ACH)

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RETIREMENT INVESTMENTS

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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

DIRECTLY FROM THE FUND

By Telephone

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

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you will receive a redemption amount based on that day's NAV.

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

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

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

Signature Guarantees

Signatures must be guaranteed if:

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

PAYMENT METHODS FOR REDEMPTIONS

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.

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REDEMPTIONS FROM RETIREMENT ACCOUNTS

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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.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

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

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ACCOUNTS WITH LOW BALANCES

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TAX INFORMATION

Who Manages the Fund?

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THE FUND'S PORTFOLIO MANAGERS ARE:

David P. Gilmore

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David P. Gilmore has been the Fund's Portfolio Manager since September 2000. Mr. Gilmore joined Federated in August 1997as an Investment Analyst. He was promoted to Senior Investment Analyst in July 1999 and became a Vice President of the Fund's Adviser in July 2001. Mr. Gilmore was a Senior Associate with Coopers & Lybrand from January 1992 to May 1995. Mr. Gilmore is a Chartered Financial Analyst and attended the University of Virginia, where he earned his M.B.A., from September 1995 to May 1997. Mr. Gilmore has a B.S. from Liberty University.

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Linda A. Duessel

ADVISORY FEES

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Legal Proceedings

On October 22, 2003, Federated issued a press release that discusses these matters and announces that Federated is committed to taking remedial actions when and as appropriate, including compensating the Federated funds for any detrimental impact these transactions may have had on them. Based upon the progress of the investigation to date, Federated does not have sufficient information regarding these transactions to make a reasonable estimate of the amount, if any, by which the Federated funds have been impacted. The press release is available in the "About Us" section of Federated's website www.federatedinvestors.com, and any future press releases on this subject will also be posted there.

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Financial Information

FINANCIAL HIGHLIGHTS

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

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

Financial Highlights -- Class K Shares

(For a Share Outstanding Throughout Each Period)

	Period Ended 10/31/2003	¹
Net Asset Value, Beginning of Period	$19.13
Income From Investment Operations:
Net investment income	0.03
Net realized and unrealized gain on investments, futures contracts and options	3.38

Total from investment operations	3.41

Net Asset Value, End of Period	$22.54

Total Return²	17.83	%


Ratios to Average Net Assets:

Expenses	1.74	%^3,4

Net investment income	0.15	%³

Expense waiver/reimbursement⁵	0.00	%^3,6

Supplemental Data:

Net assets, end of period (000 omitted)	$15,533

Portfolio turnover	40	%⁷

1 Reflects operations for the period from April 8, 2003 (date of initial public investment) to October 31, 2003.

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

3 Computed on an annualized basis.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements.

5 This expense decrease is reflected in both the expense and the net investment income ratio shown above.

6 Represents less than 0.01%.

7 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the period ended October 31, 2003.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, Which can be obtained free of charge.

A Statement of Additional Information (SAI) dated December 31, 2003, 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 Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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[Logo of Federated Investors]

Federated CapitalAppreciation Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Federated Securities Corp., Distributor

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Investment Company Act File No. 811-4017

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Federated is a registered mark of Federated Investors, Inc.
2003 ©Federated Investors, Inc.

Cusip 314172594

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28202 (12/03)

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FEDERATED CAPITAL APPRECIATION FUND
A Portfolio of Federated Equity Funds

Statement of Additional Information
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December 31, 2003

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Class A Shares
Class B Shares
Class C Shares
Class K Shares

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Class A Shares, Class B Shares,
Class C Shares and Class K Shares of the Federated Capital Appreciation Fund
(Fund), dated December 31, 2003. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectuses or the Annual Report without charge by
calling 1-800-341-7400.

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

G01489-02 (12/03)</R>

HOW IS THE FUND ORGANIZED?

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The Board of Trustees (the Board) has established four classes of shares of the
Fund, known as Class A Shares, Class B Shares, Class C Shares and Class K Shares
(Shares). This SAI relates to all classes of Shares.

The Fund's investment adviser is Federated Equity Management Company of
Pennsylvania (Adviser). Prior to January 1, 2004, Federated Investment
Management Company was investment adviser to the Fund. Both the current adviser
and the former adviser are wholly owned subsidaries of Federated Investors, Inc.
(Federated).

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SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

Equity Securities

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

The following describes the types of equity securities in which the Fund
invests:

Common Stocks

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

Preferred Stocks

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

Real Estate Investment Trusts (REITs)

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

Warrants

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

Fixed Income Securities

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

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

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

Corporate Debt Securities

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

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

Commercial Paper

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

Zero Coupon Securities

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

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

Bank Instruments

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

Demand Instruments

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

Convertible Securities

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

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.

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Foreign Securities

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

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

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

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

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

Depositary Receipts

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

Foreign Exchange Contracts

In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.

Foreign Government Securities

Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.

Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.

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Derivative Contracts

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

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

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

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

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

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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 financial
futures and index futures.

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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.

The Fund may buy/sell the following types of options:

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:

o Buy call options on currencies (both foreign and U.S. dollar) in
anticipation of an increase in the value of the underlying asset or
instrument; and

o Write call options on portfolio securities, index futures and financial
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 buy put options on individual securities,
index futures, currencies (both foreign and U.S. dollar) and financial futures
in anticipation of a decrease in the value of the underlying asset.

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

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Special Transactions

Repurchase Agreements

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

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Delayed Delivery Transactions

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

Securities Lending

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

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

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

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

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Asset Coverage

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

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Inter-Fund Borrowing and Lending Arrangements

The Securities and Exchange Commission (SEC) has granted an exemption that
permits the Fund and all other funds advised by subsidiaries of Federated
Investors, Inc. (Federated funds) to lend and borrow money for certain temporary
purposes directly to and from other Federated funds. Participation in this
inter-fund lending program is voluntary for both borrowing and lending funds,
and an inter-fund loan is only made if it benefits each participating fund.
Federated 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 funds.

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

Investing in Securities of Other Investment Companies

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

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Investment Ratings for Investment Grade Securities

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

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INVESTMENT RISKS

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

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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.

Interest Rate Risks

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

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

Credit Risks

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

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

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

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

Call Risks

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

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

Risks Associated With Noninvestment Grade Securities

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

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 United States.

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.

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Risks of Foreign Investing

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

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

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

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Liquidity Risks

o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivatives contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses. OTC derivative
contracts generally carry greater liquidity risk than exchange-traded
contracts.

Fundamental Investment Objective

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

INVESTMENT LIMITATIONS

Diversification

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, as
amended (the "1940 Act").

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.

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.

Commodities

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

Concentration

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

The above limitations cannot be changed 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 maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.

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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.

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Pledging Assets

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

For purposes of the concentration limitation: (a) utility companies will be
divided according to their services (for example, gas, gas transmission,
electric and telephone will be considered a separate industry); (b) financial
service companies will be classified according to the end users of their
services (for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry); and (c) asset backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the SEC that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limits as long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and investments in certain
industrial development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for temporary
defensive purposes. The investment of more than 25% of the value of the Fund's
total assets in any one industry will constitute "concentration."

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 the 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 good faith by the
Board.

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

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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.

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WHAT DO SHARES COST?

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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.

REDUCING OR eliminating THE FRONT-END SALES CHARGE

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

Quantity Discounts (Class A Shares)

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

Accumulated Purchases (Class A Shares)

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

Concurrent Purchases (Class A Shares)

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

Letter of Intent (Class A Shares)

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

Reinvestment Privilege

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

Purchases by Affiliates of the Fund

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

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

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

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

Purchases Through Omnibus Accounts (Class C Shares)

Class C Shares may be purchased without an initial sales charge by any investor
who buys Class C Shares through an omnibus account with a financial
intermediary, such as a broker or a bank, that does not accept or charge the
initial sales charge.

Reorganizations (Class A Shares)

Class A Shares may be purchased without an initial sales charge by any
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.

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Federated Life Members

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

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

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

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

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

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

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

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

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

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

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Class B Shares Only

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

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

o Shares that are not subject to a CDSC; and

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

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

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HOW IS THE FUND SOLD?

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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 as a
percentage of Public
Purchase Amount 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 Dealer Reallowance
as a Percentage of
Public Offering Price

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 million 0.75%
Next $5 million - $20 million 0.50%
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.

Class B Shares
Advance Commission
as a Percentage of
Public Offering Price
All Purchase Amounts Up to 5.50%
Class C Shares
Advance Commission
as a Percentage of
Public Offering Price
All Purchase Amounts 1.00%

RULE 12B-1 PLAN (Class A Shares, Class B Shares, Class C Shares and Class K
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 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.

Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third parties who have
provided the funds to make advance commission payments to investment
professionals.

SERVICE FEES (Class A shares, Class B Shares and Class C Shares Only)

The Fund may pay fees not to exceed 0.25% of average daily net assets ("Service
Fees") to investment professionals 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
investment professionals directly, the Fund may pay Service Fees to FSSC and
FSSC will use the fees to compensate investment professionals.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees, in significant amounts, out of the
assets of the Distributor. These fees do not come out of Fund assets. The
Distributor may be reimbursed by the Adviser or its affiliates.

These supplemental payments may be based upon such factors as the number or
value of Shares the investment professional sells or may sell; the value of
client assets invested; and/or the type and nature of services, sales support or
marketing support furnished by the investment professional. In addition to these
supplemental payments, an investment professional may also receive payments
under the Rule 12b-1 Plan and/or Service Fees.

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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

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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.

</R>

ACCOUNT AND SHARE INFORMATION

<R>

VOTING RIGHTS

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

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

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

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Edward Jones
& Co., Maryland Heights, MO, owned approximately 11,793,543 Shares (12.17%)
and MLPF&S, Jacksonville, FL, owned approximately 5,398,657 Shares (5.57%).

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class B Shares: Edward Jones
& Co., Maryland Heights, MO, owned approximately 2,401,978 Shares (9.93%)
and Citigroup Global Markets Inc, New York, NY, owned approximately 1,529,799
Shares (6.33%).

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: MLPF&S,
Jacksonville, FL, owned approximately 1,877,488 Shares and Citigroup Global
Markets Inc, New York, NY, owned approximately 753,222 Shares (9.14%).

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class K Shares: Planmember
Services Corp, Kansas City, MO, owned approximately 744,071 Shares (98.08%).

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

</R>

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 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?

<R>

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. The Trust comprises seven portfolios and the Federated
Fund Complex consists of 44 investment companies (comprising 138 portfolios).
Unless otherwise noted, each Officer is elected annually. Unless otherwise
noted, each Board member oversees all portfolios in the Federated Fund Complex;
serves for an indefinite term; and also serves as a Board member of the
following investment company complexes: Banknorth Funds-four portfolios; Golden
Oak(R) Family of Funds-seven portfolios and WesMark Funds-five portfolios.

As of December 1, 2003, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

As of December 1, 2003, of the Fund's Board and Officers as a group owned less
than 1% the Fund's outstanding Class A, Class B, Class C, and Class K Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation(s) for Past Aggregate Total
Name Five Years, Other Directorships Compensation Compensation
Birth Date Held and Previous Position(s) From Fund From Trust and
Address (past Federated Fund
Positions Held with fiscal year) Complex
Trust (past calendar
Date Service Began year)
Principal Occupations: Chairman $0 $0
John F. Donahue* and Director or Trustee of the
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 $0
J. Christopher Executive Officer and President
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, Passport Research,
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 $1,340.88 $148,500
Lawrence D. Ellis, or Trustee of the Federated Fund
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.

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation: Director $1,474.98 $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 $1,474.98 $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 $1,474.98 $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 $1,340.88 $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
January 1999 business 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 $1,340.88 $148,500
Peter E. Madden or Trustee of the Federated Fund
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way Other Directorships Held: Board
100 Royal Palm Way of Overseers, Babson College.
Palm Beach, FL
TRUSTEE Previous Positions:
Began serving: Representative, Commonwealth of
November 1991 Massachusetts General Court;
President, State Street Bank and
Trust Company and State Street
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 $1,474.98 $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.

John E. Murray, Principal Occupations: Director $1,609.07 $178,200
Jr., J.D., S.J.D. or Trustee of the Federated Fund
Birth Date: Complex; Chancellor and Law
December 20, 1932 Professor, Duquesne University;
Chancellor, Consulting Partner, Mollica
Duquesne University & Murray.
Pittsburgh, PA
TRUSTEE Other Directorships Held:
Began serving: Director, Michael Baker Corp.
February 1995 (engineering, construction,
operations and technical
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 $1,340.88 $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 $1,340.88 $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.

OFFICERS**

Name
Birth Date
Address
Positions Held with Trust
Date Service Began Principal Occupation(s) and Previous Position(s)

Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND 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 Officer and
Richard J. Thomas Treasurer of the Federated Fund Complex; Senior Vice
Birth Date: June 17, 1954 President, Federated Administrative Services.
TREASURER
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 President
Richard B. Fisher of some of the Funds in the Federated Fund Complex;
Birth Date: May 17, 1923 Vice Chairman, Federated Investors, Inc.; Chairman,
VICE PRESIDENT 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 of this
Stephen F. Auth Fund and various other Funds in the Federated Fund
Birth Date: September 3, 1956 Complex; Executive Vice President, Federated Investment
CHIEF INVESTMENT OFFICER Counseling, Federated Global Investment Management
Began serving: November 2002 Corp., Federated Investment Management Company and
Passport Research, Ltd.

Previous Positions: 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. Mr.
Lawrence Auriana Auriana joined Federated in April 2001 as Co-Head of
Birth Date: January 8, 1944 Investments/Federated Kaufmann. From August 1984 to
VICE PRESIDENT April 2001, Mr. Auriana was President and Treasurer of
Began serving: November 2001 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 Trust.
James E. Grefenstette Mr. Grefenstette joined Federated in 1992 and has been
Birth Date: November 7, 1962 a Portfolio Manager since 1994. Mr. Grefenstette became
VICE PRESIDENT a Senior Vice President of the Fund's Adviser in
Began serving: November 1998 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. Utsch
Hans P. Utsch joined Federated in April 2001 as Co-Head of
Birth Date: July 3, 1936 Investments/Federated Kaufmann. From August 1984 to
VICE PRESIDENT April 2001, Mr. Utsch was Chairman of the Board and
Began serving: November 2001 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.

Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and
Assistant Secretary of Federated and an officer of its various advisory and
underwriting subsidiaries, has served as a Term Member on the Board of Directors
of Duquesne University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John
E. Murray, Jr., an Independent Trustee of the Fund, served as President of
Duquesne from 1988 until his retirement from that position in 2001, and became
Chancellor of Duquesne on August 15, 2001. It should be noted that Mr. Donahue
abstains on any matter that comes before Duquesne's Board that affects Mr.
Murray personally.

COMMITTEES OF THE BOARD
Meetings
Held
During
Last
Board Committee Fiscal
Committee Members Committee Functions Year

Executive In between meetings of the full Board, One
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 Audit Committee reviews and Four
Thomas G. Bigley recommends to the full Board the
John T. Conroy, independent auditors to be selected to
Jr. audit the Fund`s financial statements;
Nicholas P. meets with the independent auditors
Constantakis periodically to review the results of the
Charles F. audits and reports the results to the
Mansfield, Jr. full Board; evaluates the independence of
the auditors, reviews legal and
regulatory matters that may have a
material effect on the financial
statements, related compliance policies
and programs, and the related reports
received from regulators; reviews the
Fund`s internal audit function; reviews
compliance with the Fund`s code of
conduct/ethics; reviews valuation issues;
monitors inter-fund lending transactions;
reviews custody services and issues and
investigates any matters brought to the
Committee's attention that are within the
scope of its duties.

Board ownership of shares in the fund and in the Federated family of
Investment companies AS OF DECEMBER 31, 2002

Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue Over $100,000 Over $100,000
J. Christopher Donahue $10,001-$50,000 Over $100,000
Lawrence D. Ellis, M.D. $1-$10,000 Over $100,000

Independent
Board Member Name
Thomas G. Bigley $1-$10,000 Over $100,000
John T. Conroy, Jr. $1-$10,000 Over $100,000
Nicholas P. Constantakis None Over $100,000
John F. Cunningham None Over $100,000
Peter E. Madden $10,001-$50,000 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 $1-$10,000 Over $100,000
John S. Walsh $1-$10,000 Over $100,000

</R>

<R>

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 and transfer agent). 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 offered by Federated.

</R>

<R>

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.

</R>

Other Related Services

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

Code of Ethics Restrictions on Personal Trading

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

<R>

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.

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

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

For the fiscal year ended, October 31, 2003, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $1,756,060,038 for
which the Fund paid $2,665,399 in brokerage commissions.

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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:

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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.

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

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

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INDEPENDENT Auditors
The independent auditor for the Fund, Deloitte & Touche LLP, conducts
its audits in accordance with auditing standards generally accepted in the
United States of America, 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.

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FEES PAID BY THE FUND FOR SERVICES
For the Year Ended
October 31 2003 2002 2001
Advisory Fee Earned $17,368,038 $11,863,755 $7,470,865
Advisory Fee Reduction $0 $0 $0
Advisory Fee Reimbursement $9,017 $11,848 $4,666
Brokerage Commissions $3,246,979 $3,040,110 $1,256,763
Administrative Fee $1,741,356 $1,189,539 $750,075
12b-1 Fee:
Class A Shares 0 -- --
Class B Shares $3,261,678 -- --
Class C Shares $992,446 -- --
Class K Shares $3,357 -- --
Shareholder Services Fee:
Class A Shares $4,639,362 -- --
Class B Shares $1,087,226 -- --
Class C Shares $330,815 -- --
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.

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Average Annual Total Returns and Yield
Total returns are given for the one-year, five-year and ten-year or Start
of Performance periods ended October 31, 2003.

Yield is given for the 30-day period ended October 31, 2003.

30-Day Period 1 Year 5 Years 10 Years
Class A :
Total Return
Before Taxes NA 10.45% 6.22% 11.32%
After Taxes on Distributions NA 10.27% 5.26% 9.73%
After Taxes on
Distributions and Sale of
Shares NA 6.76% 4.94% 9.15%
Yield 0.39% NA NA NA
Start of
Performance on
30-Day Period 1 Year 5 Years 1/4/1996
Class B :
Total Return
Before Taxes NA 10.49% 6.31% 10.19%
After Taxes on Distributions NA 10.49% 5.48% 8.90%
After Taxes on
Distributions and Sale of
Shares NA 6.82% 5.12% 8.32%
Yield 0.00% NA NA NA
Start of
Performance on
30-Day Period 1 Year 5 Years 1/4/1996
Class C :
Total Return
Before Taxes NA 13.80% 6.41% 10.04%
After Taxes on Distributions NA 13.80% 5.58% 8.74%
After Taxes on
Distributions and Sale of
Shares NA 8.97% 5.21% 8.18%
Yield 0.00% NA NA NA

Start of
Performance on
30-Day Period 1 Year 5 Years 4/8/2003
Class K :
Total Return
Before Taxes NA NA NA 16.45%
After Taxes on Distributions NA NA NA NA
After Taxes on
Distributions and Sale of
Shares NA NA NA NA
Yield 0.09% NA NA NA

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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.

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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:

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

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

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

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

Lipper, 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, which rates more than 1,000 NASDAQ-listed
mutual funds of all types, according to their risk- adjusted returns. The
maximum rating is five stars, and ratings are effective for two weeks.

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

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

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

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

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

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

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

WHO IS FEDERATED INVESTORS, INC.?

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

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

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Federated Funds overview

Municipal Funds
In the municipal sector, as of December 31, 2002, Federated managed 14
bond funds with approximately $3.2 billion in assets and 22 money market
funds with approximately $20.6 billion in total assets. In 1976, Federated
introduced one of the first municipal bond mutual funds in the industry
and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including
The Tax Foundation and the National Taxpayers Union regarding the tax
obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 31 years' experience. As of
December 31, 2002, Federated managed 37 equity funds totaling
approximately $16.2 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative
analysis and features a structured, computer-assisted composite modeling
system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 2002, Federated managed
10 money market funds and 9 bond funds with assets approximating $59.4
billion and $6.0 billion, respectively. Federated's corporate bond
decision making--based on intensive, diligent credit analysis--is backed
by over 29 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the
industry. In 1983, Federated was one of the first fund managers to
participate in the asset backed securities market, a market totaling more
than $209 billion.

Government Funds
In the government sector, as of December 31, 2002, Federated managed 7
mortgage backed, 3 multi-sector government funds, 4 government/agency and
19 government money market mutual funds, with assets approximating $4.9
billion, $0.9 billion, $2.9 billion and $56.2 billion, respectively.
Federated trades approximately $90.4 billion in U.S. government and
mortgage backed securities daily and places approximately $35 billion in
repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969.
Federated has been a major force in the short- and intermediate-term
government markets since 1982 and currently manages approximately $50
billion in government funds within these maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost
method of accounting for valuing shares of money market funds, a principal
means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market
fund. As of December 31, 2002, Federated managed $136.2 billion in assets
across 52 money market funds, including 19 government, 10 prime, 22
municipal and 1 euro-denominated with assets approximating $56.2 billion,
$59.4 billion, $20.6 billion and $173.9 million, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: Global Equity - Stephen F. Auth
is responsible for overseeing the management of Federated's domestic and
international equity products; Global Fixed Income - William D. Dawson III
is responsible for overseeing the management of Federated's domestic and
international fixed income and high yield products.

Mutual Fund Market
Forty-nine percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $6.2 trillion to the approximately 8,300
funds available, according to the Investment Company Institute.

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

Institutional Clients
Federated meets the needs of approximately 3,035 institutional clients
nationwide by managing and servicing separate accounts and mutual funds
for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisers.

Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients' portfolios.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--Federated has over 2,000 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement.

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FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended October
31, 2003, are incorporated herein by reference to the Annual Report to
Shareholders of Federated Capital Appreciation Fund dated October 31, 2003.

INVESTMENT RATINGS

Standard and Poor's Long-Term Debt Rating Definitions
AAA--Highest credit quality. 'AAA' ratings denote the lowest expectation
of credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.

AA--Very high credit quality. 'AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.

A--High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for
higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial commitments
are currently being met; however, capacity for continued payment is
contingent upon a sustained, favourable business and economic environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favourable
business or economic developments. A 'CC' rating indicates that default of
some kind appears probable. 'C' ratings signal imminent default.

Moody's Investors Service Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well established industries,
high rates of return on funds employed, conservative capitalization
structure with moderate reliance on debt and ample asset protection, broad
margins in earning coverage of fixed financial charges and high internal
cash generation, and well-established access to a range of financial
markets and assured sources of alternate liquidity.

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

Standard and Poor's Commercial Paper Ratings
A-1-- A short-term obligation rated 'A-1' is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations
is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.

Fitch Ratings Commercial Paper Rating Definitions
F-1--Indicates the strongest capacity for timely payment of financial
commitments relative to other issuers or issues in the same country. Under
their national rating scale, this rating is assigned to the "best" credit
risk relative to all others in the same country and is normally assigned
to all financial commitments issued or guaranteed by the sovereign state.
Where the credit risk is particularly strong, a "+" is added to the
assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial
commitments relative to other issuers or issues in the same country.
However, the margin of safety is not as great as in the case of the higher
ratings.

Addresses

federated capital appreciation fund

Class A Shares
Class B Shares
Class C Shares
Class K 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

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

</R>

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

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

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

[Logo of Federated Investors]

Federated Growth Strategies Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

December 31, 2003

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking appreciation of capital by investing primarily in growth equity securities.

Not FDIC Insured * May Lose Value * No Bank Guarantee

Risk/Return Summary		1
What are the Fund's Fees and Expenses?		5
What are the Fund's Investment Strategies?		6
What are the Principal Securities in Which the Fund Invests?		7
What are the Specific Risks of Investing in the Fund?		9
What Do Shares Cost?		11
How is the Fund Sold?		14
How to Purchase Shares		15
How to Redeem and Exchange Shares		17
Account and Share Information		20
Who Manages the Fund?		21
Legal Proceedings		23
Financial Information		24

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in common stock (including American Depositary Receipts (ADRs)) of companies with market capitalizations above $100 million that offer superior growth prospects.

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 return 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 Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends.
Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base, and limited access to capital, they may be more likely to fail than larger companies.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
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 American Depositary Receipts. Because the Fund may invest in ADRs issued by foreign companies, the Fund's share price may be more affected by foreign economic and political conditions, taxation policies, and accounting and auditing standards, than would otherwise be the case.

Risk/Return Bar Chart

The Fund's Class A Shares total return for the nine-month period from January 1, 2003 to September 30, 2003, was 24.41%.

Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 41.95% (quarter ended December 31, 1999). Its lowest quarterly return was (20.85)% (quarter ended December 31, 2000).

Average Annual Total Return Table

The Average Annual Total Returns for the Fund's Class A, Class B and Class C Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for Class A Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown . The table also shows returns for the Russell Mid-Cap Growth Index (RMCGI)³ and the Standard and Poor's 500 Index (S&P 500), both broad-based market indexes, and the Lipper Multi-Cap Growth Fund Average (LMCGFA), an average of funds with similar objectives. Indexes returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes and averages are unmanaged, and it is not possible to invest directly in an index.

(For the periods ended December 31, 2002)

	1 Year	5 Years	10 Years	Start of Performance¹
Class A Shares:
Return Before Taxes	(30.87)%	(3.04)%	5.86%	--
Return After Taxes on Distributions²	(30.87)%	(3.78)%	3.57%	--
Return After Taxes on Distributions and Sale of Fund Shares²	(18.96)%	(2.02)%	4.31%	--
Class B Shares:
Return Before Taxes	(31.41)%	(2.99)%	--	5.30%
Class C Shares:
Return Before Taxes	(28.09)%	(2.61)%	--	5.40%
RMCGI³	(27.41)%	(1.82)%	6.71%	--
S&P 500³	(22.10)%	(0.59)%	9.34%	--
LMCGFA	(28.52)%	(1.95)%	7.31%	--

1 The Fund's Class B and Class C Shares start of performance date was August 16, 1995.

2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class B and Class C Shares will differ from those shown above for Class A Shares. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

3 The Fund's investment adviser has changed its benchmark index to the RMCGI from the S&P 500 because it is more reflective of the Fund's current investment strategy.

What are the Fund's Fees and Expenses?

FEDERATED GROWTH STRATEGIES FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee	0.75%	0.75%		0.75%
Distribution (12b-1) Fee	None	0.75%		0.75%
Shareholder Services Fee	0.25%	0.25%		0.25%
Other Expenses	0.39%	0.39%		0.39%
Total Actual Annual Fund Operating Expenses	1.39%	2.14%	¹	2.14%


1 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A, Class B and Class C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, Class B and Class C Shares operating expenses are 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:

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	$684	$ 966	$1,269	$2,127
Expenses assuming no redemption	$684	$ 966	$1,269	$2,127
Class B:
Expenses assuming redemption	$767	$1,070	$1,349	$2,282
Expenses assuming no redemption	$217	$ 670	$1,149	$2,282
Class C:
Expenses assuming redemption	$415	$ 763	$1,238	$2,548
Expenses assuming no redemption	$315	$ 763	$1,238	$2,548

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing primarily in common stock of companies with market capitalizations above $100 million that offer superior growth prospects. Using its own quantitative process, the Fund's investment adviser (Adviser) rates the future performance potential of companies. The Adviser evaluates each company's earnings quality in light of its current valuation to narrow the list of attractive companies. The Adviser then evaluates product positioning, management quality and sustainability of current growth trends of those companies. Using this type of fundamental analysis, the Adviser selects the most promising companies for the Fund's portfolio. A description of the various types of securities in which the Fund invests, and their risks, immediately follows the strategy discussion.

The Fund may also seek capital appreciation by buying securities in initial public offerings. The Fund will participate in such offerings without regard to the issuer's market capitalization. The Adviser may select initial public offerings based on its fundamental analysis of the issuer.

PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Equity securities represent a share of an issuer's 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

American Depositary Receipts

ADRs represent interests in underlying securities issued by a foreign company. Depositary receipts are not traded in the same market as the underlying security. The foreign securities underlying ADRs are not traded in the United States. ADRs provide a way to buy shares of foreign-based companies in the United States rather than in overseas markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange transactions.

DERIVATIVE 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 interest rate and stock market risks, and may also expose the fund to liquidity and leverage risks.

Futures Contracts

Options

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

RISKS RELATED TO INVESTING FOR GROWTH

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

RISKS RELATED TO COMPANY SIZE

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 AMERICAN DEPOSITARY RECEIPTS

RISKS OF INVESTING IN DERIVATIVES CONTRACTS

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, a s a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus or the Fund's Statement of Additional Information, such as stock market, credit, liquidity and leverage risks.

What Do Shares Cost?

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

Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A Shares	$1,500/$100	5.50%	0.00%
Class B Shares	$1,500/$100	None	5.50%
Class C Shares	$1,500/$100	1.00%	1.00%

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

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares:
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 greater¹	0.00%	0.00%

1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

Class C Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
All Purchases	1.00%	1.01%

The sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Federated funds (other than money market funds);
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.)

The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
by exchanging shares from the same share class of another Federated fund (other than a money market fund);
through wrap accounts or other investment programs where you pay the investment professional directly for services;
through investment professionals that receive no portion of the sales charge;
as a 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 (Class A Shares only) and their immediate family members; or
as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.

SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

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

Shares that are not subject to a CDSC; and
Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).

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

How is the Fund Sold?

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

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

RULE 12B-1 PLAN

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

How to Purchase Shares

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.

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:

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

By Check

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

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

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

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

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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

DIRECTLY FROM THE FUND

By Telephone

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

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

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

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

Signature Guarantees

Signatures must be guaranteed if:

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

PAYMENT METHODS FOR REDEMPTIONS

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

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.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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.

Systematic Withdrawal Program (SWP) On Class B Shares

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

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

The Fund declares and pays any dividends quarterly 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.

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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

THE FUND'S PORTFOLIO MANAGERS ARE:

James E. Grefenstette

James E. Grefenstette has been the Fund's Portfolio Manager since December 1994. He is Vice President of the Trust. Mr. Grefenstette joined Federated in 1992 and has been a Portfolio Manager since 1994. Mr. Grefenstette became a Senior Vice President of 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.

Angela Kohler

Angela Kohler has been the Fund's Portfolio Manager since January 2003. Ms. Kohler joined Federated in July 1997 as an Investment Analyst. Ms. Kohler was promoted to Senior Investment Analyst in July 1999 and to Assistant Vice President of the Fund's Adviser in July 2000. Ms. Kohler was previously employed by SunTrust Capital Markets, serving as Manager of Investment Strategies from 1996 through June of 1997 and as Investment Strategies Consultant from 1994 to 1996. Ms. Kohler is a Chartered Financial Analyst. She earned a B.S. from Jacksonville University and an M.B.A. in Finance from Georgia State University.

ADVISORY FEES

Legal Proceedings

Like many other mutual fund companies, in September 2003, Federated the parent company of the Federated funds' advisers and distributor, received detailed requests for information on shareholder trading activities in the Federated funds from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Federated immediately retained the law firm of Reed Smith LLP to conduct an internal investigation, which is ongoing. Additionally, attorneys from the law firm of Dickstein Shapiro Morin & Oshinsky LLP, independent counsel to the Federated funds, are participating in the investigation and are reporting to the independent directors of the Federated funds on their progress.

The internal investigation is examining, among other things, circumstances in which it appears that a few Federated fund investors were granted exceptions to Federated's internal procedures for limiting frequent transactions, and that some of these investors made additional investments in other Federated funds. The investigation is also examining instances in which it appears that orders for Federated funds with variable NAV were placed and accepted after the Federated funds' closing time at 4:00 p.m. Federated is taking steps to ensure that Federated fund shareholder trading policies are adhered to.

On October 22, 2003, Federated issued a press release that discusses these matters and announces that Federated fund is committed to taking remedial actions when and as appropriate, including compensating the Federated funds for any detrimental impact these transactions may have had on them. Based upon the progress of the investigation to date, Federated does not have sufficient information regarding these transactions to make a reasonable estimate of the amount, if any, by which the Federated funds have been impacted. The press release is available in the "About Us" section of Federated's website www.federatedinvestors.com, and any future press releases on this subject will also be posted there.

Shortly after the press release was issued, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Federated funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated 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. Federated and the Federated funds are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. Although we do not believe that these lawsuits will have a material a dverse effect on the Federated 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 Federated fund redemptions, reduced sales of Federated fund shares, or other adverse consequences for the Federated funds.

Financial Information

FINANCIAL HIGHLIGHTS

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

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$19.02		$23.34		$40.66		$37.70		$23.53
Income From Investment Operations:
Net operating loss	(0.18	)¹	(0.13	)¹	(0.15	)¹	(0.33	)¹	(0.25	)¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	6.30		(4.19	)	(14.48	)	7.62		14.42

TOTAL FROM INVESTMENT OPERATIONS	6.12		(4.32	)	(14.63	)	7.29		14.17

Less Distributions:
Distributions from net realized gain on investments	--		--		(2.69	)	(4.33	)	--

Net Asset Value, End of Period	$25.14		$19.02		$23.34		$40.66		$37.70

Total Return²	32.18	%	(18.51	)%	(38.31	)%	20.47	%	60.22	%


Ratios to Average Net Assets:

Expenses	1.39	%³	1.34	%³	1.27	%	1.20	%	1.24	%

Net operating loss	(0.86	)%	(0.56	)%	(0.51	)%	(0.76	)%	(0.80	)%

Supplemental Data:

Net assets, end of period (000 omitted)	$504,998		$439,072		$665,021		$1,216,669		$776,828

Portfolio turnover	181	%	207	%	211	%	115	%	125	%

1 Per share numbers have been calculated using the average shares method, which more appropriately represents the per share data for the period since the use of the undistributed income method did not accord with the results of operations.

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

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 1.36% and 1.32% after taking into account these expense reductions for the years ended October 31, 2003 and 2002, respectively.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$17.80		$22.02		$38.79		$36.38		$22.88
Income From Investment Operations:
Net operating loss	(0.31	)¹	(0.28	)¹	(0.35	)¹	(0.63	)¹	(0.47	)¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	5.87		(3.94	)	(13.73	)	7.37		13.97

TOTAL FROM INVESTMENT OPERATIONS	5.56		(4.22	)	(14.08	)	6.74		13.50

Less Distributions:
Distributions from net realized gain on investments	--		--		(2.69	)	(4.33	)	--

Net Asset Value, End of Period	$23.36		$17.80		$22.02		$38.79		$36.38

Total Return²	31.24	%	(19.16	)%	(38.77	)%	19.61	%	59.00	%


Ratios to Average Net Assets:

Expenses	2.14	%³	2.09	%³	2.02	%	1.95	%	1.99	%

Net operating loss	(1.61	)%	(1.31	)%	(1.26	)%	(1.50	)%	(1.55	)%

Supplemental Data:

Net assets, end of period (000 omitted)	$162,097		$147,013		$237,630		$425,398		$177,091

Portfolio turnover	181	%	207	%	211	%	115	%	125	%

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

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 2.11% and 2.07% after taking into account these expense reductions for the years ended October 31, 2003 and 2002, respectively.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31	2003		2002		2001		2000		1999
Net Asset Value, Beginning of Period	$17.98		$22.23		$39.14		$36.62		$23.02
Income From Investment Operations:
Net operating loss	(0.31	)¹	(0.28	)¹	(0.35	)¹	(0.62	)¹	(0.47	)¹
Net realized and unrealized gain (loss) on investments and foreign currency transactions	5.92		(3.97	)	(13.87	)	7.47		14.07

TOTAL FROM INVESTMENT OPERATIONS	5.61		(4.25	)	(14.22	)	6.85		13.60

Less Distributions:
Distributions from net realized gain on investments	--		--		(2.69	)	(4.33	)	--

Net Asset Value, End of Period	$23.59		$17.98		$22.23		$39.14		$36.62

Total Return²	31.20	%	(19.12	)%	(38.78	)%	19.81	%	59.08	%


Ratios to Average Net Assets:

Expenses	2.14	%³	2.09	%³	2.02	%	1.93	%	1.97	%

Net operating loss	(1.61	)%	(1.31	)%	(1.26	)%	(1.48	)%	(1.53	)%

Expense waiver/reimbursement⁴	--		--		0.00	%⁵	0.02	%	0.02	%

Supplemental Data:

Net assets, end of period (000 omitted)	$35,472		$30,194		$46,173		$73,385		$30,096

Portfolio turnover	181	%	207	%	211	%	115	%	125	%

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

4 This expense decrease is reflected in both the expense and the net operating loss ratios shown above.

5 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

[Logo of Federated Investors]

Federated Growth Strategies Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Federated Securities Corp., Distributor

Investment Company Act File No. 811-4017

Federated is a registered mark of Federated Investors, Inc. 2003 ©Federated Investors, Inc.

Cusip 314172107
Cusip 314172206
Cusip 314172305

G01228-01 (12/03)

FEDERATED GROWTH STRATEGIES FUND
A Portfolio of Federated Equity Funds

Statement of Additional Information

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December 31, 2003

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Class A Shares
Class B Shares
Class C Shares

This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in
conjunction with the prospectus for Federated Growth Strategies Fund (Fund), dated
December 31, 2003. This SAI incorporates by reference the Fund's Annual Report.
Obtain the prospectus or the Annual Report without charge by calling 1-800-341-7400.

Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
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G01228-02 (12/03)

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HOW IS THE FUND ORGANIZED?

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The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares). This SAI
relates to all classes of Shares. The Fund's investment adviser is Federated Equity
Management Company of Pennsylvania (Adviser). Prior to January 1, 2004, Federated
Investment Management Company was investment adviser to the Fund. Both the current
adviser and the former adviser are wholly owned subsidiaries of Federated Investors,
Inc. (Federated).

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SECURITIES IN WHICH THE FUND INVESTS

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

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

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

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

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

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

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

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

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

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

Demand Instruments
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or bank, to
repurchase the security for its face value upon demand. The Fund treats demand
instruments as short-term securities, even though their stated maturity may extend
beyond one year.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option to
exchange for equity securities at a specified conversion price. The option allows the
Fund to realize additional returns if the market price of the equity securities
exceeds the conversion price. For example, the Fund may hold fixed income securities
that are convertible into shares of common stock at a conversion price of $10 per
share. If the market value of the shares of common stock reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.

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

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

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

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

Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign security,
or to convert foreign currency received from the sale of a foreign security into U.S.
dollars, the Fund may enter into spot currency trades. In a spot trade, the Fund
agrees to exchange one currency for another at the current exchange rate. The Fund
may also enter into derivative contracts in which a foreign currency is an underlying
asset. The exchange rate for currency derivative contracts may be higher or lower
than the spot exchange rate. Use of these derivative contracts may increase or
decrease the Fund's exposure to currency risks.

Foreign Government Securities
Foreign government securities generally consist of fixed income securities supported
by national, state, or provincial governments or similar political subdivisions.
Foreign government securities also include debt obligations of supranational
entities, such as international organizations designed or supported by governmental
entities to promote economic reconstruction or development, international banking
institutions and related government agencies. Examples of these include, but are not
limited to, the International Bank for Reconstruction and Development (the World
Bank), the Asian Development Bank, the European Investment Bank and the
Inter-American Development Bank.

Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a national,
state or equivalent government or are obligations of a political unit that are not
backed by the national government's full faith and credit. Further, foreign
government securities include mortgage-related securities issued or guaranteed by
national, state, or provincial governmental instrumentalities, including
quasi-governmental agencies.

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Derivative Contracts

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such as
futures, forwards and options) require payments relating to a future trade involving
the underlying asset. Other derivative contracts (such as swaps) require payments
relating to the income or returns from the underlying asset. The other party to a
derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make (or
collect) daily payments to the margin accounts to reflect losses (or gains) in the
value of their contracts. This protects investors against potential defaults by the
counterparty. Trading contracts on an exchange also allows investors to close out
their contracts by entering into offsetting contracts.

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

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

Depending upon how the Fund uses derivative contracts and the relationships between
the market value of a derivative contract and the underlying asset, derivative
contracts may increase or decrease the Fund's exposure to interest rate and 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:
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 financial futures and 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.

The Fund may buy/sell the following types of options:
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:
o Buy call options on indices, individual securities, index futures and financial
futures in anticipation of an increase in the value of the underlying asset or
instrument; and
o Write call options on indices, portfolio securities, index futures and
financial 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:
o Buy put options on indices, individual securities, index futures and financial
futures in anticipation of a decrease in the value of the underlying asset; and
o Write put options on indices, portfolio securities, index futures and financial
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.

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Special Transactions

The Fund's custodian or subcustodian will take possession of the securities subject
to repurchase agreements. The Adviser or subcustodian will monitor the value of the
underlying security each day to ensure that the value of the security always equals
or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

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

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

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

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

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

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Asset Coverage

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

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

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

Investment Ratings

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

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

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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.

Interest Rate Risks
o Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

Credit Risks
o ?Credit risk includes the possibility that a party to transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
o Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the
price of the security to decline.
o Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.

Call Risks
o Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.

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

Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns
for U.S. investors.
o Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than 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.
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 United States dollar relative to other currencies.

Liquidity Risks
o Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivatives contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses. OTC derivative contracts
generally carry greater liquidity risk than exchange-traded contracts.

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.

Fundamental INVESTMENT Objective
The Fund's investment objective is appreciation of capital. 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).

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

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

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

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

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

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

<R>

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

</R>

Investing in Commodities
For purposes of the commodities limitation, investments in transactions involving
futures contracts and options, forward currency contracts, swaps transactions and
other financial contracts that settle by payment of cash are not deemed to be
investments in commodities.

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

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, swaps
transactions and other financial contracts or derivative instruments.

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

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 OTC
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 OTC 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 good faith by the Board.

</R>

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.

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

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

Accumulated Purchases (Class A Shares)

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

Concurrent Purchases (Class A Shares)

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

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

Reinvestment Privilege (Class A Shares and Class C Shares)
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.

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

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

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

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

<R>

Purchases Through Omnibus Accounts (Class C Shares)
Class C Shares may be purchased without an initial sales charge by any investor who
buys Class C Shares through an omnibus account with a financial intermediary, such as
a broker or a bank, that does not accept or charge the initial sales charge.

Reorganizations (Class A Shares)

Class A Shares may be purchased without an initial sales charge by any 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.

</R>

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

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

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

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

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

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

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

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

o of Shares held by the Trustees, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with the
Distributor; and the immediate family members of the above persons;
o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities;

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

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

<R>

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

o Shares that are not subject to a CDSC; and

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

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

</R>

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
<R>

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

Class A Shares

Dealer Reallowance as a
percentage of Public
Purchase Amount 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%

Dealer Reallowance
as a Percentage of
Class C Shares Public Offering Price
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 million 0.75%
Next $5 million - $20 million 0.50%
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.

Class B Shares
Advance Commission
as a Percentage of
Public Offering Price

All Purchase Amounts Up to 5.50%

Class C Shares
Advance Commission
as a Percentage of
Public Offering Price

All Purchase Amounts 1.00%

</R>

RULE 12B-1 PLAN (Class b shares and class c shares)
<R>

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 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.

Federated and its subsidiaries may benefit from arrangements where the Rule 12b-1
Plan fees related to Class B Shares may be paid to third parties who have provided
the funds to make advance commission payments to investment professionals.

</R>

SERVICE FEES
<R>

The Fund may pay fees not to exceed 0.25% of average daily net assets (Service Fees)
to investment professionals or to [insert name of Services provider; for Federated
funds this is Federated Shareholder Services Company (FSSC)], a subsidiary of
Federated, for providing services to shareholders and maintaining shareholder
accounts. . Under certain agreements, rather than paying investment professionals
directly, the Fund may pay Service Fees to FSSC and FSSC will use the fees to
compensate investment professionals.

</R>

SUPPLEMENTAL PAYMENTS
<R>

Investment professionals may be paid fees, in significant amounts, out of the assets
of the Distributor. These fees do not come out of Fund assets. The Distributor may be
reimbursed by the Adviser or its affiliates.

These supplemental payments may be based upon such factors as the number or value of
Shares the investment professional sells or may sell; the value of client assets
invested; and/or the type and nature of services, sales support or marketing support
furnished by the investment professional. In addition to these supplemental payments,
an investment professional may also receive payments under the Rule 12b-1 Plan and/or
Service Fees.
</R>

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.

<R>

As of December 2, 2003, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class A Shares: Edward Jones & Co., Maryland
Heights, MO owned approximately 3,303,617 Shares (16.67)%.

As of December 2, 2003, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class B Shares: Edward Jones & Co., Maryland
Heights, MO owned approximately 690,023 Shares (10.06)%.

As of December 2, 2003, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class C Shares: Edward Jones & Co., Maryland
Heights, MO owned approximately 157,642 Shares (10.47)% and MLPF&S, Jacksonville,
FL, owned approximately 81,702 Shares (5.43)%.

</R>

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue Code
(the 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.

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

FOREIGN INVESTMENTS
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
<R>

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. The Trust comprises seven
portfolios and the Federated Fund Complex consists of 44 investment
companies (comprising 138 portfolios). Unless otherwise noted, each Officer
is elected annually. Unless otherwise noted, each Board member oversees all
portfolios in the Federated Fund Complex; serves for an indefinite term; and
also serves as a Board member of the following investment company complexes:
Banknorth Funds-four portfolios; Golden Oak(R) Family of Funds- seven
portfolios; and WesMark Funds-five portfolios.

As of December 2, 2003, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, Class B and Class C Shares.

</R>

<R>

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupations: Director $563.01 $148,500
Lawrence D. Ellis, or Trustee of the Federated Fund
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.

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation: Director $619.31 $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 $619.31 $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 $619.31 $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 $563.01 $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
January 1999 business consulting); Trustee
Associate, Boston College.

Principal Occupation: Director $563.01 $148,500
Peter E. Madden or Trustee of the Federated Fund
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way Other Directorships Held: Board
100 Royal Palm Way of Overseers, Babson College.
Palm Beach, FL
TRUSTEE Previous Positions:
Began serving: Representative, Commonwealth of
November 1991 Massachusetts General Court;
President, State Street Bank and
Trust Company and State Street
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 $619.31 $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.

John E. Murray, Principal Occupations: Director $675.61 $178,200
Jr., J.D., S.J.D. or Trustee of the Federated Fund
Birth Date: Complex; Chancellor and Law
December 20, 1932 Professor, Duquesne University;
Chancellor, Consulting Partner, Mollica
Duquesne University & Murray.
Pittsburgh, PA
TRUSTEE Other Directorships Held:
Began serving: Director, Michael Baker Corp.
February 1995 (engineering, construction,
operations and technical
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 $563.01 $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 $563.0100 $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.

OFFICERS**

Name
Birth Date
Address
Positions Held with Trust
Date Service Began Principal Occupation(s) and Previous Position(s)
Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND 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.

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

Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and Assistant
Secretary of Federated and an officer of its various advisory and underwriting
subsidiaries, has served as a Term Member on the Board of Directors of Duquesne
University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an
Independent Trustee of the Fund, served as President of Duquesne from 1988 until his
retirement from that position in 2001, and became Chancellor of Duquesne on August
15, 2001. It should be noted that Mr. Donahue abstains on any matter that comes
before Duquesne's Board that affects Mr. Murray personally.

COMMITTEES OF THE BOARD
Meetings Held
Board Committee During Last
Committee Members Committee Functions Fiscal Year
Executive In between meetings of the full Board, One
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 Audit Committee reviews and Four
Thomas G. Bigley recommends to the full Board the
John T. Conroy, independent auditors to be selected to
Jr. audit the Fund`s financial statements;
Nicholas P. meets with the independent auditors
Constantakis periodically to review the results of the
Charles F. audits and reports the results to the
Mansfield, Jr. full Board; evaluates the independence of
the auditors, reviews legal and
regulatory matters that may have a
material effect on the financial
statements, related compliance policies
and programs, and the related reports
received from regulators; reviews the
Fund`s internal audit function; reviews
compliance with the Fund's code of
conduct/ethics; reviews valuation issues;
monitors inter-fund lending transactions;
reviews custody services and issues and
investigates any matters brought to the
Committee's attention that are within the
scope of its duties.

Board ownership of shares in the fund and in the Federated family of Investment
companies AS OF DECEMBER 31, 2002
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue $50,001 - $100,000 Over $100,000
J. Christopher Donahue Over $100,000 Over $100,000
Lawrence D. Ellis, M.D. $1 - $10,000 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 $10,001 - $50,000 Over $100,000

</R>

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 and transfer agent). 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.

<R>

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.

</R>

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

Code of Ethics Restrictions on Personal Trading

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

<R>

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.

</R>

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

<R>

For the fiscal year ended, October 31, 2003, the Fund's Adviser directed brokerage
transactions to certain brokers due to research services they provided. The total
amount of these transactions was $1,777,622,511 for which the Fund paid $4,156,714 in
brokerage commissions.

</R>

ADMINISTRATOR
<R>

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 Administrative Fee Net Assets of the 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.

</R>

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

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

INDEPENDENT Auditors
The independent auditor for the Fund, Deloitte & Touche LLP, conducts its audits
in accordance with auditing standards generally accepted in the United States of
America, 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.

<R>

FEES PAID BY THE FUND FOR SERVICES

-----------------------------------------
For the Year Ended October 31 2003 2002 2001
Advisory Fee Earned $4,638,351 $6,340,874 $9,561,789
Advisory Fee Reduction 0 0 0
Advisory Fee Reimbursement 7,668 7,913 3,469
Brokerage Commissions 5,251,370 6,197,682 5,004,609
Administrative Fee 465,089 635,778 960,003
12b-1 Fee:
Class B Shares 1,080,720 -- --
Class C Shares 228,978 -- --
Shareholder Services Fee:
Class A Shares 1,109,608 -- --
Class B Shares 360,240 -- --
Class C Shares 76,326 -- --
</R>
--------------------------------------------------------------------------------------

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
<R>

Total returns are given for the one-year, five-year and ten-year or Start of
Performance periods ended October 31, 2003.

Yield is given for the 30-day period ended October 31, 2003.

30-Day Period 1 Year 5 Years 10 Years
Class A Shares:
Total Return
Before Taxes N/A 24.89% 3.92% 8.49%
After Taxes on Distributions N/A 24.89% 3.12% 6.17%
After Taxes on
Distributions and Sale of
Shares N/A 16.18% 3.29% 6.23%
Yield 0.00% N/A N/A N/A

--------------------------------------------------------------------------------------
Start of
Performance on
30-Day Period 1 Year 5 Years 10 Years 8/16/1995
Class B Shares:
Total Return
Before Taxes N/A 25.74% 3.98% N/A 8.51%
After Taxes on Distributions N/A 25.74% 3.13% N/A 5.96%
After Taxes on
Distributions and Sale of
Shares N/A 16.73% 3.35% N/A 6.20%
Yield 0.00% N/A N/A N/A N/A

------------------------------
Class C Shares:
Total Return
Before Taxes N/A 28.91% 4.16% N/A 8.45%
After Taxes on Distributions N/A 28.91% 3.33% N/A 5.92%
After Taxes on
Distributions and Sale of
Shares N/A 18.79% 3.51% N/A 6.15%
Yield 0.00% N/A N/A N/A N/A

</R>
--------------------------------------------------------------------------------------

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.

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

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

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

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

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

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

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

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

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

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

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

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

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

Dow Jones Industrial Average (DJIA)

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

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

Lipper, 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 NAV
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.

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

Russell Midcap Growth Index
Russell Midcap Growth Index measures the performance of those Russell Midcap
companies with higher price-to-book ratios and higher forecasted growth values. The
stocks are also members of the Russell 1000 Growth index.

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

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

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

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

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

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

WHO IS FEDERATED INVESTORS, INC.?

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

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

Federated Funds overview

Municipal Funds
<R>

In the municipal sector, as of December 31, 2002, Federated managed 14 bond funds
with approximately $3.2 billion in assets and 22 money market funds with
approximately $20.6 billion in total assets. In 1976, Federated introduced one of the
first municipal bond mutual funds in the industry and is now one of the largest
institutional buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation and the National Taxpayers Union regarding
the tax obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 31 years' experience. As of December
31, 2002, Federated managed 37 equity funds totaling approximately $16.2 billion in
assets across growth, value, equity income, international, index and sector (i.e.
utility) styles. Federated's value-oriented management style combines quantitative
and qualitative analysis and features a structured, computer-assisted composite
modeling system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 2002, Federated managed 10 money
market funds and 9 bond funds with assets approximating $59.4 billion and $6.0
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 29 years of experience in the
corporate bond sector. In 1972, Federated introduced one of the first high-yield bond
funds in the industry. In 1983, Federated was one of the first fund managers to
participate in the asset backed securities market, a market totaling more than $209
billion.

Government Funds
In the government sector, as of December 31, 2002, Federated managed 7 mortgage
backed, 3 multi-sector government funds, 4 government/agency and 19 government money
market mutual funds, with assets approximating $4.9 billion, $0.9 billion, $2.9
billion and $56.2 billion, respectively. Federated trades approximately $90.4 billion
in U.S. government and mortgage backed securities daily and places approximately $35
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated has
been a major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $50 billion in government funds within these
maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund industry
in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by money
managers today to value money market fund shares. Other innovations include the first
institutional tax-free money market fund. As of December 31, 2002, Federated managed
$136.2 billion in assets across 52 money market funds, including 19 government, 10
prime, 22 municipal and 1 euro-denominated with assets approximating $56.2 billion,
$59.4 billion, $20.6 billion and $173.9 million, respectively.

The Chief Investment Officers responsible for oversight of the various investment
sectors within Federated are: Global Equity - Stephen F. Auth is responsible for
overseeing the management of Federated's domestic and international equity products;
Global Fixed Income - William D. Dawson III is responsible for overseeing the
management of Federated's domestic and international fixed income and high yield
products.

Mutual Fund Market
Forty-nine percent of American households are pursuing their financial goals through
mutual funds. These investors, as well as businesses and institutions, have entrusted
over $6.2 trillion to the approximately 8,300 funds available, according to the
Investment Company Institute.

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

Institutional Clients
Federated meets the needs of approximately 3,035 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of purposes,
including defined benefit and defined contribution programs, cash management, and
asset/liability management. Institutional clients include corporations, pension
funds, tax exempt entities, foundations/endowments, insurance companies, and
investment and financial advisers.

Bank Marketing
Other institutional clients include more than 1,600 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank holding companies use
Federated funds in their clients' portfolios.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--Federated has over 2,000 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other mutual
fund distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.

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FINANCIAL INFORMATION

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The Financial Statements for the Fund for the fiscal year ended October 31, 2003 are
incorporated herein by reference to the Annual Report to Shareholders of Federated
Growth Strategies Fund dated October 31, 2003.

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INVESTMENT RATINGS

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Standard and Poor's Long-Term Debt Rating Definitions
AAA--Highest credit quality. 'AAA' ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

AA--Very high credit quality. 'AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.

A--High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time; however,
business or financial alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit risk is present,
but a limited margin of safety remains. Financial commitments are currently being
met; however, capacity for continued payment is contingent upon a sustained,
favorable business and economic environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon sustained, favorable business or
economic developments. A 'CC' rating indicates that default of some kind appears
probable. 'C' ratings signal imminent default.

Moody's Investors Service Commercial Paper Ratings

Prime-1--Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of seniors short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: leading market positions
in well established industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample asset protection,
broad margins in earning coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets and assured
sources of alternate liquidity.

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

Standard and Poor's Commercial Paper Ratings
A-1-- A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated with a
plus sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

Fitch Commercial Paper Rating Definitions
F-1--Indicates the strongest capacity for timely payment of financial commitments
relative to other issuers or issues in the same country. Under their national rating
scale, this rating is assigned to the "best" credit risk relative to all others in
the same country and is normally assigned to all financial commitments issued or
guaranteed by the sovereign state. Where the credit risk is particularly strong, a
"+" is added to the assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial commitments
relative to other issuers or issues in the same country. However, the margin of
safety is not as great as in the case of the higher ratings.

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Addresses

Federated growth strategies fund

Class A Shares
Class B Shares
Class C Shares

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

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

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

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

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

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

[Logo of Federated Investors]

Federated Technology Fund

A Portfolio of Federated Equity Funds

(Formerly, Federated Communications Technology Fund)

PROSPECTUS

DECEMBER 31, 2003

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking to achieve capital appreciation by investing primarily in companies that rely extensively on technology in their products, services or operations.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

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Risk/Return Summary		1
What are the Fund's Fees and Expenses?		5
What are the Fund's Investment Strategies?		6
What are the Principal Securities in Which the Fund Invests?		7
What are the Specific Risks of Investing in the Fund?		10
What Do Shares Cost?		12
How is the Fund Sold?		16
How to Purchase Shares		16
How to Redeem Shares		19
Account and Share Information		22
Who Manages the Fund?		23
Legal Proceedings		24
Financial Information		25

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Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests primarily in equity securities of companies that rely extensively on technology in their products, services or operations. These are companies engaged in information technology or other technology related businesses. The Adviser seeks companies that have a likelihood of growth and that therefore offer the potential for capital appreciation.

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.
Sector Risks. Because the Fund may allocate relatively more of its assets to one or more industry sectors than to other sectors, the Fund's performance will be more susceptible to any developments which affect the sectors emphasized by the Fund. The technology related industries in which the Fund invests may be significantly affected by intense competition, rapid obsolescence, failure to obtain, or delay in obtaining, financing or regulatory approval, the success or failure of research and development, product compatibility, and customer preferences.
Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or services base and limited access to capital, they may be more likely to fail than larger companies.
Risks Related to Investing for Growth. The Fund generally uses a "growth" style of investing and, as a result, the stocks in which the Fund invests may experience greater volatility in price, and may pay lower dividends, than stocks invested in by funds using a different investment style.
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.
Currency Risks. Because 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 U.S.

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Risk/Return Bar Chart and Table

The Fund's Class A Shares total return for the nine-month period from January 1, 2003 to September 30, 2003, was 36.78%.

Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 25.03% (quarter ended March 31, 2000). Its lowest quarterly return was (39.32)% (quarter ended December 31, 2000).

Average Annual Total Return Table

The Average Annual Total Returns for the Fund's Class A, Class B and Class C Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for Class A Shares to illustrate the effect of federal taxes on Fund returns. The table also shows returns for the NASDAQ Composite Index (NCI), the Merrill Lynch Technology 100 Index (MLT 100), and NASDAQ Telecommunications Index (NTI), broad based market indexes and the Lipper Science & Technology Funds Average (LSTFA), an average of funds. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes and averages are unmanaged, and it is not possible to invest directly in an index.

(For the periods ended December 31, 2002)

	1 Year	Start of Performance¹
Class A Shares:
Return Before Taxes	(43.18)%	(29.95)%
Return After Taxes on Distributions²	(43.18)%	(29.96)%
Return After Taxes on Distributions and Sale of Fund Shares²	(26.51)%	(21.66)%
Class B Shares:
Return Before Taxes	(43.62)%	(29.92)%
Class C Shares:
Return Before Taxes	(40.93)%	(29.26)%
NCI³	(31.27)%	(20.18)%
MLT 100	(41.46)%	(24.12)%
NTI	(53.95)%	(41.93)%
LSTFA	(42.34)%	(24.40)%

1 The Fund's Class A, Class B and Class C Shares start of performance date was September 21, 1999.

3 The Fund's investment adviser has changed its benchmark index to the NCI from the NTI because it is more reflective of the Fund's current investment strategy.

What are the Fund's Fees and Expenses?

FEDERATED TECHNOLOGY FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.75%	0.75%	0.75%
Distribution (12b-1) Fee	0.25%	0.75%	0.75%
Shareholder Services Fee	0.25%³	0.25%	0.25%
Other Expenses	1.22%	1.22%	1.22%
Total Annual Fund Operating Expenses	2.47%	2.97%⁴	2.97%

1 Although not contractually obligated to do so, the adviser and shareholder services provider will waive certain amounts. These are shown below along with the net expenses the Fund expects to pay for the fiscal year ending October 31, 2004.
Total Waivers of Fund Expenses	0.47%	0.22%	0.22%
Total Actual Annual Fund Operating Expenses (after waivers)⁵	2.00%	2.75%	2.75%
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) expects to be 0.53% for the fiscal year ending October 31, 2004.
3 Class A Shares have no present intention of paying or accruing the shareholder services fee for the fiscal year ending October 31, 2004.
4 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.
5 The Actual Annual Fund Operating Expenses (after waivers) for the Funds Class A, Class B and Class C Shares were 2.01%, 2.76% and 2.76%, respectively, for the fiscal year ended October 31, 2003.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class A, Class B and Class C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, Class B, and Class C Shares operating expenses are before waivers as estimated 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:

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	$786	$1,277	$1,793	$3,202
Expenses assuming no redemption	$786	$1,277	$1,793	$3,202
Class B:
Expenses assuming redemption	$850	$1,318	$1,762	$3,173
Expenses assuming no redemption	$300	$ 918	$1,562	$3,173
Class C:
Expenses assuming redemption	$497	$1,009	$1,647	$3,357
Expenses assuming no redemption	$397	$ 1,009	$1,647	$3,357

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What are the Fund's Investment Strategies?

The Fund's Adviser invests the Fund's assets, under normal market conditions, primarily in securities of companies considered by the Fund's Adviser at the time of the investment to rely extensively on technology in their products, services or operations. Technology related businesses include information technology, telecommunications services, Internet, media, biotechnology, medical technologies, defense and aerospace. A description of the various types of securities in which the Fund invests, and their risks, immediately follows the strategy discussion.

The Adviser attempts to identify those areas within the technology industries which present the best opportunities for growth. The Adviser performs traditional fundamental analysis to select securities that exhibit the most promising long-term growth potential for the Fund's portfolio. In selecting securities, the Adviser focuses primarily on the projected future cash flow and earnings of the issuing company, in addition to examining each issuer's current financial condition, business and product strength, competitive position, and management expertise. In general, issuers selected by the Adviser will have a market capitalization of at least $100 million.

Companies with similar characteristics may be grouped together in broad categories called sectors. The Fund invests primarily in the information technology sector and in other technology related industries. Under normal market conditions, the Adviser attempts to diversify investments by allocating among companies in different technology-related industries both within and outside the information technology sector and by limiting the amount invested in any one issuer.

In addition, the Adviser may invest a portion of the Fund's assets in securities of companies based outside the United States to diversify the Fund's holdings and to take advantage of opportunities in the foreign market. Securities of foreign companies may be more affected by foreign economic and political conditions, taxation policies, and accounting and auditing standards than those of U.S. companies.

Because the Fund refers to technology investments in its name, it will notify shareholders at least 60 days in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its assets in technology investments.

PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Equity securities represent a share of an issuer's 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

Foreign Securities

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

it is organized under the laws of, or has a principal office located in, another country;
the principal trading market for its securities is in another country; or
it (or its subsidiaries) derived in its most current fiscal year at least 50% of its total assets, capitalization, gross revenue or profit from goods produced, services performed, or sales made in another country.

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

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DERIVATIVE CONTRACTS

Futures Contracts

Options

Swaps

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

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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.

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. Because information technology and the other technology related industries in which the Fund invests are rapidly changing fields, companies in these industries are subject to significant competitive pressures, and their products or operations may rapidly become obsolete. Technology companies may also be significantly affected by failure to obtain, or delay in obtaining, financing or regulatory approval, the success or failure of research and development, product compatibility, and customer preferences.

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.

RISKS RELATED TO INVESTING FOR GROWTH

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

RISKS OF FOREIGN INVESTING

Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than United States companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing, and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.

CURRENCY RISKS

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.
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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RISKS OF INVESTING IN DERIVATIVES CONTRACTS

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 Fund's Statement of Additional Information, such as stock market, credit, liquidity and leverage risks.

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.

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What Do Shares Cost?

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

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

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	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A Shares	$1,500/$100	5.50%	0.00%
Class B Shares	$1,500/$100	None	5.50%
Class C Shares	$1,500/$100	1.00%	1.00%

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares
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 greater¹	0.00%	0.00%
Class C Shares
Purchase Amount
All Purchases	1.00%	1.01%

1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

The sales charge at purchase of Class A Shares only, may be reduced or eliminated by:

purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
--by you, your spouse, and your children under age 21; or
--of the same share class of two or more Federated funds (other than money market funds);
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
signing a letter of intent to purchase a specific dollar amount of Shares within 13 months (call your investment professional or the Fund for more information).

The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
by exchanging shares from the same share class of another Federated fund (other than a money market fund);
through wrap accounts or other investment programs where you pay the investment professional directly for services;
through investment professionals that receive no portion of the sales charge;

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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;

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as a Federated Life Member (Class A Shares only) and their immediate family members; or
as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.

SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

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

Shares that are not subject to a CDSC; and
Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).

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

How is the Fund Sold?

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

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

RULE 12B-1 PLAN

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

How to Purchase Shares

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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.

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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.

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:

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

By Check

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

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

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

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

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund 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

BY SYSTEMATIC INVESTMENT PROGRAM

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BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

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.

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THROUGH AN INVESTMENT PROFESSIONAL

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DIRECTLY FROM THE FUND

By Telephone

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

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

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

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

Signature Guarantees

Signatures must be guaranteed if:

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

PAYMENT METHODS FOR REDEMPTIONS

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

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.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

Systematic Withdrawal Program (SWP) On Class B Shares

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

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

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

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Who Manages the Fund?

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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. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Michael R. Tucker

Michael R. Tucker has been the Fund's Portfolio Manager since March 2000. Mr. Tucker joined Federated in June 1993 as a Research Assistant. Mr. Tucker has been a Portfolio Manager and Assistant Vice President of the Fund's Adviser since March 2000. He served as an Analyst from December 1995 to May 1999 and became a Senior Investment Analyst in June 1999. Mr. Tucker earned his Master of Science in Industrial Administration with an emphasis in Finance and Strategy from Carnegie Mellon University.

Dana L. Meissner

Dana L. Meissner has been the Fund's Portfolio Manager since January 2003. Mr. Meissner joined Federated in May 2000 as an Investment Analyst of the Fund's Adviser. Mr. Meissner was an engineering consultant with AEA Technology Engineering Software from December 1994 through August 1998. Mr. Meissner is a Chartered Financial Analyst and received an M.S. in Industrial Administration, with concentrations in Finance and Accounting, from Carnegie Mellon University in May 2000. He also holds an M.S. and B.S. in mechanical engineering from the University of Toledo.

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Naimish Shah

Naimish Shah was named a portfolio manager of the Fund in December 2003. Mr. Shah has been a Senior Investment Analyst with the Fund's adviser since August 2003. Mr. Shah served as a Director and Senior Investment Analyst in equity research with Credit Suisse Asset Management from June 2000 to July 2003. From August 1998 to May 2000, Mr. Shah was an Equity Sales Associate with Goldman Sachs & Co. Mr. Shah earned a B.S.E. in engineering from the University of Michigan and an M.B.A. in finance from Columbia Business School.

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ADVISORY FEES

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Legal Proceedings

Like many other mutual fund companies, in September 2003, Federated, the parent company of the Funds' advisers and distributor, received detailed requests for information on shareholder trading activities in the Federated funds from the SEC, the New York State Attorney General, and the National Association of Securities Dealers. Federated immediately retained the law firm of Reed Smith LLP to conduct an internal investigation, which is ongoing. Additionally, attorneys from the law firm of Dickstein Shapiro Morin & Oshinsky LLP, independent counsel to the Federated funds, are participating in the investigation and are reporting to the independent directors of the Federated funds on their progress.

The internal investigation is examining, among other things, circumstances in which it appears that a few Federated fund investors were granted exceptions to Federated's internal procedures for limiting frequent transactions, and that some of these investors made additional investments in other Federated funds. The investigation is also examining instances in which it appears that orders for Federated funds with variable NAVs were placed and accepted after the funds' closing time at 4:00 p.m. Federated is taking steps to ensure that fund shareholder trading policies are adhered to.

On October 22, 2003, Federated issued a press release that discusses these matters and announces that Federated is committed to taking remedial actions when and as appropriate, including compensating the Federated funds for any detrimental impact these transactions may have had on them. Based upon the progress of the investigation to date, Federated does not have sufficient information regarding these transactions to make a reasonable estimate of the amount, if any, by which the Federated funds have been impacted. The press release is available in the "About Us" section of Federated's website www.federatedinvestors.com, and any future press releases on this subject will also be posted there.

Shortly after the press release was issued, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Federated funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated 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. Federated and the Federated funds are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. Although we do not believe that these lawsuits will have a material adverse effect on the Federated 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 Federated fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Federated funds.

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Financial Information

FINANCIAL HIGHLIGHTS

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

Financial Highlights -- Class A Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended October 31	2003		2002		2001		2000		1999	¹
Net Asset Value, Beginning of Period	$ 3.33		$ 4.76		$14.64		$12.42		$10.00
Income From Investment Operations:
Net operating loss	(0.06	)²	(0.08	)²	(0.11	)²	(0.21	)²	(0.01	)²
Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency transactions	1.69		(1.35	)	(9.77	)	2.46		2.43

TOTAL FROM INVESTMENT OPERATIONS	1.63		(1.43	)	(9.88	)	2.25		2.42

Less Distributions:

Distributions from net realized gain on investments and foreign currency transactions	--		--		--		(0.03	)	--

Net Asset Value, End of Period	$ 4.96		$ 3.33		$ 4.76		$14.64		$12.42

Total Return³	48.95	%	(30.04	)%	(67.49	)%	18.10	%	24.20	%

Ratios to Average Net Assets:

Expenses	2.01	%⁴	2.04	%⁴	1.67	%	1.30	%	1.20	%⁵

Net operating loss	(1.66	)%	(1.68	)%	(1.29	)%	(1.13	)%	(0.85	)%⁵

Expense waiver/reimbursement⁶	0.35	%	0.12	%	0.02	%	0.00	%⁷	2.14	%⁵

Supplemental Data:

Net assets, end of period (000 omitted)	$43,274		$29,632		$58,423		$255,307		$13,893

Portfolio turnover	96	%	174	%	224	%	92	%	36	%

1 Reflects operations for the period from September 21, 1999 (date of initial public investment) to October 31, 1999.

2 Per share numbers have been calculated using the average shares method, which more appropriately represents the per share data for the period since the use of the undistributed income method did not accord with results of operations.

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

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements.

5 Computed on an annualized basis.

6 This voluntary expense decrease is reflected in both the expense and the net operating loss ratios shown above.

7 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended October 31	2003		2002		2001		2000		1999	¹
Net Asset Value, Beginning of Period	$ 3.25		$ 4.68		$14.53		$12.42		$10.00
Income From Investment Operations:
Net operating loss	(0.09	)²	(0.11	)²	(0.16	)²	(0.34	)²	(0.02	)²
Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency transactions	1.65		(1.32	)	(9.69	)	2.48		2.44

TOTAL FROM INVESTMENT OPERATIONS	1.56		(1.43	)	(9.85	)	2.14		2.42

Less Distributions:
Distributions from net realized gain on investments and foreign currency transactions	--		--		--		(0.03	)	--

Net Asset Value, End of Period	$ 4.81		$ 3.25		$ 4.68		$14.53		$12.42

Total Return³	48.00	%	(30.56	)%	(67.79	)%	17.21	%	24.20	%


Ratios to Average Net Assets:

Expenses	2.76	%⁴	2.79	%⁴	2.42	%	2.05	%	1.95	%⁵

Net operating loss	(2.41	)%	(2.43	)%	(2.04	)%	(1.88	)%	(1.60	)%⁵

Expense waiver/reimbursement⁶	0.35	%⁶	0.12	%	0.02	%	0.00	%⁷	2.14	%⁵

Supplemental Data:

Net assets, end of period (000 omitted)	$84,252		$66,179		$126,320		$458,094		$34,771

Portfolio turnover	96	%	174	%	224	%	92	%	36	%

1 Reflects operations for the period from September 21, 1999 (date of initial public investment) to October 31, 1999.

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

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements.

5 Computed on an annualized basis.

6 This voluntary expense decrease is reflected in both the expense and the net operating loss ratios shown above.

7 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Year Ended October 31	2003		2002		2001		2000		1999	¹
Net Asset Value, Beginning of Period	$ 3.25		$ 4.68		$14.52		$12.42		$10.00
Income From Investment Operations:
Net operating loss	(0.09	)²	(0.11	)²	(0.16	)²	(0.34	)²	(0.02	)²
Net realized and unrealized gain (loss) on investments futures contracts and foreign currency transactions	1.65		(1.32	)	(9.68	)	2.47		2.44

TOTAL FROM INVESTMENT OPERATIONS	1.56		(1.43	)	(9.84	)	2.13		2.42

Less Distributions:
Distributions from net realized gain on investments and foreign currency transactions	--		--		--		(0.03	)	--

Net Asset Value, End of Period	$ 4.81		$ 3.25		$ 4.68		$14.52		$12.42

Total Return³	48.00	%	(30.56	)%	(67.77	)%	17.13	%	24.20	%

Ratios to Average Net Assets:

Expenses	2.76	%⁴	2.79	%⁴	2.42	%	2.05	%	1.95	%⁵

Net operating loss	(2.41	)%	(2.43	)%	(2.04	)%	(1.88	)%	(1.60	)%⁵

Expense waiver/reimbursement⁶	0.35	%	0.12	%	0.02	%	0.00	%⁷	2.14	%⁵

Supplemental Data:

Net assets, end of period (000 omitted)	$16,096		$13,055		$25,186		$99,315		$7,265

Portfolio turnover	96	%	174	%	224	%	92	%	36	%

1 Reflects operations for the period from September 21, 1999 (date of initial public investment) to October 31, 1999.

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

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements.

5 Computed on an annualized basis.

6 This voluntary expense decrease is reflected in both the expense and the net operating loss ratios shown above.

7 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated October 31, 2003, which can be obtained free of charge.

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[Logo of Federated Investors]

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Federated Technology Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor

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Investment Company Act File No. 811-4017

Federated is a registered mark of Federated Investors, Inc.
2003 © Federated Investors, Inc.

Cusip 314172818
Cusip 314172792
Cusip 314172784

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G02681-01 (12/03)

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FEDERATED TECHNOLOGY FUND
(formerly, Federated Communications Technology Fund)
A Portfolio of Federated Equity Funds

Statement of Additional Information

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December 31, 2003

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Class A Shares
Class B Shares
Class C Shares

This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in
conjunction with the prospectus for Federated Technology Fund (Fund), dated December
31, 2003.

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

G02681-02 (12/03)

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HOW IS THE FUND ORGANIZED?

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The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares). This SAI
relates to all classes of Shares. The Fund's investment adviser is Federated Equity
Management Company of Pennsylvania (Adviser). Prior to January 1, 2004, Federated
Investment Management Company was investment adviser to the Fund. Both the current
Adviser and the former Adviser are wholly owned subsidiaries of Federated Investors,
Inc. (Federated).

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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

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.

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

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

Agency Securities
Agency securities are issued or guaranteed by a federal agency or other government
sponsored entity acting under federal authority (a GSE). The United States supports
some GSEs with its full faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial support,
but are regarded as having implied support because the federal government sponsors
their activities. Agency securities are generally regarded as having low credit
risks, but not as low as Treasury securities.

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

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

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

Zero Coupon Securities
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Zero coupon securities do not pay interest or principal until final maturity, unlike
debt securities that provide periodic payments of interest (referred to as a coupon
payment). Investors buy zero coupon securities at a price below the amount payable at
maturity. The difference between the purchase price and the amount paid at maturity
represents interest on the zero coupon security. Investors must wait until maturity
to receive interest and principal, which increases the market and credit risks of a
zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount and are
referred to as zero coupon or capital appreciation bonds. Others are created from
interest bearing bonds by separating the right to receive the bond's coupon payments
from the right to receive the bond's principal due at maturity, a process known as
coupon stripping. Treasury STRIPs, Interest Only or IOs and Principal Only or POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place of
cash interest payments, thereby increasing the amount payable at maturity. These are
referred to as pay-in-kind or PIK securities.
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Convertible Securities
Convertible securities are fixed income securities that the Fund has the option to
exchange for equity securities at a specified conversion price. The option allows the
Fund to realize additional returns if the market price of the equity securities
exceeds the conversion price. For example, the Fund may hold fixed income securities
that are convertible into shares of common stock at a conversion price of $10 per
share. If the market value of the shares of common stock reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income securities. In
addition, at the time a convertible security is issued the conversion price exceeds
the market value of the underlying equity securities. Thus, convertible securities
may provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its initial
investment.
The Fund treats convertible securities as 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.

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

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

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

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

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

Special Transactions

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

Securities Lending
The Fund may lend portfolio securities to borrowers that the Fund's custodian deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the market
value of the loaned securities increases. Also, the borrower must pay the Fund the
equivalent of any dividends or interest received on the loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an acceptable
investment for the Fund. However, the Fund must pay interest to the borrower for the
use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The Fund
will not have the right to vote on securities while they are on loan, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a negotiated
portion of the interest earned on the cash collateral to a securities lending agent
or broker.
Securities lending activities are subject to interest rate risks and credit risks.
These transactions may create leverage risks.

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

<R>

</R>

Inter-Fund Borrowing and Lending Arrangements
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The Securities and Exchange Commission (SEC) has granted an exemption that permits
the Fund and all other funds advised by subsidiaries of Federated Investors, Inc.
(Federated funds) to lend and borrow money for certain temporary purposes directly to
and from other Federated funds. Participation in this inter-fund lending program is
voluntary for both borrowing and lending funds, and an inter-fund loan is only made
if it benefits each participating 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.

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

equity securities investment risks

Stock Market Risks
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.

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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. Because information technology
and the other technology related industries in which the Fund invests are
rapidly changing fields, companies in these industries are subject to
significant competitive pressures, and their products or operations may rapidly
become obsolete. Technology companies may also be significantly affected by
failure to obtain, or delay in obtaining, financing or regulatory approval, the
success or failure of research and development, product compatibility, and
customer preferences.

</R>

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

Liquidity Risks

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

</R>

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.

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

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

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

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.

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.

FIXED INCOME Securities Investment Risks

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

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

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

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

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

Liquidity Risks
o Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade,
or are not widely held.

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

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

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

INVESTMENT LIMITATIONS

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

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.

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.

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

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

Purchases on Margin
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 limitations 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 OTC
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 OTC 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 good faith by the Board.

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

Trading in Foreign Securities

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

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to which
the shareholders of a particular class are entitled.

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

<R>

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

Accumulated Purchases (Class A Shares)

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

Concurrent Purchases (Class A Shares)

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

Reinvestment Privilege (Class A Shares and Class C Shares)
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.

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

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

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

Reorganizations (Class A Shares)

Class A Shares may be purchased without an initial sales charge by any 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.

</R>

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

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

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

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

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

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

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

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

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

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

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

o Shares that are not subject to a CDSC; and

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

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

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
<R>

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

Class A Shares
--------------------------------------------------------------------------------------
Dealer Reallowance as a
percentage of Public
Purchase Amount 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%

--------------------------------------------------------------------------------------
Dealer Reallowance
------------------------------------------------ as a Percentage of
Public Offering Price
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 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.

Class B Shares
Advance Commission
as a Percentage of
Public Offering Price
All Purchase Amounts Up to 5.50%

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

</R>
--------------------------------------------------------------------------------------

RULE 12B-1 PLAN
<R>

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 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.

Federated and its subsidiaries may benefit from arrangements where the Rule 12b-1
Plan fees related to Class B Shares may be paid to third parties who have provided
the funds to make advance commission payments to investment professionals.

</R>

SERVICE FEES
<R>

The Fund may pay fees not to exceed 0.25% of average daily net assets (Service Fees)
to investment professionals 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 investment
professionals directly, the Fund may pay Service Fees to FSSC and FSSC will use the
fees to compensate investment professionals.

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SUPPLEMENTAL PAYMENTS
<R>

Investment professionals may be paid fees, in significant amounts, out of the assets
of the Distributor. These fees do not come out of Fund assets. The Distributor may be
reimbursed by the Adviser or its affiliates.

These supplemental payments may be based upon such factors as the number or value of
Shares the investment professional sells or may sell; the value of client assets
invested; and/or the type and nature of services, sales support or marketing support
furnished by the investment professional. In addition to these supplemental payments,
an investment professional may also receive payments under the Rule 12b-1 Plan and/or
Service Fees.
</R>

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.

<R>

As of December 2, 2003, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Class C Shares: MLPF&S, Jacksonville, FL, owned
approximately 404,030 Shares (12.17)% and Citigroup Global Markets, Inc., New York,
NY, owned approximately 198,411 Shares (5.98)%.

</R>

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.

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

</R>

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
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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. The Trust
comprises seven portfolios and the Federated Fund Complex consists of 44 investment
companies (comprising 138 portfolios). Unless otherwise noted, each Officer is
elected annually. Unless otherwise noted, each Board member oversees all portfolios
in the Federated Fund Complex; serves for an indefinite term; and also serves as a
Board member of the following investment company complexes: Banknorth Funds-four
portfolios; Golden Oak(R) Family of Funds- seven portfolios; and WesMark Funds-five
portfolios.

</R>

As of December 2, 2003, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Class A, Class B, and Class C Shares.

<R>

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

Name Principal Occupation(s) for Past Aggregate Total Compensation
Birth Date Five Years, Other Directorships Held Compensation From Trust and
Address and Previous Position(s) From Fund Federated Fund
Positions Held with (past fiscal year) Complex
Trust (past calendar
Date Service Began year)

Principal Occupations: Chairman and $0 $0
John F. Donahue* Director or Trustee of the Federated
Birth Date: July 28, Fund Complex; Chairman and Director,
1924 Federated Investors, Inc.
CHAIRMAN AND TRUSTEE -------------------------------------
Began serving: April
1984 Previous Positions: Trustee,
Federated Investment Management
Company and Chairman and Director,
Federated Investment Counseling.

Principal Occupations: Principal $0 $0
J. Christopher Donahue* Executive Officer and President of
Birth Date: April 11, the Federated Fund Complex; Director
1949 or Trustee of some of the Funds in
PRESIDENT AND TRUSTEE the Federated Fund Complex;
Began serving: January President, Chief Executive Officer
2000 and Director, Federated Investors,
Inc.; Chairman and Trustee,
Federated Investment Management
Company; Trustee, Federated
Investment Counseling; Chairman and
Director, Federated Global
Investment Management Corp.;
Chairman, Passport Research, 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 or $232.40 $148,500
Lawrence D. Ellis, M.D.* Trustee of the Federated Fund
Birth Date: October 11, Complex; Professor of Medicine,
1932 University of Pittsburgh; Medical
3471 Fifth Avenue Director, University of Pittsburgh
Suite 1111 Medical Center Downtown;
Pittsburgh, PA Hematologist, Oncologist and
TRUSTEE Internist, University of Pittsburgh
Began serving: August Medical Center.
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.
--------------------------------------------------------------------------------------

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation: Director or $25.64 $163,350
Thomas G. Bigley Trustee of the Federated Fund
Birth Date: February 3, Complex.
1934
15 Old Timber Trail Other Directorships Held: Director,
Pittsburgh, PA Member of Executive Committee,
TRUSTEE Children's Hospital of Pittsburgh;
Began serving: October Director, University of Pittsburgh.
1995
Previous Position: Senior Partner,
Ernst & Young LLP.

Principal Occupations: Director or $255.64 $163,350
John T. Conroy, Jr. Trustee of the Federated Fund
Birth Date: June 23, Complex; Chairman of the Board,
1937 Investment Properties Corporation;
Grubb & Partner or Trustee in private real
Ellis/Investment estate ventures in Southwest
Properties Corporation Florida.
3838 North Tamiami
Trail Previous Positions: President,
Suite 402 Investment Properties Corporation;
Naples, FL Senior Vice President, John R. Wood
TRUSTEE and Associates, Inc., Realtors;
Began serving: November President, Naples Property
1991 Management, Inc. and Northgate
Village Development Corporation.

Principal Occupation: Director or $255.64 $163,350
Nicholas P. Constantakis Trustee of the Federated Fund
Birth Date: September Complex.
3, 1939
175 Woodshire Drive Other Directorships Held: Director
Pittsburgh, PA and Member of the Audit Committee,
TRUSTEE Michael Baker Corporation
Began serving: February (engineering and energy services
1998 worldwide).

Previous Position: Partner, Anderson
Worldwide SC.

Principal Occupation: Director or $232.40 $148,500
John F. Cunningham Trustee of the Federated Fund
Birth Date: March 5, Complex.
1943
353 El Brillo Way Other Directorships Held: Chairman,
Palm Beach, FL President and Chief Executive
TRUSTEE Officer, Cunningham & Co., Inc.
Began serving: January (strategic business consulting);
1999 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 or $232.40 $148,500
Peter E. Madden Trustee of the Federated Fund
Birth Date: March 16, Complex; Management Consultant.
1942
One Royal Palm Way Other Directorships Held: Board of
100 Royal Palm Way Overseers, Babson College.
Palm Beach, FL
TRUSTEE Previous Positions: Representative,
Began serving: November Commonwealth of Massachusetts
1991 General Court; President, State
Street Bank and Trust Company and
State Street 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 or $255.64 $163,350
Charles F. Mansfield, Trustee of the Federated Fund
Jr. Complex; Management Consultant;
Birth Date: April 10, Executive Vice President, DVC Group,
1945 Inc. (marketing, communications and
80 South Road technology) (prior to 9/1/00).
Westhampton Beach, NY
TRUSTEE Previous Positions: Chief Executive
Began serving: January Officer, PBTC International Bank;
1999 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.

John E. Murray, Jr., Principal Occupations: Director or $278.86 $178,200
J.D., S.J.D. Trustee of the Federated Fund
Birth Date: December Complex; Chancellor and Law
20, 1932 Professor, Duquesne University;
Chancellor, Duquesne Consulting Partner, Mollica &
University Murray.
Pittsburgh, PA
TRUSTEE Other Directorships Held: Director,
Began serving: February Michael Baker Corp. (engineering,
1995 construction, operations and
technical 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 or $232.40 $148,500
Marjorie P. Smuts Trustee of the Federated Fund
Birth Date: June 21, Complex; Public Relations/Marketing
1935 Consultant/Conference Coordinator.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National
TRUSTEE Spokesperson, Aluminum Company of
Began serving: April America; television producer;
1984 President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director or $232.40 $148,500
John S. Walsh Trustee of the Federated Fund
Birth Date: November Complex; President and Director,
28, 1957 Heat Wagon, Inc. (manufacturer of
2604 William Drive construction temporary heaters);
Valparaiso, IN President and Director,
TRUSTEE Manufacturers Products, Inc.
Began serving: January (distributor of portable
1999 construction heaters); President,
Portable Heater Parts, a division of
Manufacturers Products, Inc.

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

OFFICERS**
--------------------------------------------------------------------------------------

Name
Birth Date
Address
Positions Held with Trust
---------------------------------------------
Date Service Began Principal Occupation(s) and Previous Position(s)
Principal Occupations: Executive Vice President of some of
Edward C. Gonzales the Funds in the Federated Fund Complex; Vice Chairman,
Birth Date: October 22, 1930 Federated Investors, Inc.; Trustee, Federated
PRESIDENT Administrative Services.
Began serving: July 1995
Previous Positions: President and Trustee or Director of
some of the Funds in the Federated Fund Complex; CEO and
Chairman, Federated Administrative Services; Vice
President, Federated Investment Management Company,
Federated Investment Counseling, Federated Global
Investment Management Corp. and Passport Research, Ltd.;
Director and Executive Vice President, Federated
Securities Corp.; Director, Federated Services Company;
Trustee, Federated Shareholder Services Company.

Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND SECRETARY Inc.
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 Officer and
Richard J. Thomas Treasurer of the Federated Fund Complex; Senior Vice
Birth Date: June 17, 1954 President, Federated Administrative Services.
TREASURER
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 President of
Richard B. Fisher some of the Funds in the Federated Fund Complex; Vice
Birth Date: May 17, 1923 Chairman, Federated Investors, Inc.; Chairman, Federated
VICE PRESIDENT 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 of this
Stephen F. Auth Fund and various other Funds in the Federated Fund
Birth Date: September 3, 1956 Complex; Executive Vice President, Federated Investment
CHIEF INVESTMENT OFFICER Counseling, Federated Global Investment Management Corp.,
Began serving: November 2002 Federated Investment Management Company and Passport
Research, Ltd.

Lawrence Auriana is Vice President of the Trust. Mr.
Lawrence Auriana Auriana joined Federated in April 2001 as Co-Head of
Birth Date: January 8, 1944 Investments/Federated Kaufmann. From August 1984 to April
VICE PRESIDENT 2001, Mr. Auriana was President and Treasurer of Edgemont
Began serving: November 2001 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 Trust. Mr.
James E. Grefenstette Grefenstette joined Federated in 1992 and has been a
Birth Date: November 7, 1962 Portfolio Manager since 1994. Mr. Grefenstette became a
VICE PRESIDENT Senior Vice President of the Fund's Adviser in January
Began serving: November 1998 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. Utsch
Hans P. Utsch joined Federated in April 2001 as Co-Head of
Birth Date: July 3, 1936 Investments/Federated Kaufmann. From August 1984 to April
VICE PRESIDENT 2001, Mr. Utsch was Chairman of the Board and Secretary of
Began serving: November 2001 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.
--------------------------------------------------------------------------------------
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and Assistant
Secretary of Federated and an officer of its various advisory and underwriting
subsidiaries, has served as a Term Member on the Board of Directors of Duquesne
University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an
Independent Trustee of the Fund, served as President of Duquesne from 1988 until his
retirement from that position in 2001, and became Chancellor of Duquesne on August
15, 2001. It should be noted that Mr. Donahue abstains on any matter that comes
before Duquesne's Board that affects Mr. Murray personally.

COMMITTEES OF THE BOARD
Meetings Held
Committee During Last
Board Committee Members Committee Functions Fiscal Year
Executive In between meetings of the full Board, the One
John F. Donahue Executive Committee generally may exercise all
John E. Murray, Jr., the powers of the full Board in the management
J.D., S.J.D. 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 Audit Committee reviews and recommends to Four
Thomas G. Bigley the full Board the independent auditors to be
John T. Conroy, Jr. selected to audit the Fund`s financial
Nicholas P. statements; meets with the independent
Constantakis auditors periodically to review the results of
Charles F. Mansfield, the audits and reports the results to the full
Jr. Board; evaluates the independence of the
auditors, reviews legal and regulatory matters
that may have a material effect on the
financial statements, related compliance
policies and programs, and the related reports
received from regulators; reviews the Fund`s
internal audit function; reviews compliance
with the Fund`s code of conduct/ethics;
reviews valuation issues; monitors inter-fund
lending transactions; reviews custody services
and issues and investigates any matters
brought to the Committee's attention that are
within the scope of its duties.

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

Board ownership of shares in the fund and in the Federated family of Investment
companies AS OF dECEMBER 31, 2002
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund 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 $1.00-10,000 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 $1.00-10,000 Over $100,000
John S. Walsh None Over $100,000

</R>
--------------------------------------------------------------------------------------

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.