485BPOS

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

                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                 Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933                    X

    Pre-Effective Amendment No.

    Post-Effective Amendment No.   40                                      X

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940            X

    Amendment No.   37                                                     X

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

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

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

                        John W. McGonigle, Esquire
                        Federated Investors Tower
                              1001 Liberty Avenue
                    Pittsburgh, Pennsylvania 15222-3779
                  (Name and Address of Agent for Service)
               (Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

___  immediately upon filing pursuant to paragraph (b)
_x_  on February 1, 2007 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.
                                   Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro LLP
1825 Eye Street, NW
Washington, D.C.  20006

Federated
World-Class Investment Manager

Federated Investors 50 Years of Growth & Innovation

Federated Equity Income Fund, Inc.

PROSPECTUS

February 1, 2007

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES

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

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

Not FDIC Insured * May Lose Value * No Bank Guarantee

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 7

What are the Principal Securities in Which the Fund Invests? 9

What are the Specific Risks of Investing in the Fund? 15

What Do Shares Cost? 18

How is the Fund Sold? 27

Payments to Financial Intermediaries 27

How to Purchase Shares 31

How to Redeem and Exchange Shares 34

Account and Share Information 38

Who Manages the Fund? 42

Legal Proceedings 44

Financial Information 45

Appendix A: Hypothetical Investment and Expense Information 54

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in income- producing equity securities, including securities that are convertible into common stocks. The Fund's investment adviser (Adviser) ordinarily selects value stocks that have a comparatively low volatility in share price relative to the overall equity market and which may provide relatively high dividend income, but may also select securities of companies 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 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. 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.
  
• Investment Style Risk. Due to the Fund's value style of investing, the Fund's Share price may lag that of other Funds using a different investment style.
  

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• Risks of Investing in Derivative Contracts and Hybrid Instruments. The Fund's use of derivative contracts and hybrid instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Also, derivative contracts and hybrid instruments may involve other risks described in this prospectus or the Fund's Statement of Additional Information (SAI), such as stock market, interest rate, credit, currency, liquidity and leverage risks.
  

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

Risk/Return Bar Chart and Table

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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.

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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.
Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 16.99% (quarter ended June 30, 2003). Its lowest quarterly return was (14.70)% (quarter ended September 30, 2002).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A, Class B, Class C and Class F Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for the Fund's 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 1000 Value Index (RUS1V), a broad based market index, and the 90% Russell 1000 Value Index/10% Merrill Lynch 91 day Treasury Bill Index (90% RUS1V/10%ML 91DTB), a blended benchmark index. The RUS1V measures the performance of those Russell 1,000 companies with lower price-to-book ratios and lower forecasted growth values. The 90% RUS1V/10%ML 91DTB is a blended index which is comprised of the RUS1V and the ML91DTB . The ML91DTB is an index tracking short-term U.S. government securities. 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 are unmanaged, and it is not possible to invest directly in an index.

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(For the Periods Ended December 31, 2006)

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	1 Year	5 Years	10 Years
Class A Shares:
Return Before Taxes	<R>16.24%</R>	<R>6.42%</R>	<R>6.29%</R>
Return After Taxes on Distributions 1	<R>15.21%</R>	<R>5.86%</R>	<R>5.24%</R>
Return After Taxes on Distributions and Sale of Fund Shares 1	<R>10.50%</R>	<R>5.26%</R>	<R>4.87%</R>
Class B Shares:
Return Before Taxes	<R>16.52%</R>	<R>6.50%</R>	<R>6.23%</R>
Class C Shares 2 :
Return Before Taxes	<R>21.08%</R>	<R>6.83%</R>	<R>6.09%</R>
Class F Shares:
Return Before Taxes	<R>20.47%</R>	<R>7.13%</R>	<R>6.52%</R>
RUS1V	<R>22.25%</R>	<R>10.86%</R>	<R>11.00%</R>
90% RUS1V/10% ML91DTB	<R>20.51%</R>	<R>10.02%</R>	<R>10.28%</R>

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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 for Class B, Class C and Class F Shares will differ from those shown 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

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2 Historical returns do not include the effect of a 1.00% front-end sales charge on Class C Shares purchased prior to February 1, 2007. Effective February 1, 2007, this sales charge was eliminated.

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What are the Fund's Fees and Expenses?

FEDERATED EQUITY INCOME 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, Class C and F Shares.

Shareholder Fees	Class A	Class B	Class C	Class F
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	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%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None	None
Exchange Fee	None	None	None	None
Annual Fund Operating Expenses (Before Waivers and Reduction) 1
Expenses That are Deducted From Fund Assets (as percentage of average net assets)
Management Fee	0.60%	0.60%	0.60%	0.60%
Distribution (12b-1) Fee 2	0.50%	0.75%	0.75%	0.25%
Other Expenses 3	0.55%	0.54%	0.55%	0.54%
Total Annual Fund Operating Expenses 4	1.65%	1.89% 5	1.90%	1.39%
1 The percentages shown are based on expenses for the entire fiscal year ended November 30, 2006. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, (except as discussed in Note 4, below), the distributor, shareholder service provider and administrator waived and/or elected not to charge certain amounts. These are shown below along with the net expenses the Fund actually paid for the period ended November 30, 2006.
Total Waivers and Reduction of Fund Expenses	0.51%	0.00%	0.01%	0.01%
Total Actual Annual Fund Operating Expenses (after waivers and reduction)	1.14%	1.89%	1.89%	1.38%
2 The Fund's Class A Shares did not pay or accrue the distribution (12b-1) fee during the fiscal year ended November 30, 2006. The Fund's Class A Shares has no present intention of paying or accruing the distribution (12b-1) fee during the fiscal year ending November 30, 2007.
3 Includes a shareholder services fee/account administration fee which is used to compensate intermediaries for shareholder services or account administrative services. Also includes a recordkeeping fee which is used to compensate intermediaries for recordkeeping services. Please see "Payments to Financial Intermediaries" herein. The administrator waived a portion of its fee. The shareholder services provided elected not to charge, therefore the Fund did not accrue, a portion of its fee for the Fund's Class A, Class C and Class F Shares. The administrator and shareholder services provider can terminate this voluntary waiver and/or reduction at any time. Total other expenses paid by the Fund (after the voluntary waiver and reduction) for the Fund's Class A, Class B, Class C and Class F Shares were 0.53%, 0.54%, 0.53% and 0.53%, respectively, for the fiscal year ended November 30, 2006.
4 The Adviser and its affiliates have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses paid by the Fund's Class A, Class B, Class C and Class F Shares (after the voluntary waiver and reimbursements) will not exceed 1.15%, 1.90%, 1.90% and 1.40%, respectively, (including the distribution (12b-1) fee) for the fiscal year ending November 30, 2007. Although these actions are voluntary, the Adviser and is affiliates have agreed not to terminate these waivers and/or reimbursements until after January 31, 2008.
5 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, Class C and Class F Shares with the cost of investing in other mutual funds.

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

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Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	<R>$709</R>	<R>$1,042</R>	<R>$1,398</R>	<R>$2,397</R>
Expenses assuming no redemption	<R>$709</R>	<R>$1,042</R>	<R>$1,398</R>	<R>$2,397</R>
Class B:
Expenses assuming redemption	<R>$742</R>	<R>$ 994</R>	<R>$1,221</R>	<R>$2,147</R>
Expenses assuming no redemption	<R>$192</R>	<R>$ 594</R>	<R>$1,021</R>	<R>$2,147</R>
Class C:
Expenses assuming redemption	<R>$293</R>	<R>$ 597</R>	<R>$1,026</R>	<R>$2,222</R>
Expenses assuming no redemption	<R>$193</R>	<R>$ 597</R>	<R>$1,026</R>	<R>$2,222</R>
Class F:
Expenses assuming redemption	<R>$340</R>	<R>$ 636</R>	<R>$853</R>	<R>$1,752</R>
Expenses assuming no redemption	<R>$240</R>	<R>$ 536</R>	<R>$853</R>	<R>$1,752</R>

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing primarily in income- producing equity securities, including securities that are convertible into common stocks. The Fund's holdings ordinarily will be in value stocks of large and middle capitalization companies. The Adviser attempts to manage the Fund so that, on average, the Fund's portfolio yield is greater than the yield of the S&P 500 Index. A description of the various types of securities in which the Fund invests, and their risks, immediately follows the strategy discussion.

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

The Adviser's process for selecting equity investments attempts to identify high-quality, mid- to large-cap companies with high relative dividend yields that are likely to maintain and increase their dividends. Small, rapidly growing companies typically reinvest their earnings into expansion and therefore do not pay dividends. A company's dividend yield is high when it is higher than the current yield of the stock market. By investing in companies with high relative dividend yields, the Adviser seeks to reduce the downside risk and volatility of the Fund's portfolio and to purchase undervalued stocks that may significantly increase in price as the market recognizes the company's true value.

After identifying candidates through a screening process, the Adviser performs fundamental research and analysis to select stocks that exhibit the most promising long-term value for the Fund's portfolio, as well as securities that exhibit growth characteristics. In selecting securities, the Adviser focuses on the current financial condition of the issuing company, in addition to examining its business and product strength, earnings quality, competitive position, management expertise and sustainability of current growth trends. In addition to these factors, it looks at the issuing company's earnings quality and sustainability of current growth trends. Further, the Adviser considers current economic, financial market, and industry factors, which may affect the issuing company. The Adviser's key buy criteria favor companies operating within mature industries, with long operating histories, that are market leaders, with well-known brand names or market franchises, or with above average sales and strong cash flows that have efficient capital allocation processes.

Companies with similar characteristics may be grouped together in broad categories called sectors. The Adviser diversifies the Fund's investments, l imiting the Fund's risk exposure with respect to individual securities and industry sectors.

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

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The Fund may use derivative contracts and/or hybrid instruments to implement elements of its investment strategy. For example, the Fund may use derivative contracts and/or hybrid instruments to increase or decrease the allocation of the portfolio to securities, currencies or types of securities in which the Fund may invest directly. The Fund may also, for example, use derivative contracts to:

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• Obtain premiums from the sale of derivative contracts;
  

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• Realize gains from trading a derivative contract; or
  

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• Hedge against potential losses
  

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There can be no assurance that the Fund's use of derivative contracts or hybrid instruments will work as intended.

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Because the Fund refers to equity income 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 invest normally less than 80% of its assets in income producing equity investments.

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

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

American Depositary Receipts

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. 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.

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.

CONVERTIBLE SECURITIES

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

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

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 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.

Lower rated fixed-income securities are securities rated below investment- grade (i.e., BBB or lower) by a nationally recognized rating service. There is no minimum acceptable rating for a security to be purchased or held by the Fund.

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Derivative Contracts

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Derivative contracts are financial instruments that require payments based upon changes in the values of designated securities, commodities, currencies, indices, or other assets or instruments including other derivative contracts, (each a "Reference Instrument" and collectively, "Reference Instruments"). Each party to a derivative contract is referred to as a counterparty. Some derivative contracts require payments relating to an actual, future trade involving the Reference Instrument. These types of derivatives are frequently referred to as "physically settled" derivatives. Other derivative contracts require payments relating to the income or returns from, or changes in the market value of, a Reference Instrument. These types of derivatives are known as "cash settled" derivatives, since they require cash payments in lieu of delivery of the Reference Instrument.

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

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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.

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Depending on how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the Reference Instrument, derivative contracts may increase or decrease the Fund's exposure to the risks of the Reference Instrument, 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.

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Payment obligations arising in connection with derivative contracts are frequently required to be secured with collateral (in the case of OTC contracts) or margin (in the case of exchange-traded contracts, as previously noted). The Fund may not invest in a derivative contract if it is not permitted to own, invest in, or otherwise have economic exposure to the Reference Instrument (or, in the case of a Reference Instrument that is an index, the securities or derivatives that comprise the index). The Fund may trade in the following specific types and/or combinations of derivative contracts:

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Futures Contracts

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Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a Reference Instrument at a specified price, date and time. Entering into a contract to buy a Reference Instrument is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell a Reference Instrument is commonly referred to as selling a contract or holding a short position in the Reference Instrument. 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 (such as currency futures, index futures and security futures) as well as, currency forward contracts.

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OPTION CONTRACTS

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Option contracts (also called "options") are rights to buy or sell a Reference 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 Reference Instrument from the seller (writer) of the option. A put option gives the holder the right to sell the Reference Instrument 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 Reference Instruments. Options that are written on futures contracts will be subject to margin requirements similar to those applied to futures contracts. The Fund may buy or sell options on a Reference Instrument if it is permitted to own, invest, or otherwise have economic exposure to that instrument. The Fund is not required to own a Reference Instrument, in order to buy or sell an option on that Reference Instrument.

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SWAP CONTRACTS

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A swap contract (also known as a "swap") is a type of derivative contract in which two parties agree to pay each other (swap) the returns derived from Reference Instruments. Swaps do not always involve the delivery of the Reference Instruments by either party, and the parties might not own the Reference Instruments 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.

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Common types of swaps in which the Fund may invest include interest rate swaps, total return swaps, credit default swaps, currency swaps and caps and floors.

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Hybrid Instruments

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Hybrid instruments combine elements of two different kinds of securities or financial instruments (such as a derivative contract). Frequently, the value of a hybrid instrument is determined by reference to changes in the value of designated securities, commodities, currencies, indices, or other assets or instruments (each a, "Valuation Instrument"). Hybrid instruments can take on many forms including, but not limited to, the following forms . First, a common form of a hybrid instrument combines elements of a derivative contract with those of another security (typically a fixed-income security). In this case all or a portion of the interest or principal payable on a hybrid security is determined by reference to changes in the price of a Valuation Instrument. Second, a hybrid instrument may also combine elements of a fixed-income security and an equity security. Third, hybrid instruments may include convertible securities with conversion terms related to a Valuation Instrument.

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Depending on the type and terms of the hybrid instrument, its risks may reflect a combination of the risks of investing in securities, currencies and derivative contracts. Thus, an investment in a hybrid instrument may entail significant risks in addition to those associated with traditional securities or the Valuation Instrument. Hybrid instruments are also potentially more volatile than traditional securities or the Valuation Instrument. Moreover, depending on the structure of the particular hybrid, it may expose the Fund to leverage risks or carry liquidity r isks.

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FOREIGN SECURITIES

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Foreign securities are securities of issuers based outside the United States. The foreign securities in which the Fund invests may include common stocks or other equity securities, convertible securities or fixed income securities. The Fund considers an issuer to be based outside the United States if:

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

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

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

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

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ASSET SEGREGATION

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In order to secure its obligations in connection with derivative contracts or special transactions, the Fund will either own the underlying assets, enter into offsetting transactions or set aside cash or readily marketable securities. This requirement may cause the Fund to miss favorable trading opportunities, due to a lack of sufficient cash or readily marketable securities. This requirement may also cause the Fund to realize losses on offsetting or terminated derivative contracts or special transactions.

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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. The Fund may also invest in mortgage-backed, high-yield and emerging market securities primarily by investing in another investment company (which is not available for general investment by the public) that owns those securities and that is advised by an affiliate of the Adviser. The Fund may also invest in such securities directly. These other investment companies are managed independently of the Fund and may incur additional expenses. Therefore, any such investment by the Fund may be subject to duplicate expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the additional expenses.

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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.

RISKS RELATING TO INVESTING FOR VALUE

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

CREDIT RISKS

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

The credit risks of corporate debt securities vary widely among issuers. In addition, the credit risk of an issuer's debt securities may vary based on their priority for repayment. For example, higher-ranking (senior) 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. Typically, both senior and subordinated debt securities have a higher priority than redeemable preferred stock. Some of the fixed income securities in which the Fund may invest will be uncollateralized and subordinated to other debt that a corporation has outstanding.

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.

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.

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RISKS OF INVESTING IN DERIVATIVE CONTRACTS AND HYBRID INSTRUMENTS

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The Fund's use of derivative contracts and hybrid instruments 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 and hybrid instruments in which the Fund invests may not be correlated with changes in the value of the underlying Reference or Valuation Instruments or, if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivative contracts and hybrid instruments may be erroneously priced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Fourth, derivative contracts and hybrid instruments 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. Fifth, a common provision in over-the-counter (OTC) derivative contracts permits the counterparty to terminate any such contract between it and the Fund, if the value of the Fund's total net assets declines below a specified level over a given time period. Factors that may contribute to such a decline (which usually must be substantial) include significant shareholder redemptions and/or a marked decrease in the market value of the Fund's investments. Any such termination of the Fund's OTC derivative contracts may adversely affect the Fund (for example, by increasing losses and/or costs, and/or preventing the Fund from fully implementing its investment strategies). Finally, derivative contracts and hybrid instruments may also involve other risks described herein or in the Fund's SAI, such as stock market, interest rate, credit, currency, liquidity and leverage risks.

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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

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

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The Adviser attempts to manage currency risk b y 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.

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). When the Fund holds foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined as of the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) each day the NYSE is open. Th e Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

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The Fund generally values equity securities according to the last sale price or official closing price reported in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). The Fund generally values fixed-income securities according to prices furnished by an independent pricing service, except that fixed-income securities with remaining maturities of less than 60 days at the time of purchase are valued at amortized cost. Prices furnished by an independent pricing service are generally intended to be indicative of the bid prices currently offered to institutional investors for the securities. Fut ures 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. Investments in other open-end regulated investment companies are based on NAV.

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If prices are not available from an independent pricing service, securities and derivatives contracts 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 security or contract as provided by an investment dealer or other financial institution that deals in the security or contract.

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

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

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

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

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

Shares Offered	Minimum Initial/Subsequent Investment Amounts 1	Maximum Sales Charges
		Front-End Sales Charge 2	Contingent Deferred Sales Charge 3
Class A	$1,500/$100	5.50%	0.00%
Class B	$1,500/$100	None	5.50%
Class C	$1,500/$100	None	1.00%
Class F	$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 amount for Systematic Investment Programs (SIP) is $50. Financial intermediaries may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. To maximize your return and minimize the sales charges and marketing fees, purchases of Class B Shares are generally limited to $100,000 and purchases of Class C Shares are generally limited to $1,000,000. Purchases in excess of these limits may be made in Class A Shares. If your Shares are held on the books of the Fund in the name of a financial intermediary, you may be subject to rules of your financial intermediary that differ from those of the Fund. See "Purchase Limits on Class B and Class C Shares" below. 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."

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

Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares and Class F Shares. Among other ways, Class A Shares and Class F Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") On the other hand, Class B Shares do not have front-end sales charges, but the deferred sales charges imposed on redemptions of Class B Shares do not vary at all in relation to the amounts invested. Rather, these charges decrease with the passage of time (ultimately going to zero after seven years). Finally, Class C Shares do not have front-end sales charges, but do impose a contingent deferred sales charge only if redeemed within one year after purchase; however, the asset-based 12b-1 fees charged to Class C Shares are greater than those charged to Class A Shares and Class F Shares and comparable to those charged to Class B Shares.

You should also consider that the expense ratio for Class A Shares will be lower than that for Class B or Class C Shares. Thus, the fact that no front-end charges are ever imposed on purchases of Class B Shares and Class C Shares does not always make them preferable to Class A Shares.

SALES CHARGE WHEN YOU PURCHASE

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

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

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

REDUCING THE SALES CHARGE WITH BREAKPOINT DISCOUNTS

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

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

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

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

Larger Purchases

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

Concurrent and Accumulated Purchases

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

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Letter of Intent

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• signing a letter of intent to purchase a qualifying amount of Class A or Class F Shares within 13 months. ( Call your financial intermediary or the Fund for more information .) The Fund's custodian will hold Shares in escrow equal to the maximum applicable sales charge. If you complete the Letter of Intent, the Custodian will release the Shares in escrow to your account. If you do not fulfill the Letter of Intent, the Custodian will redeem the appropriate amount from the Shares held in escrow to pay the sales charges that were not applied to your purchase s.
  

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PURCHASE LIMITS ON CLASS B AND CLASS C SHARES

In order to maximize shareholder returns and minimize sales charges and marketing fees, an investor's purchases of Class B Shares are generally limited to $100,000 and an investor's purchases of Class C Shares are generally limited to $1,000,000. In applying the limit, the dollar amount of the current purchase is added to the product obtained by multiplying the maximum public offering price times the number of Class A, Class B, Class C, Class F and Class K shares of any Federated fund currently held in linked Qualifying Accounts. If the sum of these two amounts would equal or exceed the limit, then the current purchase order will not be processed. Instead, the Distributor will attempt to contact the investor or the investor's financial intermediary to offer the opportunity to convert the order to Class A Shares. If your Shares are held on the books of the Fund in the name of a financial intermediary, you may be subject to rules of your financial intermediary that differ from those of the Fund.

ELIMINATING THE SALES CHARGE

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

• within 120 days of redeeming Shares of an equal or greater amount;
  
• through a financial intermediary that did not receive a dealer reallowance on the purchase;
  
• with reinvested dividends or capital gains;
  
• as a shareholder that originally became a shareholder of a Federated fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;
  
• as a Federated Life Member (Federated shareholders who originally were issued shares through the "Liberty Account," which was an account for the Liberty Family of Funds on February 28, 1987, or who invested through an affinity group prior to August 1, 1987, into the Liberty Account) (Class A Shares only);
  
• as a Director, employee or former employee of the Fund, the Adviser, the Distributor and their affiliates, an employee of any financial intermediary that sells Shares according to a sales agreement with the Distributor, an immediate family member of these individuals or a trust, pension or profit-sharing plan for these individuals; or
  
• pursuant to the exchange privilege.
  

The sales charge will not be eliminated if you purchase Shares of the Fund through an exchange of shares of Liberty U.S. Government Money Market Trust unless your Liberty shares were acquired through an exchange of shares on which the sales charge had previously been paid.

SALES CHARGE WHEN YOU REDEEM

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

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

• Shares that are not subject to a CDSC; and
  
• 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.

Class A Shares:
If you make a purchase of Class A Shares in the amount of $1 million or more and your financial intermediary received an advance commission on the sale, you will pay a 0.75% CDSC on any such shares redeemed within 24 months of the purchase.
Class 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 1.00% CDSC if you redeem Shares within 12 months of the purchase date.
Class F Shares:
Purchase Amount	Shares Held	CDSC
Up to $2 million	4 years or less	1.00%
$2 million -but less than $5 million	2 years or less	0.50%
$5 million or more	1 year or less	0.25%

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

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

• following the death of the last surviving shareholder on the account or your post-purchase disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986 (the beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder on the account);
  
• representing minimum required distributions from an Individual Retirement Account or other retirement plan to a shareholder who has attained the age of 70-1/2;
  
• purchased within 120 days of a previous redemption of Shares, to the extent that the value of the Shares purchased was equal to or less than the value of the previous redemption;
  
• purchased by Directors, employees of the Fund, the Adviser, the Distributor and their affiliates, by employees of a financial intermediary that sells Shares according to a sales agreement with the Distributor, by the immediate family members of the above persons, and by trusts, pension or profit-sharing plans for the above persons;
  
• purchased through a financial intermediary that did not receive an advance commission on the purchase;
  
• purchased with reinvested dividends or capital gains;
  
• redeemed by the Fund when it closes an account for not meeting the minimum balance requirements;
  
• purchased pursuant to the exchange privilege if the Shares were held for the applicable CDSC holding period (the holding period on the shares purchased in the exchange will include the holding period of the shares sold in the exchange);
  

Class B Shares only

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

Class F Shares only

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• representing a total or partial distribution from a qualified plan, which does not include account transfers, rollovers, or redemptions for the purpose of reinvestment. For these purposes, qualified plan does not include an Individual Retirement Account, Keogh Plan or custodial account following retirement .
  

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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 F Shares, each representing interests in a single portfolio of securities .

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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 financial intermediaries. Under the Distributor's Contract with the Fund, the Distributor offers Shares on a continuous, best-efforts basis. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

Payments to Financial Intermediaries

The Fund and its affiliated service providers may pay fees as described below to financial intermediaries (such as broker-dealers, banks, investment advisers or third-party administrators) whose customers are shareholders of the Fund.

FRONT-END SALES CHARGE REALLOWANCES

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The Distributor receives a front-end sales charge on certain Share sales. the Distributor pays a portion of this charge to financial intermediaries that are eligible to receive it (the "Deale r REallowance") and retains any remaining portion of the front-end sales charge.

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When a financial intermediary's customer purchases Shares, the financial intermediary may receive a Dealer Realowance as follows:

Class A Shares:
Purchase Amount	Dealer Reallowance as a Percentage of Public Offering Price
Less than $50,000	5.00%
$50,000 but less than $100,000	4.00%
$100,000 but less than $250,000	3.25%
$250,000 but less than $500,000	2.25%
$500,000 but less than $1 million	1.80%
$1 million or greater	0.00%
Class F Shares:
Less than $1 million	1.00%
$1 million or greater	1.00%

ADVANCE COMMISSIONS

When a financial intermediary's customer purchases Shares, the financial intermediary may receive an advance commission as follows:

Class A Shares (for purchases over $1 million):
Purchase Amount	Advance Commission as a Percentage of 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:
All Purchase Amounts	1.00%
Class F Shares:
Purchase Amount
Less than $2 million	1.00%
$2 million but less than $5 million	0.50%
$5 million or greater	0.25%

RULE 12B-1 FEES

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees of up to 0.50% of average net assets to the Distributor for the sale, distribution, administration and customer servicing of the Fund's Class A Shares, up to 0.75% of average net assets to the Distributor for the sale, distribution, administration and customer servicing of the Fund's Class B and Class C Shares and up to 0.25% of average net assets to the Distributor for the sale, distribution, administration and customer servicing of the Fund's Class F Shares. When the Distributor receives Rule 12b-1 Fees, it may pay some or all of them to financial intermediaries whose customers purchase Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees.

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SERVICE FEES

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The Fund may pay Service Fees of up to 0.25% of average net assets to financial intermediaries or to Federated Shareholder Services Company (FSSC), a subsidiary of Federated, for providing services to shareholders and maintaining shareholder accounts. Under certain agreements, rather than paying financial intermediaries directly, the Fund may pay Service Fees to FSSC and FSSC will use the fees to compensate financial intermediaries. If a financial intermediary receives Service Fees on an account, it is not eligible to also receive Account Administration Fees on that same account.

ACCOUNT ADMINISTRATION FEES

The Fund may pay Account Administration Fees of up to 0.25% of average net assets to banks that are not registered as broker-dealers or investment advisers for providing administrative services to the Funds and shareholders. If a financial intermediary receives Account Administration Fees on an account, it is not eligible to also receive Service Fees or Recordkeeping Fees on that same account.

RECORDKEEPING FEES

The Fund may pay Recordkeeping Fees on an average net assets basis or on a per account per year basis to financial intermediaries for providing recordkeeping services to the Funds and shareholders. If a financial intermediary receives Recordkeeping Fees on an account, it is not eligible to also receive Account Administration Fees or Networking Fees on that same account.

NETWORKING FEES

The Fund may reimburse Networking Fees on a per account per year basis to financial intermediaries for providing administrative serv ices to the Funds and shareholders on certain non-omnibus accounts. If a financial intermediary receives Networking Fees on an account, it is not eligible to also receive Recordkeeping Fees on that same account.

ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES

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

These payments are negotiated and may be based on such factors as the number or value of Shares that the financial intermediary sells or may sell; the value of client assets invested; or the type and nature of services or support furnished by the financial intermediary. These payments may be in addition to payments made by the Fund to the financial intermediary under a Rule 12b-1 Plan and/or Service Fees arrangement. In connection with these payments, the financial intermediary may elevate the prominence or profile of the Fund and/or other Federated funds within the financial intermediary's organization by, for example, placement on a list of preferred or recommended funds, and/or granting the Distributor preferential or enhanced opportunities to promote the funds in various ways within the financial intermediary's organization. You can ask your financial intermediary for information about any payments it receives from the Distributor or the Fund and any services provided.

How to Purchase Shares

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

THROUGH A FINANCIAL INTERMEDIARY

• Establish an account with the financial intermediary; and
  
• Submit your purchase order to the financial intermediary 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 financial intermediary 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.
  

Financial intermediaries should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

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

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

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

By Wire

Send your wire to:

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

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

By Check

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

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

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

The Federated Funds
30 Dan Road
Canton, MA 02021

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

THROUGH AN EXCHANGE

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

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 financial intermediary.

BY AUTOMATED CLEARING HOUSE (ACH)

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

RETIREMENT INVESTMENTS

You may purchase Shares as retirement investments (such as qualified plans and IRAs or transfer or rollover of assets). Call your financial intermediary 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 a financial intermediary if you purchased Shares through a financial intermediary; or
  
• directly from the Fund if you purchased Shares directly from the Fund.
  

Shares of the Fund may be redeemed for cash or exchanged for shares of the same class of other Federated funds on days on which the Fund computes its NAV. Redemption requests may be made by telephone or in writing.

THROUGH A FINANCIAL INTERMEDIARY

Submit your redemption or exchange request to your financial intermediary 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 financial intermediary.

DIRECTLY FROM THE FUND

By Telephone

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

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

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B y Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

The Federated Funds
30 Dan Road
Canton, MA 02021

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 financial intermediary or the Fund if you need special instructions.

Signature Guarantees

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

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

• to allow your purchase to clear (as discussed below);
  
• during periods of market volatility;
  
• when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets; or
  
• during any period when the Federal Reserve wire or applicable Federal Reserve banks are closed, other than customary weekend and holiday closings.
  

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If you request a redemption of Shares recently purchased by check (including a cashier's check or certified check), money order, bank draft or ACH, your redemption proceeds may not be made available up to seven calendar days to allow the Fund to collect payment on the instrument used to purchase such Shares. If the purchase instrument does not clear, your purchase order will be canceled and you will be responsible for any losses incurred by the Fund as a result of your canceled orde r.

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In addition, the right of redemption ma y be suspended, or the payment of proceeds may be delayed, during any period:

• when the NYSE is closed, other than customary weekend and holiday closings;
  
• when trading on the NYSE is restricted, as determined by the SEC; or
  
• in which an emergency exists, as determined by the SEC, so that disposal of the Fund's investments or determination of its NAV is not reasonably practicable.
  

You will not accrue interest or dividends on uncashed redemption 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 with holding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGE

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

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

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

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

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 financial intermediary 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.

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

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Systematic Withdrawal Program (SWP) on Class B Shares

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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
  

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• 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.

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

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments. Dividends may also be reinvested without sales charges in shares of any class of any other Federated fund of which you are already a shareholder.

If you have elected to receive dividends and/or capital gain distributions in cash, and your check is returned by the postal or other delivery service as "undeliverable," or you do not respond to mailings from Federated with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and capital gains reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution checks.

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 financial intermediary or the Fund for information concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable at different rates depending on the source of dividend 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.

FREQUENT TRADING POLICIES

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

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

The Fund's frequent trading restrictions do not apply to purchases and sales of Fund Shares by other Federated funds. These funds impose the same frequent trading restrictions as the Fund at their shareholder level. In addition, allocation changes of the investing Federated fund are monitored, and the managers of the recipient fund must determine that there is no disruption to their management activity. The intent of this exception is to allow investing fund managers to accommodate cash flows that result from non-abusive trading in the investing fund, without being stopped from such trading because the aggregate of such trades exceeds the monitoring limits. Nonetheless, as with any trading in Fund Shares, purchases and redemptions of Fund Shares by other Federated funds could adversely affect the management of the Fund's portfolio and its performance.

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

PORTFOLIO HOLDINGS INFORMATION

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

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

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

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Who Manages the Fund?

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

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The Adviser and other subsidiaries of Federated advise approximately 148 equity, fixed-income, and money market mutual funds as well as a variety of customized separately managed accounts, which totaled approximately $ 237 billion in assets as o f December 31 , 2006. Federated was established in 1955 and is one of the largest investment managers in the United States with approximately 1, 243 employees. Federated provides investment products to nearly 5,500 investment professionals and institutio ns.

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PORTFOLIO MANAGEMENT INFORMATION

John L. Nichol

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John L. Nichol has been the Fund's Portfolio Manager since October 2002. Mr. Nichol joined Federated in September 2000 as an Assistant Vice
President/Senior Investment Analyst. He has been a Portfolio Manager since December 2000 and was named a Vice President of the Fund's Adviser in July 2001. Mr. Nichol served as a portfolio manager and analyst for the Public Employees Retirement System of Ohio from 1992 through August 2000. Mr. Nichol is a Chartered Financial Analyst. He received his M.B.A. with an emphasis in Finance and Management and Information Science from the Ohio State University.

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David P. Gilmore

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David P. Gilmore has been the Fund's Portfolio Manager since November 2006. 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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The Fund's SAI provides additional information about the Portfolio Manager's compensation, management of other accounts, and ownership of securities in the Fund.

ADVISORY FEES

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

A discussion of the Board's review of the Fund's investment advisory contract is available in the Fund's Annual Report dated November 30, 2006.

Legal Proceedings

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Since October 2003, Federated and related entities (collectively, "Federated"), and various Federated funds ("Funds"), have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Funds from the SEC, the Office of the New York State Attorney General ("NYAG"), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. Specifically, the SEC and NYAG settled proceedings against three Federated subsidiaries involving undisclosed market timing arrangements and late trading. The SEC made findings: that Federated Investment Management Company ("FIMC"), an SEC-registered investment adviser to various Funds, and Federated Securities Corp., an SEC-registered broker-dealer and distributor for the Funds, violated provisions of the Investment Advisers Act and Investment Company Act by approving, but not disclosing, three market timing arrangements, or the associated conflict of interest between FIMC and the funds involved in the arrangements, either to other fund shareholders or to the funds' board; and that Federated Shareholder Services Company, formerly an SEC-registered transfer agent, failed to prevent a customer and a Federated employee from late trading in violation of provisions of the Investment Company Act. The NYAG found that such conduct violated provisions of New York State law. Federated entered into the settlements without admitting or denying the regulators' findings. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay disgorgement and a civil money penalty in the aggregate amount of an additional $72 million and, among other things, agreed that it would not serve as investment adviser to any registered investment company unless (i) at least 75% of the fund's directors are independent of Federated; (ii) the chairman of each such fund is independent of Federated ; (iii) no action may be taken by the fund's board or any committee thereof unless approved by a majority of the independent trustees of the fund or committee, respectively ; and (iv) the fund appoints a "senior officer" who reports to the independent trustees and is responsible for monitoring compliance by the fund with applicable laws and fiduciary duties and for managing the process by which management fees charged to a fund are approved. The settlements are described i n Federated's announcement which, along with previous press releases and related communications on those matters, is available in the "About Us" secti on of Federated's website at FederatedInvestors.com ..

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

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

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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 Ernst & Young LLP, an independent registered public accounting firm, whose report, along with the Fund's audited financial statements, is included in the Annual Report.

Finan cial Highlights - Class A Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,
	2006		2005		2004
Net Asset Value, Beginning of Period	$17.77		$17.10		$15.05
Income From Investment Operations:
Net investment income	0.49		0.42		0.33
Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions	3.36		0.61		2.09
TOTAL FROM INVESTMENT OPERATIONS	3.85		1.03		2.42
Less Distributions:
Distributions from net investment income	(0.45	)	(0.36	)	(0.37	)
Net Asset Value, End of Period	$21.17		$17.77		$17.10
Total Return 2	21.95	%	6.09	% 3	16.25	% 4
Ratios to Average Net Assets:
Net expenses	1.14	% 6	1.11	%	1.13	% 6
Net investment income	2.56	%	2.35	%	2.05	%
Expense waiver/reimbursement 8	0.00	% 9	0.03	% 9	0.00	% 9
Supplemental Data:
Net assets, end of period (000 omitted)	$786,606		$636,219		$643,279
Portfolio turnover	60	%	33	%	75	%

1 The Fund changed its fiscal year end from March 31 to November 30.

2 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year, if any, are not annualized.

3 During the year ended November 30, 2005, the Fund was reimbursed by the shareholder services provider, which had an impact of 0.02% on the total returns.

4 During the year ended November 30, 2004, the Fund was reimbursed by the Adviser, which had an impact of 0.06% on the total return.

5 During the period ended November 30, 2003, the Fund was reimbursed by the Adviser for certain losses on investments, which had an impact of less than 0.01% on the total return.

6 The net expense ratios are calculated without reduction for fees paid indirectly for directed brokerage arrangements. The net expense ratios would be 1.13%, 1.10% and 1.12% for the years ended November 2006, 2005 and 2004, respectively, 1.16% for the period ended November 30, 2003, and 1.15% for the year ended March 31,2003, after taking into account these expense reductions.

7 Computed on an annualized basis.

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

9 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2006, which can be obtained free of charge.

Period Ended		Year Ended March 31,
11/30/2003	1	2003		2002
$12.21		$16.66		$16.96
0.23		0.27		0.25
2.81		(4.48	)	(0.26	)
3.04		(4.21	)	(0.01	)
(0.20	)	(0.24	)	(0.29	)
$15.05		$12.21		$16.66
24.99	% 5	(25.36	)%	(0.07	)%
1.18	% 6,7	1.17	% 6	1.10	%
2.35	% 7	1.93	%	1.49	%
0.00	% 7,9	0.00	% 9	0.00	% 9
$616,835		$549,359		$923,647
44	%	123	%	86	%

Financial Highlights - Class B Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,
	2006		2005		2004
Net Asset Value, Beginning of Period	$17.76		$17.09		$15.04
Income From Investment Operation:
Net investment income	0.37		0.28		0.22
Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions	3.33		0.61		2.08
TOTAL FROM INVESTMENT OPERATIONS	3.70		0.89		2.30
Less Distributions:
Distributions from net investment income	(0.30	)	(0.22	)	(0.25	)
Net Asset Value, End of Period	$21.16		$17.76		$17.09
Total Return 2	21.03	%	5.26	%	15.39	% 3
Ratios to Average Net Assets:
Net expenses	1.89	% 5	1.89	% 5	1.89	% 5
Net investment income	1.66	%	1.54	%	1.31	%
Expense waiver/reimbursement 7	0.00	% 8	0.00	% 8	0.00	% 8
Supplemental Data:
Net assets, end of period (000 omitted)	$229,906		$328,918		$513,071
Portfolio turnover	60	%	33	%	75	%

1 The Fund changed its fiscal year end from March 31 to November 30.

2 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year, if any, are not annualized.

3 During the year ended November 30, 2004, the Fund was reimbursed by the Adviser, which had an impact of 0.07% on the total return.

4 During the period ended November 30, 2003, the Fund was reimbursed by the Adviser for certain losses on investments, which had an impact of less than 0.01% on the total return.

5 The net expense ratios are calculated without reduction for fees paid indirectly for directed brokerage arrangements. The net expense ratios would be 1.88%, 1.88% and 1.87% for the years ended November 2006, 2005 and 2004, respectively, 1.91% for the period ended November 30, 2003, and 1.90% for the year ended March 31, 2003, after taking into account these expense reductions.

6 Computed on an annualized basis.

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

8 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2006, which can be obtained free of charge.

Period Ended		Year Ended March 31,
11/30/2003	1	2003		2002
$12.21		$16.65		$16.96
0.16		0.17		0.12
2.80		(4.47	)	(0.27	)
2.96		(4.30	)	(0.15	)
(0.13	)	(0.14	)	(0.16	)
$15.04		$12.21		$16.65
24.29	% 4	(25.89	)%	(0.88	)%
1.93	% 5,6	1.92	% 5	1.85	%
1.60	% 6	1.16	%	0.74	%
0.00	% 6,8	0.00	% 8	0.00	% 8
$603,043		$551,204		$1,021,453
44	%	123	%	86	%

Financial Highlights - Class C Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,
	2006		2005		2004
Net Asset Value, Beginning of Period	$17.77		$17.10		$15.05
Income From Investment Operations:
Net investment income	0.35		0.28		0.22
Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions	3.36		0.62		2.08
TOTAL FROM INVESTMENT OPERATIONS	3.71		0.90		2.30
Less Distributions:
Distributions from net investment income	(0.30	)	(0.23	)	(0.25	)
Net Asset Value, End of Period	$21.18		$17.77		$17.10
Total Return 2	21.09	%	5.27	%	15.38	% 3
Ratios to Average Net Assets:
Net expenses	1.89	% 5	1.89	% 5	1.88	% 5
Net investment income	1.77	%	1.57	%	1.31	%
Expense waiver/reimbursement 7	0.00	% 8	0.00	% 8	0.00	% 8
Supplemental Data:
Net assets, end of period (000 omitted)	$74,174		$71,223		$84,177
Portfolio turnover	60	%	33%		75	%

1 The Fund changed its fiscal year end from March 31 to November 30.

2 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year, if any, are not annualized.

3 During the year ended November 30, 2004, the Fund was reimbursed by the Adviser, which had an impact of 0.07% on the total return.

4 During the year ended November 30, 2003, the Fund was reimbursed by the Adviser for certain losses on investments, which had an impact of less than 0.01% on the total return.

5 The net expense ratios are calculated without reduction for fees paid indirectly for directed brokerage arrangements. The net expense ratios would be 1.88%, 1.88% and 1.87% for the years ended November 2006, 2005, and 2004, respectively, 1.91% for the period ended November 30, 2003, and 1.90% for the year ended March 31, 2003, after taking into account these expense reductions.

6 Computed on an annualized basis.

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

8 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2006, which can be obtained free of charge.

Period Ended		Year Ended March 31,
11/30/2003	1	2003		2002
$12.21		$16.66		$16.96
0.16		0.17		0.12
2.81		(4.48	)	(0.26	)
2.97		(4.31	)	(0.14	)
(0.13	)	(0.14	)	(0.16	)
$15.05		$12.21		$16.66
24.37	% 4	(25.94	)	(0.83	)%
1.93	% 5,6	1.92	% 5	1.85	%
1.60	% 6	1.16	%	0.74	%
0.00	% 6,8	0.00	% 8	0.00	% 8
$92,145		$85,242		$160,217
44	%	123	%	86	%

Financial Highlights - Class F Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended November 30,
	2006		2005		2004
Net Asset Value, Beginning of Period	$17.78		$17.12		$15.06
Income From Investment Operations:
Net investment income	0.44		0.37		0.30
Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions	3.37		0.60		2.09
TOTAL FROM INVESTMENT OPERATIONS	3.81		0.97		2.39
Less Distributions:
Distributions from net investment income	(0.40	)	(0.31	)	(0.33	)
Net Asset Value, End of Period	$21.19		$17.78		$17.12
Total Return 2	21.69	%	5.73	%	16.01	% 3
Ratios to Average Net Assets:
Net expenses	1.38	% 5	1.39	% 5	1.38	% 5
Net investment income	2.32	%	2.07	%	1.80	%
Expense waiver/reimbursement 7	0.00	% 8	0.00	% 8	0.00	% 8
Supplemental Data:
Net assets, end of period (000 omitted)	$47,464		$38,937		$45,229
Portfolio turnover	60	%	33	%	75	%

1 The Fund changed its fiscal year end from March 31 to November 30.

2 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year, if any, are not annualized.

3 During the year ended November 30, 2004, the Fund was reimbursed by the Adviser, which had an impact of 0.06% on the total return.

4 During the year ended November 30, 2003, the Fund was reimbursed by the Adviser for certain losses on investments, which had an impact of less than 0.01% on the total return.

5 The net expense ratios are calculated without reduction for fees paid indirectly for directed brokerage arrangements. The net expense ratios would be 1.37%, 1.38% and 1.37% for the year ended November 30, 2006, 2005 and 2004, respectively, 1.41% for the period ended November 30, 2003, and 1.40% for the year ended March 31,2003, after taking into account these expense reductions.

6 Computed on an annualized basis.

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

8 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated November 30, 2006, which can be obtained free of charge.

Period Ended		Year Ended March 31,
11/30/2003	1	2003		2002
$12.22		$16.67		$16.97
0.20		0.24		0.21
2.81		(4.48	)	(0.27	)
3.01		(4.24	)	(0.06	)
(0.17	)	(0.21	)	(0.24	)
$15.06		$12.22		$16.67
24.75	% 4	(25.54	)%	(0.32	)%
1.43	% 5,6	1.42	% 5	1.35	%
2.10	% 6	1.66	%	1.24	%
0.00	% 6,8	0.00	% 8	0.00	% 8
$49,192		$43,366		$81,067
44	%	123	%	86	%

Appendix A: Hypothetical Investment and Expense In formation

<R>

The following charts provide additional hypothetical information about the effect of the Funds' expenses, including investment advisory fees and other Fund costs, on the Funds' assumed returns over a 10-year period. Each chart shows the estimated expenses that would be incurred in respect of a hypothetical investment of $10,000, assuming a 5% retu rn each year, and no redemption of Shares. Each chart also assumes that the Funds' annual expense ratio stays the same throughout the 10-year period (except for Class B Shares, which convert to Class A Shares after you have held them for eight years) and that all dividends and distributions are reinvested. The annual expe nse ratio used in each c hart is the same as stated in the "Fees and Expenses" table of this prospectus (and thus may not reflect any fee waiver or expense reimbursement currently in effect). The maximum amount of any sales charge that might be imposed on the purchase of Shares (and deducted from the hypothetical initial investment of $10,000; the "Front-End Sales Charge") is reflected in the "Hypothetical Expenses" column. The hypothetical investment information does not reflect the effect of charges (if any) normally applicable to redemptions of Shares (e.g., deferred sales charges, redemption fees). Mutual fund returns, as well as fees and expenses, may fluctuate over time, and your actual investment returns and total expenses may be higher or lower than those shown below.

</R>
<R>

FEDERATED E QUITY INCOME FUND: CLASS A
ANNUAL EXPENSE RATIO: 1.65%
MAXIMUM FRONT-END SALES CHARGE: 5.50%

</R>

<R>Year</R>	<R>Hypothetical Beginning Investment</R>	<R>Hypothetical Performance Earnings</R>	<R>Investment After Returns</R>	<R>Hypothetical Expenses </R>	<R>Hypothetical Ending Investment</R>
<R>1</R>	<R>$10,000.00</R>	<R>$ 472.50</R>	<R>$ 9,922.50</R>	<R>$ 708.54</R>	<R>$ 9,766.58</R>
<R>2</R>	<R>$ 9,766.58</R>	<R>$ 488.33</R>	<R>$10,254.91</R>	<R>$ 163.85</R>	<R>$10,093.76</R>
<R>3</R>	<R>$10,093.76</R>	<R>$ 504.69</R>	<R>$10,598.45</R>	<R>$ 169.34</R>	<R>$10,431.90</R>
<R>4</R>	<R>$10,431.90</R>	<R>$ 521.60</R>	<R>$10,953.50</R>	<R>$ 175.01</R>	<R>$10,781.37</R>
<R>5</R>	<R>$10,781.37</R>	<R>$ 539.07</R>	<R>$11,320.44</R>	<R>$ 180.87</R>	<R>$11,142.55</R>
<R>6</R>	<R>$11,142.55</R>	<R>$ 557.13</R>	<R>$11,699.68</R>	<R>$ 186.93</R>	<R>$11,515.83</R>
<R>7</R>	<R>$11,515.83</R>	<R>$ 575.79</R>	<R>$12,091.62</R>	<R>$ 193.19</R>	<R>$11,901.61</R>
<R>8</R>	<R>$11,901.61</R>	<R>$ 595.08</R>	<R>$12,496.69</R>	<R>$ 199.67</R>	<R>$12,300.31</R>
<R>9</R>	<R>$12,300.31</R>	<R>$ 615.02</R>	<R>$12,915.33</R>	<R>$ 206.35</R>	<R>$12,712.37</R>
<R>10</R>	<R>$12,712.37</R>	<R>$ 635.62</R>	<R>$13,347.99</R>	<R>$ 213.27</R>	<R>$13,138.23</R>
<R>Cumulative</R>		<R>$5,504.83</R>		<R>$2,397.02</R>

<R>

FEDERATED EQUITY INCOME FUND: CLASS B
ANNUAL EXPENSE RATIO: 1.89%

</R>

<R>Year</R>	<R>Hypothetical Beginning Investment</R>	<R>Hypothetical Performance Earnings</R>	<R>Investment After Returns</R>	<R>Hypothetical Expenses </R>	<R>Hypothetical Ending Investment</R>
<R>1</R>	<R>$10,000.00</R>	<R>$ 500.00</R>	<R>$10,500.00</R>	<R>$ 191.94</R>	<R>$10,311.00</R>
<R>2</R>	<R>$10,311.00</R>	<R>$ 515.55</R>	<R>$10,826.55</R>	<R>$ 197.91</R>	<R>$10,631.67</R>
<R>3</R>	<R>$10,631.67</R>	<R>$ 531.58</R>	<R>$11,163.25</R>	<R>$ 204.06</R>	<R>$10,962.31</R>
<R>4</R>	<R>$10,962.31</R>	<R>$ 548.12</R>	<R>$11,510.43</R>	<R>$ 210.41</R>	<R>$11,303.24</R>
<R>5</R>	<R>$11,303.24</R>	<R>$ 565.16</R>	<R>$11,868.40</R>	<R>$ 216.95</R>	<R>$11,654.77</R>
<R>6</R>	<R>$11,654.77</R>	<R>$ 582.74</R>	<R>$12,237.51</R>	<R>$ 223.70</R>	<R>$12,017.23</R>
<R>7</R>	<R>$ 12,017.23</R>	<R>$ 600.86</R>	<R>$12,618.09</R>	<R>$ 230.66</R>	<R>$12,390.97</R>
<R>8</R>	<R>$12,390.97</R>	<R>$ 619.55</R>	<R>$13,010.52</R>	<R>$ 237.83</R>	<R>$12,776.33</R>
<R>Converts from Class B to Class A</R>				<R>Annual Expense Ratio: 1.65%</R>
<R>9</R>	<R>$12,776.33</R>	<R>$ 638.82</R>	<R>$13,415.15</R>	<R>$ 214.34</R>	<R>$13,204.34</R>
<R>10</R>	<R>$13,204.34</R>	<R>$ 660.22</R>	<R>$13,864.56</R>	<R>$ 221.52</R>	<R>$13,646.69</R>
<R>Cumulative</R>		<R>$5,762.60</R>		<R>$2,149.32</R>

<R>

FEDERATED EQUITY INCOME FUND: CLASS C
ANNUAL EXPENSE RATIO: 1.90%
MAXIMUM FRONT-END SALES CHARGE: 0.00%

</R>

<R>Year</R>	<R>Hypothetical Beginning Investment</R>	<R>Hypothetical Performance Earnings</R>	<R>Investment After Returns</R>	<R>Hypothetical Expenses </R>	<R>Hypothetical Ending Investment</R>
<R>1</R>	<R>$10,000.00</R>	<R>$ 500.00</R>	<R>$10,500.00</R>	<R>$ 192.95</R>	<R>$10,310.00</R>
<R>2</R>	<R>$10,310.00</R>	<R>$ 515.50</R>	<R>$10,825.50</R>	<R>$ 198.93</R>	<R>$10,629.61</R>
<R>3</R>	<R>$10,629.61</R>	<R>$ 531.48</R>	<R>$11,161.09</R>	<R>$ 205.09</R>	<R>$10,959.13</R>
<R>4</R>	<R>$10,959.13</R>	<R>$ 547.96</R>	<R>$11,507.09</R>	<R>$ 211.45</R>	<R>$11,298.86</R>
<R>5</R>	<R>$11,298.86</R>	<R>$ 564.94</R>	<R>$11,863.80</R>	<R>$ 218.01</R>	<R>$11,649.12</R>
<R>6</R>	<R>$11,649.12</R>	<R>$ 582.46</R>	<R>$12,231.58</R>	<R>$ 224.76</R>	<R>$12,010.24</R>
<R>7</R>	<R>$12,010.24</R>	<R>$ 600.51</R>	<R>$12,610.75</R>	<R>$ 231.73</R>	<R>$12,382.56</R>
<R>8</R>	<R>$12,382.56</R>	<R>$ 619.13</R>	<R>$13,001.69</R>	<R>$ 238.92</R>	<R>$12,766.42</R>
<R>9</R>	<R>$12,766.42</R>	<R>$ 638.32</R>	<R>$13,404.74</R>	<R>$ 246.32</R>	<R>$13,162.18</R>
<R>10</R>	<R>$13,162.18</R>	<R>$ 658.11</R>	<R>$13,820.29</R>	<R>$ 253.96</R>	<R>$13,570.21</R>
<R>Cumulative</R>		<R>$5,758.41</R>		<R>$2,222.12</R>

<R>

FEDERATED EQUITY INCOME FUND: CLASS F
ANNUAL EXPENSE RATIO: 1.39%
MAXIMUM FRONT-END SALES CHARGE: 1.00%

</R>

<R>Year</R>	<R>Hypothetical Beginning Investment</R>	<R>Hypothetical Performance Earnings</R>	<R>Investment After Returns</R>	<R>Hypothetical Expenses </R>	<R>Hypothetical Ending Investment</R>
<R>1</R>	<R>$10,000.00</R>	<R>$ 495.00</R>	<R>$10,395.00</R>	<R>$ 240.09</R>	<R>$10,257.39</R>
<R>2</R>	<R>$ 10,257.39</R>	<R>$ 512.87</R>	<R>$10,770.26</R>	<R>$ 145.15</R>	<R>$10,627.68</R>
<R>3</R>	<R>$ 10,627.68</R>	<R>$ 531.38</R>	<R>$11,159.06</R>	<R>$ 150.39</R>	<R>$11,011.34</R>
<R>4</R>	<R>$11,011.34</R>	<R>$ 550.57</R>	<R>$11,561.91</R>	<R>$ 155.82</R>	<R>$11,408.85</R>
<R>5</R>	<R>$11,408.85</R>	<R>$ 570.44</R>	<R>$11,979.29</R>	<R>$ 161.45</R>	<R>$11,820.71</R>
<R>6</R>	<R>$11,820.71</R>	<R>$ 591.04</R>	<R>$12,411.75</R>	<R>$ 167.27</R>	<R>$ 12,247.44</R>
<R>7</R>	<R>$ 12,247.44</R>	<R>$ 612.37</R>	<R>$12,859.81</R>	<R>$ 173.31</R>	<R>$12,689.57</R>
<R>8</R>	<R>$12,689.57</R>	<R>$ 634.48</R>	<R>$13,324.05</R>	<R>$ 179.57</R>	<R>$ 13,147.66</R>
<R>9</R>	<R>$ 13,147.66</R>	<R>$ 657.38</R>	<R>$13,805.04</R>	<R>$ 186.05</R>	<R>$13,622.29</R>
<R>10</R>	<R>$13,622.29</R>	<R>$ 681.11</R>	<R>$14,303.40</R>	<R>$ 192.77</R>	<R>$14,114.05</R>
<R>Cumulative</R>		<R>$5,836.64</R>		<R>$1,751.87</R>

<R>

A Statement of Additional Information (SAI) dated February 1, 2007, 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 Se mi-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. The SAI contains a description of the Fund's policies and procedures with respect to the disclosure of its portfolio securities. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your financial intermediary or the Fund at 1-800-341-7400.

</R>

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

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

Investment Company Act File No. 811-4743

Federated
World-Class Investment Manager

Federated Equity Income Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Contact us at FederatedInvestors.com
or call 1-800-341-7400.

Federated Securities Corp., Distributor

Cusip 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407

<R>

G00492-01 (1/ 07)

</R>

Federated is a registered mark of Federated Investors, Inc. 2007 (c)Federated Investors, Inc.

FEDERATED EQUITY INCOME FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

<R>

FEBRUARY 1, 2007

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Equity Income Fund, Inc.
(Fund), dated February 1, 2007.

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.

</R>





                                         CONTENTS
                                         How is the Fund Organized?............2
                                         Securities in Which the Fund Invests...
                                         What Do Shares Cost?................
                                         How is the Fund Sold?..................
                                         Exchanging Securities for Shares.......
                                         Subaccounting Services.................
                                         Redemption in Kind.....................
                                         Account and Share Information..........
                                         Tax Information........................
                                         Who Manages and Provides Services to
                                         the Fund?..............................
                                         How Does the Fund Measure Performance?.
                                         Who is Federated Investors, Inc.?......
                                         Financial Information..................
                                         Investment Ratings.....................
                                         Addresses..............................
                                         Appendix...............................












                               - 1 -















HOW IS THE FUND ORGANIZED?

The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on July 29, 1986.

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



SECURITIES IN WHICH THE FUND INVESTS

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


SECURITIES DESCRIPTIONS AND TECHNIQUES

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


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


PREFERRED STOCKS
Holders of preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments to common stockholders. Some
preferred stocks also participate in dividends and distributions paid on common
stock. The issuer may in certain circumstances redeem the preferred stock. The
Fund may also treat such redeemable preferred stock as a fixed income security.


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

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


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


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

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

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


AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity (GSE) acting under federal authority. Some GSE
securities are supported by the full faith and credit of the United States.
These include the Government National Mortgage Association, Small Business
Administration, Farm Credit System Financial Assistance Corporation, Farmer's
Home Administration, Federal Financing Bank, General Services Administration,
Department of Housing and Urban Development, Export-Import Bank, Overseas
Private Investment Corporation, and Washington Metropolitan Area Transit
Authority Bonds.

Other GSE securities receive support through federal subsidies, loans or other
benefits. For example, the U.S. Treasury is authorized to purchase specified
amounts of securities issued by (or otherwise make funds available to) the
Federal Home Loan Bank System, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association, Student Loan Marketing Association, and Tennessee
Valley Authority in support of such obligations.

A few GSE securities have no explicit financial support, but are regarded as
having implied support because the federal government sponsors their activities.
These include the Farm Credit System, Financing Corporation, and Resolution
Funding Corporation.

Investors regard agency securities as having low credit risks, but not as low as
Treasury securities. A Fund treats mortgage-backed securities guaranteed by a
GSE as if issued or guaranteed by a federal agency.

Although such a guarantee protects against credit risks, it does not reduce
market and prepayment 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.

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

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


MORTGAGE BACKED SECURITIES
The Fund may invest in mortgage backed securities primarily by investing in
another investment company (which is not available for general investment by the
public) that owns those securities and that is advised by an affiliate of the
Adviser. This other investment company is managed independently of the Fund and
may incur additional administrative expenses. Therefore, any such investment by
the Fund may be subject to duplicate expenses. However, the Adviser believes
that the benefits and efficiencies of this approach should outweigh the
potential additional expenses. The Fund may also invest in such securities
directly.

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are pass-
through certificates. An issuer of pass-through certificates gathers monthly
payments from an underlying pool of mortgages. Then, the issuer deducts its fees
and expenses and passes the balance of the payments onto the certificate holders
once a month. Holders of pass-through certificates receive a pro rata share of
all payments and pre-payments from the underlying mortgages. As a result, the
holders assume all the prepayment risks of the underlying mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage backed securities. This creates
different prepayment and interest rate risks for each CMO class.

SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.

PACS, TACS AND COMPANION CLASSES
More sophisticated CMOs include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and prepayments in excess of
the specified rate. In addition, PACs will receive the companion classes' share
of principal payments, if necessary, to cover a shortfall in the prepayment
rate. This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.

IOS AND POS
CMOs may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest rates rise (and
prepayments decrease), making IOs a useful hedge against interest rate risks.

FLOATERS AND INVERSE FLOATERS
Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market index
such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and interest rate risks from the
Floater to the Inverse Floater class, reducing the price volatility of the
Floater class and increasing the price volatility of the Inverse Floater class.

Z CLASSES AND RESIDUAL CLASSES
CMOs must allocate all payments received from the underlying mortgages to some
class. To capture any unallocated payments, CMOs generally have an accrual (Z)
class. Z classes do not receive any payments from the underlying mortgages until
all other CMO classes have been paid off. Once this happens, holders of Z class
CMOs receive all payments and prepayments. Similarly, REMICs have residual
interests that receive any mortgage payments not allocated to another REMIC
class.

The degree of increased or decreased prepayment risks depends upon the structure
of the CMOs. However, the actual returns on any type of mortgage backed security
depend upon the performance of the underlying pool of mortgages, which no one
can predict and will vary among pools.


ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.


BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include, but are not limited to, bank accounts, time deposits,
certificates of deposit and banker's acceptances. Yankee instruments are
denominated in U.S. dollars and issued by U.S. branches of foreign banks.
Eurodollar instruments are denominated in U.S. dollars and issued by non-U.S.
branches of U.S. or foreign banks.


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

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


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

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


FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The foreign securities in which the Fund invests may include common stocks or
other equity securities, convertible securities or fixed income securities. The
Fund considers an issuer to be based outside the United States if:

   {circle}it is organized under the laws of, or has a principal office located
      in, another country;
   {circle}the principal trading market for its securities is in another
      country; or
   {circle}it (or its subsidiaries) derived in its most current fiscal year at
      least 50% of its total assets, capitalization, gross revenue or profit
      from goods produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.


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

BRADY BONDS
Brady Bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund (IMF) typically negotiates the exchange to cure or avoid a default
by restructuring the terms of the bank loans. The principal amount of some Brady
Bonds is collateralized by zero coupon U.S. Treasury securities which have the
same maturity as the Brady Bonds. However, neither the U.S. government nor the
IMF has guaranteed the repayment of any Brady Bond.


HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use derivatives contracts that cover a narrow range of
circumstances; or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

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DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated securities, commodities, currencies,
indices, or other assets or instruments including other derivative contracts,
(each a "Reference Instrument" and collectively, "Reference Instruments").  Each
party to a derivative contract is referred to as a counterparty.  Some
derivative contracts require payments relating to an actual, future trade
involving the Reference Instrument.  These types of derivatives are frequently
referred to as "physically settled" derivatives.  Other derivative contracts
require payments relating to the income or returns from, or changes in the
market value of, a Reference Instrument.  These types of derivatives are known
as "cash settled" derivatives, since they require cash payments in lieu of
delivery of the Reference Instrument.

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 on how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the Reference Instrument,
derivative contracts may increase or decrease the Fund's exposure to the risks
of the Reference Instrument, and may also expose the fund to liquidity and
leverage risks.  OTC contracts also expose the Fund to credit risks in the event
that a counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts, including
combinations thereof:


FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a Reference Instrument at a specified
price, date and time.  Entering into a contract to buy a Reference Instrument is
commonly referred to as buying a contract or holding a long position in the
asset.  Entering into a contract to sell a Reference Instrument is commonly
referred to as selling a contract or holding a short position in the Reference
Instrument.  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 (such as currency futures, index futures and
security futures), as well as, currency forward contracts.


CURRENCY FORWARD CONTRACT
A currency forward contract is an obligation to purchase or sell a specific
currency at a future date, at a price set at the time of the contract and for a
period agreed upon by the parties which may be either a window of time or a
fixed number of days from the date of the contract. Forward currency contracts
are highly volatile, with a relatively small price movement potentially
resulting in substantial gains or losses to the Fund. Additionally, the Fund may
lose money on forward currency transactions if changes in currency rates do not
occur as anticipated or if the Fund's counterparty to the contract were to
default.  Currency forward contracts are OTC derivatives.


OPTION CONTRACTS

Option contracts (also called "options") are rights to buy or sell a Reference
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 Reference Instruments.
Options that are written on futures contracts will be subject to margin
requirements similar to those applied to futures contracts.  The Fund may buy or
sell options on a Reference Instrument if it is permitted to own, invest, or
otherwise have economic exposure to that instrument.  The Fund is not required
to own a Reference Instrument, in order to buy or write an option on that
Reference Instrument.

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

CALL OPTIONS
A call option gives the holder (buyer) the right to buy the Reference Instrument
from the seller (writer) of the option. The Fund may use call options in the
following ways:

{circle}Buy call options on a Reference Instrument in anticipation of an
   increase in the value of the Reference Instrument; and

{circle}Write call options on a Reference Instrument to generate income from
   premiums, and in anticipation of a decrease or only limited increase in the
   value of the Reference Instrument.  If the Fund writes a call option on a
   Reference Instrument that it owns and that call option is exercised, the Fund
   foregoes any possible profit from an increase in the market price of the
   Reference Instrument over the exercise price plus the premium received.

PUT OPTIONS
A put option gives the holder the right to sell the Reference Instrument to the
writer of the option. The Fund may use put options in the following ways:

{circle}Buy put options on a Reference Instrument in anticipation of a decrease
   in the value of the Reference Instrument; and

{circle}Write put options on a Reference Instrument to generate income from
   premiums, and in anticipation of an increase or only limited decrease in the
   value of the Reference Instrument. In writing puts, there is a risk that the
   Fund may be required to take delivery of the Reference Instrument 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.

Finally, the Fund may enter into combinations of options contracts in an attempt
to benefit from changes in the prices of those options contracts (without regard
to changes in the value of the Reference Instrument).


SWAP CONTRACTS
A swap contract (also known as a "swap") is a type of derivative contract in
which two parties agree to pay each other (swap) the returns derived from
Reference Instruments.  Most swaps do not involve the delivery of the underlying
assets by either party, and the parties might not own the Reference Instruments.
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.  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 (commonly referred to as a "notional principal amount") 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 London Interbank
Offered Rate (LIBOR) swap would require one party to pay the equivalent of the
London Interbank Offered 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.


TOTAL RETURN SWAPS
A total return swap is an agreement between two parties whereby one party agrees
to make payments of the total return from a Reference Instrument (or a basket of
such instruments) during the specified period, in return for payments equal to a
fixed or floating rate of interest or the total return from another Reference
Instrument.  Alternately, a total return swap can be structured so that one
party will make payments to the other party if the value of a Reference
Instrument increases, but receive payments from the other party if the value of
that instrument decreases.


CREDIT DEFAULT SWAPS
A credit default swap (CDS) is an agreement between two parties whereby one
party (the "Protection Buyer") agrees to make payments over the term of the CDS
to the other party (the "Protection Seller"), provided that no designated event
of default, restructuring or other credit related event (each a "Credit Event")
occurs with respect to Reference Instrument that is usually a particular bond or
the unsecured credit of an issuer, in general (the "Reference Obligation"). Many
CDS are physically settled, which means that if a Credit Event occurs, the
Protection Seller must pay the Protection Buyer the full notional value, or "par
value," of the Reference Obligation in exchange for delivery by the Protection
Buyer of the Reference Obligation or another similar obligation issued by the
issuer of the Reference Obligation (the "Deliverable Obligation").  The
Counterparties agree to the characteristics of the Deliverable Obligation at the
time that they enter into the CDS. Alternately, a CDS can be "cash settled,"
which means that upon the occurrence of a Credit Event, the Protection Buyer
will receive a payment from the Protection Seller equal to the difference
between the par amount of the Reference Obligation and its market value at the
time of the Credit Event.  The Fund may be either the Protection Buyer or the
Protection Seller in a CDS.  If the Fund is a Protection Buyer and no Credit
Event occurs, the Fund will lose its entire investment in the CDS (i.e., an
amount equal to the payments made to the Protection Seller over the term of the
CDS). However, if a Credit Event occurs, the Fund (as Protection Buyer) will
deliver the Deliverable Obligation and receive a payment equal to the full
notional value of the Reference Obligation, even though the Reference Obligation
may have little or no value. If the Fund is the Protection Seller and no Credit
Event occurs, the Fund will receive a fixed rate of income throughout the term
of the CDS. However, if a Credit Event occurs, the Fund (as Protection Seller)
will pay the Protection Buyer the full notional value of the Reference
Obligation and receive the Deliverable Obligation from the Protection Buyer.  A
CDS may involve greater risks than if the Fund invested directly in the
Reference Obligation. For example, a CDS may increase credit risk since the Fund
has exposure to both the issuer of the Reference Obligation and the Counterparty
to the CDS.


CURRENCY SWAPS
Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amounts
of the currencies as well (commonly called a "foreign exchange swap").


CAPS AND FLOORS
Caps and Floors are contracts in which one party agrees to make payments only if
an interest rate or index goes above (Cap) or below (Floor) a certain level in
return for a fee from the other party.

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<R>


HYBRID INSTRUMENTS
Hybrid instruments combine elements of two different kinds of securities or
financial instruments (such as a derivative contract). Frequently, the value of
a hybrid instrument is determined by reference to changes in the value of
designated securities, commodities, currencies, indices, or other assets or
instruments (each a, "Valuation Instrument").  Hybrid instruments can take on
many forms including, but not limited to, the following three forms: First, a
common form of a hybrid instrument combines elements of a derivative contract
with those of another security (typically a fixed-income security). In this case
all or a portion of the interest or principal payable on a hybrid security is
determined by reference to changes in the price of a Valuation Instrument.
Second, a hybrid instrument may also combine elements of a fixed-income security
and an equity security. Third, hybrid instruments may include convertible
securities with conversion terms related to a Valuation Instrument.

Depending on the type and terms of the hybrid instrument, its risks may reflect
a combination of the risks of investing in securities, currencies and derivative
contracts.  Thus, an investment in a hybrid instrument may entail significant
risks in addition to those associated with traditional securities or the
Valuation Instrument.  Hybrid instruments are also potentially more volatile
than traditional securities or the Valuation Instrument.  Moreover, depending on
the structure of the particular hybrid, it may expose the Fund to leverage risks
or carry liquidity risks.

CREDIT LINKED NOTE
A credit linked note (CLN) is a type of hybrid instrument in which a special
purpose entity issues a structured note (the "Note Issuer") with respect to
which the Valuation Instrument is a single bond, a portfolio of bonds, or the
unsecured credit of an issuer, in general (each a "Reference Credit").  The
purchaser of the CLN (the "Note Purchaser") invests a par amount and receives a
payment during the term of the CLN that equals a fixed or floating rate of
interest equivalent to a high rated funded asset (such as a bank certificate of
deposit) plus an additional premium that relates to taking on the credit risk of
the Reference Credit. Upon maturity of the CLN, the Note Purchaser will receive
a payment equal to (i) the original par amount paid to the Note Issuer, if there
is no occurrence of a designated event of default, restructuring or other credit
event (each, a "Credit Event") with respect to the issuer of the Reference
Credit or (ii) the market value of the Reference Credit, if a Credit Event has
occurred.  Depending upon the terms of the CLN, it is also possible that the
Note Purchaser may be required to take physical delivery of the Reference Credit
in the event of Credit Event. Most credit linked notes use a corporate bond (or
a portfolio of corporate bonds) as the Reference Credit. However, almost any
type of fixed-income security (including foreign government securities), index,
or derivative contract (such as a credit default swap) can be used as the
Reference Credit.

EQUITY LINKED NOTE
An equity linked note (ELN) is a type of hybrid instrument that provides the
noteholder with exposure to a single equity security, a basket of equity
securities, or an equity index (the "Reference Equity Instrument").  Typically,
an ELN pays interest at agreed rates over a specified time period and, at
maturity, either converts into shares of a Reference Equity Instrument or
returns a payment to the noteholder based on the change in value of a Reference
Equity Instrument.

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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.


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


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


SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the 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. Those transactions may create leverage risks.

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ASSET SEGREGATION
In accordance with SEC and SEC staff positions regarding the interpretation of
the 1940 Act, with respect to derivatives that create a future payment
obligation of the Fund, the Fund must "set aside" (referred to sometimes as
"asset segregation") liquid assets, or engage in other SEC- or staff-approved
measures, while the derivative contracts are open. For example, with respect to
forwards and futures contracts that are not contractually required to "cash-
settle," the Fund must cover its open positions by setting aside cash or readily
marketable securities equal to the contracts' full, notional value. With respect
to forwards and futures that are contractually required to "cash-settle,"
however, the Fund is permitted to set aside cash or readily marketable
securities in an amount equal to the Fund's daily marked-to-market (net)
obligations, if any (i.e., the Fund's daily net liability, if any), rather than
the notional value.

The Fund will employ another approach to segregating assets to cover options
that it sells. If the Fund sells a call option, the Fund will set aside either
the Reference Instrument subject to the option, cash or readily marketable
securities with a value that equals or exceeds the current market value of the
Reference Instrument. In no event, will the value of the cash or readily
marketable securities set aside by the Fund be less than the exercise price of
the call option. If the Fund sells a put option, the Fund will set aside cash or
readily marketable securities with a value that equals or exceeds the exercise
price of the put option.

The Fund's asset segregation approach for swap agreements varies among different
types of swaps. For example, if the Fund enters into a credit default swap as
the Protection Buyer, then it will set aside cash or readily marketable
securities necessary to meet any accrued payment obligations under the swap. By
comparison, if the Fund enters into a credit default swap as the Protection
Seller, then the Fund will set aside cash or readily marketable securities equal
to the full notional amount of the swap that must be paid upon the occurrence of
a Credit Event. For some other types of swaps, such as interest rate swaps, the
Fund will calculate the obligations of the counterparties to the swap on a net
basis. Consequently, the Fund's current obligation (or rights) under this type
of swap will equal only the net amount to be paid or received under based on the
relative values of the positions held by each counterparty to the swap (the "net
amount"). The net amount currently owed by or to the Fund will be accrued daily
and the Fund will set aside cash or readily marketable securities equal to any
accrued but unpaid net amount owed by the Fund under the swap.

The Fund may reduce the liquid assets segregated to cover obligations under a
derivative contract by entering into an offsetting derivative contract. For
example, if the Fund sells a put option for the same Reference Instrument as a
call option the Fund has sold, and the exercise price of the call option is the
same as or higher than the exercise price of the put option, then the Fund may
net its obligations under the options and set aside cash or readily marketable
securities (including any margin deposited for the options) with a value equal
to the greater of (a) the current market value of the Reference Instrument
deliverable under the call option or (b) the exercise price of the put option.

By setting aside cash or readily marketable securities equal to only its net
obligations under swaps and certain cash-settled derivative contracts, the Fund
will have the ability to employ leverage to a greater extent than if the Fund
were required to segregate cash or readily marketable securities equal to the
full notional value of such contracts. The use of leverage involves certain
risks. See "Risk Factors." Unless the Fund has other cash or readily marketable
securities to set aside, it cannot trade assets set aside in connection with
derivative contracts or special transactions 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. The Fund reserves the right to modify its
asset segregation policies in the future to comply with any changes in the
positions articulated from time to time by the SEC and its staff.

Generally, special transactions do not cash-settle on a net basis. Consequently,
with respect to special transactions, the Fund will set aside cash or readily
marketable securities with a value that equals or exceeds the Fund's
obligations.

</R>


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 interfund
loans is the average of the Repo Rate and the Bank Loan Rate.


INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
<R>

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. The
Fund may also invest in mortgage backed, high yield and emerging market
securities primarily by investing in another investment company (which is not
available for general investment by the public) that owns those securities and
that is advised by an affiliate of the Adviser. The Fund may also invest in such
securities directly. These other investment companies are managed independently
of the Fund and may incur additional expenses. Therefore, any such investment by
the Fund may be subject to additional expenses. However, the Adviser believes
that the benefits and efficiencies of this approach should outweigh the
additional expenses.

</R>


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, a rating service, assigns ratings to investment-
grade securities (AAA, AA, A and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment-grade.


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


EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS
   {circle}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.
   {circle}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
   {circle}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
   {circle}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.
   {circle}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.
   {circle}OTC derivative contracts generally carry greater liquidity risk than
      exchange-traded contracts.

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

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

RISKS OF FOREIGN INVESTING
   {circle}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.
   {circle}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.
   {circle}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
   {circle}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.
   {circle}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.
This may limit these countries' ability to respond to economic downturns or
political upheavals, and consequently reduce the value of their foreign
government securities.


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

FIXED INCOME SECURITIES INVESTMENT RISKS

INTEREST RATE RISKS
   {circle}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.
   {circle}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
   {circle}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.
   {circle}Many fixed income securities receive credit ratings from services
      such as S&P and Moody's Investor Services (Moody's). 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.
   {circle}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.
   {circle}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
   {circle}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.
   {circle}If a fixed income security is called, the Fund may have to reinvest
      the proceeds in other fixed income securities with lower interest rates,
      higher credit risks, or other less favorable characteristics.

PREPAYMENT RISKS
   {circle}Unlike traditional fixed income securities, which pay a fixed rate of
      interest until maturity (when the entire principal amount is due) payments
      on mortgage backed securities include both interest and a partial payment
      of principal. Partial payment of principal may be comprised of scheduled
      principal payments as well as unscheduled payments from the voluntary
      prepayment, refinancing, or foreclosure of the underlying loans. These
      unscheduled prepayments of principal create risks that can adversely
      affect a Fund holding mortgage backed securities.
   {circle}For example, when interest rates decline, the values of mortgage
      backed securities generally rise. However, when interest rates decline,
      unscheduled prepayments can be expected to accelerate, and the Fund would
      be required to reinvest the proceeds of the prepayments at the lower
      interest rates then available. Unscheduled prepayments would also limit
      the potential for capital appreciation on mortgage backed securities.
   {circle}Conversely, when interest rates rise, the values of mortgage backed
      securities generally fall. Since rising interest rates typically result in
      decreased prepayments, this could lengthen the average lives of mortgage
      backed securities, and cause their value to decline more than traditional
      fixed income securities.
   {circle}Generally, mortgage backed securities compensate for the increased
      risk associated with prepayments by paying a higher yield. The additional
      interest paid for risk is measured by the difference between the yield of
      a mortgage backed security and the yield of a U.S. Treasury security with
      a comparable maturity (the spread). An increase in the spread will cause
      the price of the mortgage backed security to decline. Spreads generally
      increase in response to adverse economic or market conditions. Spreads may
      also increase if the security is perceived to have an increased prepayment
      risk or is perceived to have less market demand.

LIQUIDITY RISKS
   {circle}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.
   {circle}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.
   {circle}OTC derivative contracts generally carry greater liquidity risk than
      exchange-traded contracts.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
   {circle}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 RELATED TO THE ECONOMY
   {circle}The prices of high-yield securities are affected by the economy. The
      value of the Fund's portfolio may decline in tandem with a drop in the
      overall value of the stock market based on negative developments in the
      United States and global economies.

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES
   {circle}Securities issued or traded in emerging markets generally entail
      greater risks than securities issued or traded in developed markets. For
      example, their prices may be significantly more volatile than prices in
      developed countries. Emerging market economies may also experience more
      severe downturns (with corresponding currency devaluations) than developed
      economies.
   {circle}Emerging market countries may have relatively unstable governments
      and may present the risk of nationalization of businesses, expropriation,
      confiscatory taxation or, in certain instances, reversion to closed
      market, centrally planned economies.

LEVERAGE RISKS
   {circle}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.
   {circle}Investments can have these same results if their returns are based on
      a multiple of a specified index, security, or other benchmark.

<R>

RISKS OF INVESTING IN DERIVATIVES CONTRACTS AND HYBRID INSTRUMENTS
*  The Fund's use of derivative contracts and hybrid instruments 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 and hybrid instruments in which the
   Fund invests may not be correlated with changes in the value of the
   underlying Reference or Valuation Instruments or, if they are correlated, may
   move in the opposite direction than originally anticipated. Second, while
   some strategies involving derivatives may reduce the risk of loss, they may
   also reduce potential gains or, in some cases, result in losses by offsetting
   favorable price movements in portfolio holdings.  Third, there is a risk that
   derivative contracts and hybrid instruments may be erroneously priced or
   improperly valued and, as a result, the Fund may need to make increased cash
   payments to the counterparty.  Fourth, derivative contracts and hybrid
   instruments 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. Fifth, a common provision in OTC derivative contracts permits
   the counterparty to terminate any such contract between it and the Fund, if
   the value of the Fund's total net assets declines below a specified level
   over a given time period. Factors that may contribute to such a decline
   (which usually must be substantial) include significant shareholder
   redemptions and/or a marked decrease in the market value of the Fund's
   investments. Any such termination of the Fund's OTC derivative contracts may
   adversely affect the Fund (for example, by increasing losses and/or costs,
   and/or preventing the Fund from fully implementing its investment
   strategies). Finally, derivative contracts and hybrid instruments may also
   involve other risks described herein or in the Fund's prospectus, such as
   stock market, interest rate, credit, currency, liquidity and leverage risks.

</R>


FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's fundamental investment objective is to provide above average income
and capital appreciation. The investment objective may not be changed by the
Fund's Directors 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 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.


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.


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


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

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 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. 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."

For purposes of the commodities policy, 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.

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" and "bank
instruments." 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:

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

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

{circle}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;

{circle}for mortgage-backed securities, based on the aggregate investment value
  of the projected cash flows to be generated by the security, as furnished by
  an independent pricing service;

   {circle}for other fixed income securities, according to the 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 are valued at amortized cost; and

{circle}for investments in other open-end regulated investment companies, based
  on net asset value (NAV); and

{circle}for all other securities at fair value as determined in accordance with
  procedures established by and under the general supervision of the Board.

Prices for fixed income securities furnished by a pricing service may be based
  on a valuation matrix which incorporates both dealer-supplied valuations and
  electronic data processing techniques. Such prices (other than prices of
  mortgage-backed securities) are generally intended to be indicative of the bid
  prices currently offered to institutional investors for the securities, except
  that prices for corporate fixed income and asset-backed securities traded in
  the United States are generally intended to be indicative of the mean between
  such bid prices and asked prices. The Board has approved the use of such
  pricing services. A number of pricing services are available, and the Fund may
  use various pricing services or discontinue the use of any pricing service.

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.

</R>


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



HOW IS THE FUND SOLD?

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


RULE 12B-1 PLAN (CLASS A SHARES, CLASS B SHARES, CLASS C SHARES AND CLASS F
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
intermediaries) and providing incentives to financial intermediaries to sell
Shares.  The Plan is also designed to cover the cost of administrative services
performed in conjunction with the sale of Shares, including, but not limited to,
shareholder services, recordkeeping services and educational services, as well
as the costs of implementing and operating the Plan.  The Rule 12b-1 Plan allows
the Distributor to contract with financial intermediaries 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 financial
intermediaries.


ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES
The Distributor may pay out of its own resources amounts (including items of
material value) to certain financial intermediaries.  In some cases, such
payments may be made by, or funded from the resources of, companies affiliated
with the Distributor (including the Adviser).  While National Association of
Securities Dealers (NASD) regulations limit the sales charges that you may bear,
there are no limits with regard to the amounts that the Distributor may pay out
of its own resources.  In addition to the payments which are generally described
herein and in the prospectus, the financial intermediary also may receive
payments under the Rule 12b-1 Plan and/or Service Fees. In connection with these
payments, the financial intermediary may elevate the prominence or profile of
the Fund and/or other Federated funds within the financial intermediary's
organization by, for example, placement on a list of preferred or recommended
funds, and/or granting the Distributor preferential or enhanced opportunities to
promote the funds in various ways within the financial intermediary's
organization. You can ask your financial intermediary for information about any
payments it receives from the Distributor or the Federated funds and any
services provided.

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


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


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


RETIREMENT PLAN PROGRAM SERVICING PAYMENTS
The Distributor may make payments to certain financial intermediaries who sell
Federated fund shares through retirement plan programs.  A financial
intermediary may perform retirement plan program services itself or may arrange
with a third party to perform retirement plan program services.  In addition to
participant recordkeeping, reporting, or transaction processing, retirement plan
program services may include services rendered to a plan in connection with
fund/investment selection and monitoring; employee enrollment and education;
plan balance rollover or separation, or other similar services.


OTHER BENEFITS TO FINANCIAL INTERMEDIARIES
From time to time, the Distributor, at its expense, may provide additional
compensation to financial intermediaries that sell or arrange for the sale of
Shares.  Such compensation may include financial assistance to financial
intermediaries that enable the Distributor to participate in or present at
conferences or seminars, sales or training programs for invited employees,
client and investor events and other financial intermediary-sponsored events.

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


UNDERWRITING COMMISSIONS
<R>

The following chart reflects the total front-end sales charges and contingent
deferred sales charges paid in connection with the sale of Class A Shares, Class
B Shares, Class C Shares and Class F Shares of the Fund and the amount retained
by the Distributor for the last three fiscal years ended November 30:



                                2006                                    2005                                    2004

                 TOTAL SALES                             TOTAL SALES
                 CHARGES               AMOUNT            CHARGES               AMOUNT            TOTAL SALES           AMOUNT
                                       RETAINED                                RETAINED          CHARGES               RETAINED
Class A                   $585,089           $63,950            $1,168,171          $129,771            $1,260,028          $141,798
Shares
Class B                   $104,273                $0              $477,201                $0              $430,582                $0
Shares
Class C                     $7,224            $1,321               $16,650            $2,086               $32,965              $964
Shares
Class F                     $3,547                $0                $5,423            $1,542                $3,990              $714
Shares

</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 financial intermediaries 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. Financial intermediaries 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 financial intermediary 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.



ACCOUNT AND SHARE INFORMATION


VOTING RIGHTS
<R>

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

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

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

As of January 4, 2007, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class A Shares: Edward Jones & Co., Maryland
Hts., MO, owned approximately 15,907,428 Shares (42.98)%.

 As of January 4, 2007, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class B Shares: Edward Jones &
Co., Maryland Hts., MO, owned approximately 2,143,484 Shares (20.39)% and
Pershing LLC, Jersey City, NJ, owned approximately 1,006,007 Shares (9.57)%.

As of January 4, 2007, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class C Shares: MLPF&S, Jacksonville, FL,
owned approximately 585,698 Shares (16.65)%; Edward Jones & Co., Maryland
Hts., MO, owned approximately 549,775 Shares (16.63)%; Citigroup Global Markets,
Inc., New York, NY, owned approximately 395,361 Shares (11.24)% and Pershing
LLC, Jersey City, NJ, owned approximately 203,251 Shares (5.78)%

As of January 4, 2007, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Class F Shares: Hilliard Lyons, Louisville,
KY, owned approximately 290,581 (13.01)%; MLPF&S, Jacksonville, FL, owned
approximately 226,690 Shares (10.15)%; Edward Jones & Co., Maryland Hts., MO,
owned approximately 208,321 Shares (9.33)%; Pershing LLC, Jersey City, NJ, owned
approximately 158,596 Shares (7.10)% and Nationwide QPVA, Columbus, OH, owned
approximately 117,406 Shares (5.26)%.

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.

Edward Jones & Company is organized in the state of Missouri and is a subsidiary
of Edward D. Jones & Company, LP; organized in the state of Missouri.

</R>



TAX INFORMATION


FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code (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 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 DIRECTORS
<R>

The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders. The
following tables give information about each Board member and the senior
officers of the Fund. Where required, the tables separately list Board members
who are "interested persons" of the Fund (i.e., "Interested" Board members) and
those who are not (i.e., "Independent" Board members). Unless otherwise noted,
the address of each person listed is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA.  As of December 31, 2006, the Fund comprised one
portfolio, and the Federated Fund Complex consisted of 45 investment companies
(comprising 148 portfolios). Unless otherwise noted, each Officer is elected
annually. Unless otherwise noted, each Board member oversees all portfolios in
the Federated Fund Complex and serves for an indefinite term.

As of January 4, 2007, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.


INTERESTED DIRECTORS BACKGROUND AND COMPENSATION




NAME
BIRTH DATE                                                                                                AGGREGATE            TOTAL
ADDRESS                                                                                                COMPENSATION     COMPENSATION
POSITIONS        PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS,                                             FROM FUND        FROM FUND
HELD WITH        OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S)                                     (PAST FISCAL              AND
FUND                                                                                                          YEAR)        FEDERATED
DATE SERVICE                                                                                                            FUND COMPLEX
BEGAN                                                                                                                          (PAST
                                                                                                                            CALENDAR
                                                                                                                               YEAR)
JOHN F.          PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex;                       $0               $0
DONAHUE*         Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund
Birth Date:      Complex's Executive Committee.
July 28,
1924             PREVIOUS POSITIONS: Chairman of the Federated Fund Complex; Trustee, Federated
DIRECTOR         Investment Management Company and Chairman and Director, Federated Investment
Began            Counseling.
serving:
June 1986

J.               PRINCIPAL OCCUPATIONS: Principal Executive Officer and President of the Federated               $0               $0
CHRISTOPHER      Fund Complex; Director or Trustee of some of the Funds in the Federated Fund
DONAHUE*         Complex; President, Chief Executive Officer and Director, Federated Investors,
Birth Date:      Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee,
April 11,        Federated Investment Counseling; Chairman and Director, Federated Global
1949             Investment Management Corp.; Chairman, Federated Equity Management Company of
PRESIDENT        Pennsylvania and Passport Research, Ltd. (Investment advisory subsidiary of
AND DIRECTOR     Federated); Trustee, Federated Shareholder Services Company; Director, Federated
Began            Services Company.
serving:
June 1986        PREVIOUS POSITIONS: President, Federated Investment Counseling; President and
                 Chief Executive Officer, Federated Investment Management Company, Federated
                 Global Investment Management Corp. and Passport Research, Ltd.

LAWRENCE D.      PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex;                $1,081.27         $180,000
ELLIS, M.D.*     Professor of Medicine, University of Pittsburgh; Medical Director, University of
Birth Date:      Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist,
October 11,      University of Pittsburgh Medical Center.
1932
3471 Fifth       OTHER DIRECTORSHIPS HELD: Member, National Board of Trustees, Leukemia Society of
Avenue           America.
Suite 1111
Pittsburgh,      PREVIOUS POSITIONS: Trustee, University of Pittsburgh; Director, University of
PA               Pittsburgh Medical Center.
DIRECTOR
Began
serving:
August 1987


* 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.









                               - 2 -












INDEPENDENT DIRECTORS BACKGROUND AND COMPENSATION






NAME
BIRTH DATE                                                                                                AGGREGATE            TOTAL
ADDRESS                                                                                                COMPENSATION     COMPENSATION
POSITIONS        PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS,                                             FROM FUND        FROM FUND
HELD WITH        OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S)                                     (PAST FISCAL              AND
FUND                                                                                                          YEAR)        FEDERATED
DATE SERVICE                                                                                                            FUND COMPLEX
BEGAN                                                                                                                          (PAST
                                                                                                                            CALENDAR
                                                                                                                               YEAR)
THOMAS G.        PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex.                 $1,981.39         $198,000
BIGLEY
Birth Date:      OTHER DIRECTORSHIPS HELD: Director, Member of Executive Committee, Children's
February 3,      Hospital of Pittsburgh; Director, University of Pittsburgh.
1934
15 Old           PREVIOUS POSITION: Senior Partner, Ernst &Young LLP.
Timber Trail
Pittsburgh,
PA
DIRECTOR
Began
serving:
October 1995

JOHN T.          PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex;                $1,981.39         $198,000
CONROY, JR.      Chairman of the Board, Investment Properties Corporation; Partner or Trustee in
Birth Date:      private real estate ventures in Southwest Florida.
June 23,
1937             PREVIOUS POSITIONS: President, Investment Properties Corporation; Senior Vice
Investment       President, John R. Wood and Associates, Inc., Realtors; President, Naples
Properties       Property Management, Inc. and Northgate Village Development Corporation.
Corporation
3838 North
Tamiami
Trail
Suite 402
Naples, FL
DIRECTOR
Began
serving:
August 1991

NICHOLAS P.      PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex.                 $1,981.39         $198,000
CONSTANTAKIS
Birth Date:      OTHER DIRECTORSHIPS HELD: Director and Member of the Audit Committee, Michael
September 3,     Baker Corporation (engineering and energy services worldwide).
1939
175              PREVIOUS POSITION: Partner, Andersen Worldwide SC.
Woodshire
Drive
Pittsburgh,
PA
DIRECTOR
Began
serving:
February
1998

JOHN F.          PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex;                 $1,801.27         $180,000
CUNNINGHAM       Director, WinsorTech.
Birth Date:
March 5,         OTHER DIRECTORSHIPS HELD: Chairman, President and Chief Executive Officer,
1943             Cunningham &Co., Inc. (strategic business consulting); Trustee Associate, Boston
353 El           College.
Brillo Way
Palm Beach,      PREVIOUS POSITIONS: Director, Redgate Communications and EMC Corporation
FL               (computer storage systems); Chairman of the Board and Chief Executive Officer,
DIRECTOR         Computer Consoles, Inc.; President and Chief Operating Officer, Wang
Began            Laboratories; Director, First National Bank of Boston; Director, Apollo Computer,
serving:         Inc.
January 1999

PETER E.         PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex.                 $1,801.27         $180,000
MADDEN
Birth Date:      OTHER DIRECTORSHIPS HELD: Board of Overseers, Babson College.
March 16,
1942             PREVIOUS POSITIONS: Representative, Commonwealth of Massachusetts General Court;
One Royal        President, State Street Bank and Trust Company and State Street Corporation
Palm Way         (retired); Director, VISA USA and VISA International; Chairman and Director,
100 Royal        Massachusetts Bankers Association; Director, Depository Trust Corporation;
Palm Way         Director, The Boston Stock Exchange.
Palm Beach,
FL
DIRECTOR
Began
serving:
August 1991

CHARLES F.       PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex;                $1,981.39         $198,000
MANSFIELD,       Management Consultant.
JR.
Birth Date:      PREVIOUS POSITIONS: Chief Executive Officer, PBTC International Bank; Partner,
April 10,        Arthur Young &Company (now Ernst &Young LLP); Chief Financial Officer of Retail
1945             Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA
80 South         (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of
Road             Banking and Finance, Frank G. Zarb School of Business, Hofstra University;
Westhampton      Executive Vice President DVC Group, Inc. (marketing, communications and
Beach, NY        technology).
DIRECTOR
Began
serving:
January 1999

JOHN E.          PRINCIPAL OCCUPATIONS: Director or Trustee, and Chairman of the Board of                 $2,340.55         $234,000
MURRAY, JR.,     Directors or Trustees, of the Federated Fund Complex; Chancellor and Law
J.D., S.J.D.     Professor, Duquesne University; Partner, Murray, Hogue &Lannis.
Birth Date:
December 20,     OTHER DIRECTORSHIPS HELD: Director, Michael Baker Corp. (engineering,
1932             construction, operations and technical services).
Chancellor,
Duquesne         PREVIOUS POSITIONS: President, Duquesne University; Dean and Professor of Law,
University       University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
Pittsburgh,      University School of Law.
PA
DIRECTOR
Began
serving:
February
1995

THOMAS M.        PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex;                  $446.90          $45,000
O'NEILL          Managing Director and Partner, Navigator Management Company, L.P. (investment and
Birth Date:      strategic consulting).
June 14,
1951             OTHER DIRECTORSHIPS HELD: Director, Midway Pacific (lumber); Board of Overseers,
95 Standish      Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College.
Street
P.O. Box         PREVIOUS POSITIONS: Chief Executive Officer and President, Managing Director and
2779             Chief Investment Officer, Fleet Investment Advisors; President and Chief
Duxbury, MA      Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman,
DIRECTOR         Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam
Began            Companies, Boston, MA; and Credit Analyst and Lending Officer, Fleet Bank.
serving:
October 2006
MARJORIE P.      PRINCIPAL OCCUPATIONS:  Director or Trustee of the Federated Fund Complex; Public        $1,801.27         $180,000
SMUTS            Relations/Marketing Consultant/Conference Coordinator.
Birth Date:
June 21,         PREVIOUS POSITIONS: National Spokesperson, Aluminum Company of America;
1935             television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.
4905 Bayard
Street
Pittsburgh,
PA
DIRECTOR
Began
serving:
June 1986

JOHN S.          PRINCIPAL OCCUPATIONS:  Director or Trustee of the Federated Fund Complex;               $1,801.27         $180,000
WALSH            President and Director, Heat Wagon, Inc. (manufacturer of construction temporary
Birth Date:      heaters); President and Director, Manufacturers Products, Inc. (distributor of
November 28,     portable construction heaters); President, Portable Heater Parts, a division of
1957             Manufacturers Products, Inc.
2604 William
Drive            PREVIOUS POSITION: Vice President, Walsh &Kelly, Inc.
Valparaiso,
IN
DIRECTOR
Began
serving:
January 1999
JAMES F.         PRINCIPAL OCCUPATIONS:  Director or Trustee of the Federated Fund Complex; Vice          $1,342.63      $134,415.99
WILL             Chancellor and President, Saint Vincent College.
Birth Date:
October 12,      OTHER DIRECTORSHIPS HELD: Alleghany Corporation.
1938
Saint            PREVIOUS POSITIONS: Chairman, President and Chief Executive Officer, Armco, Inc.;
Vincent          President and Chief Executive Officer, Cyclops Industries; President and Chief
College          Operating Officer, Kaiser Steel Corporation.
Latrobe, PA
DIRECTOR
Began
serving:
April 2006




OFFICERS**




NAME
BIRTH DATE
ADDRESS
POSITIONS
HELD WITH   PRINCIPAL OCCUPATION(S) AND PREVIOUS POSITION(S)
FUND
DATE
SERVICE
BEGAN
JOHN W.     PRINCIPAL OCCUPATIONS: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive
MCGONIGLE   Vice President, Secretary and Director, Federated Investors, Inc.
Birth Date:
October 26, PREVIOUS POSITIONS: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director,
1938        Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp.
EXECUTIVE
VICE
PRESIDENT
AND
SECRETARY
Began
serving:
June 1986

RICHARD A.  PRINCIPAL OCCUPATIONS: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President,
NOVAK       Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services,
Birth Date: Inc. and Southpointe Distribution Services, Inc.
December
25, 1963    PREVIOUS POSITIONS: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held
TREASURER   various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen &Co.
Began
serving:
January
2006

RICHARD B.  PRINCIPAL OCCUPATIONS: Vice Chairman or Vice President of some of the Funds in the Federated Fund Complex; Vice
FISHER      Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Birth Date:
May 17,     PREVIOUS POSITIONS: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice
1923        President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp.
VICE
CHAIRMAN
Began
serving:
August 2002

BRIAN P.    PRINCIPAL OCCUPATIONS: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President
BOUDA       and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its subsidiaries. Mr. Bouda
Birth Date: joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin.
February
28, 1947
SENIOR VICE
PRESIDENT
Began
serving:
January
2006

STEPHEN F.  PRINCIPAL OCCUPATIONS: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex;
AUTH        Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated
Birth Date: Equity Management Company of Pennsylvania.
September
3, 1956     PREVIOUS POSITIONS: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.
CHIEF       (Investment advisory subsidiary of Federated); Senior Vice President, Global Portfolio Management Services Division;
INVESTMENT  Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and
OFFICER     Portfolio Manager, Prudential Investments.
Began
serving:
November
2002

JOHN L.     PRINCIPAL OCCUPATIONS: John L. Nichol has been the Fund's Portfolio Manager since October 2002.  He is Vice President of
NICHOL      the Fund.   Mr. Nichol joined Federated in September 2000 as an Assistant Vice President/Senior Investment Analyst. He
Birth Date: has been a Portfolio Manager since December 2000 and was named a Vice President of the Fund's Adviser in July 2001. Mr.
May 21,     Nichol served as a portfolio manager and analyst for the Public Employees Retirement System of Ohio from 1992 through
1963        August 2000. Mr. Nichol is a Chartered Financial Analyst. He received has M.B.A. with an emphasis in Finance and
VICE        Management and Information Science from the Ohio State University.
PRESIDENT
Began
serving:
May 2004


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

In addition, the Fund has appointed an Anti-Money Laundering Compliance Officer.


COMMITTEES OF THE BOARD


                                                                                                                           MEETINGS
BOARD          COMMITTEE                                                                                                   HELD
COMMITTEE      MEMBERS          COMMITTEE FUNCTIONS                                                                        DURING
                                                                                                                           LAST
                                                                                                                           FISCAL
                                                                                                                           YEAR

EXECUTIVE      John F.          In between meetings of the full Board, the Executive Committee generally may exercise      Two
               Donahue          all the powers of the full Board in the management and direction of the business and
               John E.          conduct of the affairs of the Corporation in such manner as the Executive Committee
               Murray, Jr.,     shall deem to be in the best interests of the Corporation.  However, the Executive
               J.D., S.J.D.     Committee cannot elect or remove Board members, increase or decrease the number of
               John S.          Directors, elect or remove any Officer, declare dividends, issue shares or recommend
               Walsh            to shareholders any action requiring shareholder approval.

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

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



BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF INVESTMENT
COMPANIES AS OF DECEMBER 31, 2006



                                                                                     AGGREGATE
                                                      DOLLAR RANGE OF          DOLLAR RANGE OF
                                                         SHARES OWNED          SHARES OWNED IN
INTERESTED                            IN FEDERATED EQUITY INCOME FUND      FEDERATED FAMILY OF
BOARD MEMBER NAME                                                         INVESTMENT COMPANIES

John F. Donahue                                                  None            Over $100,000
J. Christopher Donahue                                           None            Over $100,000
Lawrence D. Ellis, M.D.                                          None            Over $100,000

INDEPENDENT
BOARD MEMBER NAME
Thomas G. Bigley                                                 None            Over $100,000
John T. Conroy, Jr.                                              None            Over $100,000
Nicholas P. Constantakis                                         None            Over $100,000
John F. Cunningham                                               None            Over $100,000
Peter E. Madden                                                  None            Over $100,000
Charles F. Mansfield, Jr.                                        None            Over $100,000
John E. Murray, Jr., J.D., S.J.D.                                None            Over $100,000
Thomas M. O'Neill                                                None            Over $100,000
Marjorie P. Smuts                                                None            Over $100,000
John S. Walsh                                                    None            Over $100,000
James F. Will                                                    None                     None

</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 Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.


PORTFOLIO MANAGER INFORMATION
<R>

The following information about the Fund's Portfolio Manager is provided as of
the end of the Fund's most recently completed fiscal year.



OTHER ACCOUNTS MANAGED BY JOHN L. NICHOL TOTAL NUMBER OF OTHER ACCOUNTS MANAGED / TOTAL ASSETS*

Registered Investment Companies          5 funds / $645.29 million
Other Pooled Investment Vehicles         0
Other Accounts                           0

*  None of the Accounts has an advisory fee that is based on the performance of
the account.

Dollar value range of shares owned in the Fund:  $50,001-$100,000.

John L. Nichol is paid a fixed base salary and a variable annual incentive.
Base salary is determined within a market competitive position-specific salary
range, based on the portfolio manager's experience and performance.  The annual
incentive amount is determined based on multiple performance criteria using a
Balanced Scorecard methodology, and may be paid entirely in cash, or in a
combination of cash and restricted stock of Federated Investors, Inc.
(Federated).  There are four weighted performance categories in the Balanced
Scorecard.  Investment Product Performance (IPP) is the predominant factor.  Of
lesser importance are: Leadership/Teamwork/Communication, Client Satisfaction
and Service and Financial Success.  The total Balanced Scorecard "score" is
applied against an annual incentive opportunity that is competitive in the
market for this portfolio manager role to determine the annual incentive
payment.

IPP is measured on a rolling 1, 3, and 5 calendar year pre-tax total return
basis vs. the Fund's benchmark (i.e., 90% Russell 1000 Value Index/10% Merrill
Lynch 91 Day Treasury Bill Index), and on a rolling 3 and 5 calendar year pre-
tax gross return basis vs. the Fund's designated peer group of comparable
accounts.  In addition, for certain accounts, performance is measured by
comparing the account's average one-year distribution yield, or taxable
equivalent, for 1, 3 and 5 calendar year periods to those of designated peer
group accounts.  Performance periods are adjusted if a portfolio manager has
been managing an account for less than five years; accounts with less than one-
year of performance history under a portfolio manager may be excluded.  As noted
above, Mr. Nichol is also the portfolio manager for other accounts in addition
to the Fund.  Such other accounts may have different benchmarks.  The
performance of certain of these accounts is excluded when calculating IPP; IPP
is calculated with an equal weighting of each included account managed by the
portfolio manager.  The IPP score can be reduced based on management's
assessment of the Fund's comparative risk profile.

Leadership/Teamwork/Communication is assessed by Federated's management.

Client Satisfaction and Service is assessed by Federated's senior management
considering the quality, amount, and effectiveness of client support activities,
with input from sales management.

The Financial Success category is designed to tie the portfolio manager's bonus,
in part, to Federated's overall financial health, and any awards are predicated
on Federated's attainment of specified financial targets.  Senior management
determines individual Financial Success scores on a discretionary basis,
considering overall contributions, including factors not fully reflected in the
other Balanced Scorecard categories.

As a general matter, certain conflicts of interest may arise in connection with
a portfolio manager's management of a fund's investments, on the one hand, and
the investments of other accounts for which the portfolio manager is
responsible, on the other.  For example, it is possible that the various
accounts managed could have different investment strategies that, at times,
might conflict with one another to the possible detriment of the Fund.
Alternatively, to the extent that the same investment opportunities might be
desirable for more than one account, possible conflicts could arise in
determining how to allocate them.  Other potential conflicts might include
conflicts created by specific portfolio manager compensation arrangements, and
conflicts relating to selection of brokers or dealers to execute fund portfolio
trades and/or specific uses of commissions from Fund portfolio trades (for
example, research, or "soft dollars").  The Adviser has adopted policies and
procedures and has structured the portfolio managers' compensation in a manner
reasonably designed to safeguard the Fund from being negatively affected as a
result of any such potential conflicts.





                                        TOTAL NUMBER OF OTHER ACCOUNTS MANAGED / TOTAL ASSETS*
OTHER ACCOUNTS MANAGED BY DAVID GILMORE

Registered Investment Companies         3 funds / $523.88 million
Other Pooled Investment Vehicles        0
Other Accounts                          0

*  None of the Accounts has an advisory fee that is based on the performance of
the account.

Dollar value range of shares owned in the Fund:  none.

David Gilmore is paid a fixed base salary and a variable annual incentive.  Base
salary is determined within a market competitive position-specific salary range,
based on the portfolio manager's experience and performance.  The annual
incentive amount is determined based on multiple performance criteria using a
Balanced Scorecard methodology, and may be paid entirely in cash, or in a
combination of cash and restricted stock of Federated Investors, Inc.
(Federated).  There are four weighted performance categories in the Balanced
Scorecard.  Investment Product Performance (IPP) is the predominant factor.  Of
lesser importance are: Leadership/Teamwork/Communication, Client Satisfaction
and Service and Financial Success.  The total Balanced Scorecard "score" is
applied against an annual incentive opportunity that is competitive in the
market for this portfolio manager role to determine the annual incentive
payment.

IPP is measured on a rolling 1, 3, and 5 calendar year pre-tax total return
basis vs. the Fund's benchmark (i.e., 90% Russell 1000 Value Index/10% Merrill
Lynch 91 Day Treasury Bill Index), and on a rolling 3 and 5 calendar year pre-
tax gross return basis vs. the Fund's designated peer group of comparable
accounts.  In addition, for certain accounts, performance is measured by
comparing the account's average one-year distribution yield, or taxable
equivalent, for 1, 3 and 5 calendar year periods to those of designated peer
group accounts.  Performance periods are adjusted if a portfolio manager has
been managing an account for less than five years; accounts with less than one-
year of performance history under a portfolio manager may be excluded.  As noted
above, Mr. Gilmore is also the portfolio manager for other accounts in addition
to the Fund.  Such other accounts may have different benchmarks.  The
performance of certain of these accounts is excluded when calculating IPP; IPP
is calculated with an equal weighting of each included account managed by the
portfolio manager.  The IPP score can be reduced based on management's
assessment of the Fund's comparative risk profile.

Leadership/Teamwork/Communication is assessed by Federated's management.

Client Satisfaction and Service is assessed by Federated's senior management
considering the quality, amount, and effectiveness of client support activities,
with input from sales management.

The Financial Success category is designed to tie the portfolio manager's bonus,
in part, to Federated's overall financial health, and any awards are predicated
on Federated's attainment of specified financial targets.  Senior management
determines individual Financial Success scores on a discretionary basis,
considering overall contributions, including factors not fully reflected in the
other Balanced Scorecard categories.

</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.


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 Directors, and certain other employees.  Although
they do permit these people to trade in securities, including those that the
Fund could buy, as well as Shares of the Fund, they also contain significant
safeguards designed to protect the Fund and its shareholders from abuses in this
area, such as requirements to obtain prior approval for, and to report,
particular transactions.


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


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

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

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

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

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

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

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

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


PROXY VOTING PROCEDURES
<R>

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 Institutional Shareholder
Services (ISS) to obtain, vote, and record proxies in accordance with the Proxy
Committee's directions.  The Proxy Committee directs ISS by means of Proxy
Voting Guidelines, and ISS 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, ISS
will provide the Proxy Committee with all information that it has obtained
regarding the proposal and the Proxy Committee will provide specific direction
to ISS.  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.


</R>

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

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

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

PROXY VOTING REPORT
A report on "Form N-PX" of how the Fund voted any proxies during the most recent
12-month period ended June 30 is available through Federated's website.  Go to
FederatedInvestors.com; select "Products;" select the Fund; then use the link to
"Prospectuses and Regulatory Reports" to access the link to Form N-PX. Form N-PX
filings are also available at the SEC's website at www.sec.gov.


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

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

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

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

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

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


BROKERAGE TRANSACTIONS AND INVESTMENT ALLOCATION
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below).  The
Adviser may also direct certain portfolio trades to a broker that, in turn, pays
a portion of the Fund's operating expenses.  The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Fund's Board.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. Except as noted below, when the Fund and one or
more of those accounts invests in, or disposes of, the same security, available
investments or opportunities for sales will be allocated among the Fund and the
account(s) in a manner believed by the Adviser to be equitable. While the
coordination and ability to participate in volume transactions may benefit the
Fund, it is possible that this procedure could adversely impact the price paid
or received and/or the position obtained or disposed of by the Fund.
Investments for Federated Kaufmann Fund and other accounts managed by that
fund's portfolio managers in initial public offerings ("IPO") are made
independently from any other accounts, and much of their non-IPO trading may
also be conducted independently from other accounts.

<R>

On November 30, 2006, the Fund owned securities of the following regular
broker/dealers:

- -----------------------------------
|NAME           | TYPE|      VALUE|
- -----------------------------------
|Citigroup, Inc.|  STK|$54,980,433|
- -----------------------------------
|Goldman Sachs  |PERCs|$44,320,616|
- -----------------------------------
|Credit Suisse  |PERCs|$28,486,533|
- -----------------------------------
|Merrill Lynch  |PERCs|$24,014,380|
- -----------------------------------
|Morgan Stanley |  STK|$17,311,168|
- -----------------------------------
|Morgan Stanley |PERQs|$13,380,066|
- -----------------------------------
|UBS AG         |  STK| $5,528,196|
- -----------------------------------
|Bank of America|  STK|$47,354,075|
- -----------------------------------
</R>


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, November 30, 2006, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $906,939,126 for which the
Fund paid $1,144,915 in brokerage commissions.


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 rates, based on the average aggregate daily net assets of the
Fund and most of the other Federated funds:

                                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.


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


TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, the Fund's registered transfer agent,
maintains all necessary shareholder records.


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
<R>

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


FEES PAID BY THE FUND FOR SERVICES
 FOR THE YEAR ENDED NOVEMBER 30           2006           2005           2004
 Advisory Fee Earned                $6,437,238     $7,231,937     $7,971,104
 Advisory Fee Reduction             0              0              0
 Advisory Fee Reimbursement         0              0              2,987
 Brokerage Commissions              2,585,252      1,118,951      2,532,787
 Administrative Fee                 817,530        918,456        1,012,330
 12B-1 FEE:
  Class A Shares                    0              --             --
  Class B Shares                    1,987,355      --             --
  Class C Shares                    527,223        --             --
  Class F Shares                    100,290        --             --
 SHAREHOLDER SERVICES FEE:
  Class A Shares                    1,712,663      --             --
  Class B Shares                    662,452        --             --
  Class C Shares                    172,286        --             --
  Class F Shares                    97,277         --             --
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.

</R>



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 periods ended
November 30, 2006.

Yield is given for the 30-day period ended November 30, 2006.





                                                      30-DAY PERIOD     1 YEAR     5 YEARS     10 YEARS

CLASS A SHARES:
Total Return
  Before Taxes                                        N/A               15.27%     6.23%       5.98%
  After Taxes on Distributions                        N/A               14.45%     5.71%       4.88%
  After Taxes on Distributions and Sale of Shares
                                                      N/A               9.97%      5.12%       4.56%
Yield                                                 1.92%             N/A        N/A         N/A







                                                      30-DAY PERIOD     1 YEAR     5 YEARS     10 YEARS

CLASS B SHARES:
Total Return
  Before Taxes                                        N/A               15.53%     6.32%       5.94%
  After Taxes on Distributions                        N/A               14.97%     5.99%       5.06 %
  After Taxes on Distributions and Sale of Shares
                                                      N/A               10.15%     5.30%       4.68%
Yield                                                 1.29%             N/A        N/A         N/A







                                                      30-DAY PERIOD     1 YEAR     5 YEARS     10 YEARS

CLASS C SHARES:
Total Return
  Before Taxes                                        N/A               20.09%     6.64%       5.78%
  After Taxes on Distributions                        N/A               14.53%     6.31%       4.94%
  After Taxes on Distributions and Sale of Shares
                                                      N/A               13.11%     5.78%       4.55%
Yield                                                 1.28%             N/A        N/A         N/A







                                                      30-DAY PERIOD     1 YEAR     5 YEARS     10 YEARS

CLASS F SHARES:
Total Return
  Before Taxes                                        N/A               19.48%     6.95%       6.21%
  After Taxes on Distributions                        N/A               18.72%     6.50%       5.19%
  After Taxes on Distributions and Sale of Shares
                                                      N/A               12.71%     5.79%       4.82%
Yield                                                 1.77%             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 financial intermediaries charge fees in connection with services
provided in conjunction with an investment in Shares, the Share performance is
lower for shareholders paying those fees.



WHO IS FEDERATED INVESTORS, INC.?

<R>

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

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


FEDERATED FUNDS OVERVIEW

EQUITIES
As   of   December   31,  2006,  Federated  managed  48  equity  funds  totaling
approximately $28.7 billion  in  assets  across  growth,  value,  equity income,
international, index and sector allocation styles.


TAXABLE FIXED-INCOME
As  of  December  31,  2006,  Federated managed 35 taxable bond funds including:
high-yield, multi-sector, mortgage-backed,  U.S.  government, U.S. corporate and
international, with assets approximating $15.2 billion.


TAX FREE FIXED-INCOME
As  of  December  31,  2006,  Federated  managed 14 municipal  bond  funds  with
approximately $2.9 billion in assets and 22  municipal  money  market funds with
approximately $27.6 billion in total assets.


MONEY MARKET FUNDS
As  of December 31, 2006, Federated managed $155.2 billion in assets  across  51
money  market funds, including 17 government, 11 prime, 22 municipal and 1 euro-
denominated  with  assets  approximating  $63.5  billion,  $64.0  billion, $27.6
billion and $82.9 million.

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

</R>



FINANCIAL INFORMATION

<R>

The Financial Statements for the Fund for the fiscal year ended November 30,
2006,  are incorporated herein by reference to the Annual Report to Shareholders
of Federated Equity Income Fund dated November 30, 2006.

</R>



INVESTMENT RATINGS


<R>

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.


D--In payment default. The 'D' rating category is used when payments on a
financial commitment are not made on the date due even if the applicable grace
period has not expired, unless Standard &Poor's believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
a financial commitment are jeopardized.


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

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

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

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

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

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

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

CA-Bonds and preferred stock which are rated Ca are highly speculative and are
likely in, or very near, default, with some prospect of recovery of principal
and interest.

C-Bonds and preferred stock which are rated C are the lowest rated class of
bonds and are typically in default, with little prospect for recovery of
principal or interest.

NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.

NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.

NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.

NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.


FITCH RATINGS 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.


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.


A.M. BEST LONG-TERM DEBT RATINGS
An A.M. Best Long-Term Debt Rating (issue credit rating) is an opinion as to the
issuer's ability to meet its financial obligations to security holders when due.
These ratings are assigned to debt and preferred stock issues.

AAA-EXCEPTIONAL.  Assigned to issues where the issuer has, in A.M. Best's
opinion, an exceptional ability to meet the terms of the obligation.

AA-VERY STRONG.  Assigned to issues where the issuer has, in A.M. Best's
opinion, a very strong ability to meet the terms of the obligation.

A-STRONG.  Assigned to issues where the issuer has, in A.M. Best's opinion, a
strong ability to meet the terms of the obligation.

BBB-ADEQUATE.  Assigned to issues where the issuer has, in A.M. Best's opinion,
an adequate ability to meet the terms of the obligation; however, is more
susceptible to changes in economic or other conditions.

BB-SPECULATIVE.  Assigned to issues where the issuer has, in A.M. Best's
opinion, speculative credit characteristics, generally due to a moderate margin
of principal and interest payment protection and vulnerability to economic
changes.  .

B-VERY SPECULATIVE.  Assigned to issues where the issuer has, in A.M. Best's
opinion, very speculative credit characteristics, generally due to a modest
margin of principal and interest payment protection and extreme vulnerability to
economic changes.  .

CCC, CC, C-EXTREMELY SPECULATIVE.  Assigned to issues where the issuer has, in
A.M. Best's opinion, extremely speculative credit characteristics, generally due
to a minimal margin of principal and interest payment protection and/or limited
ability to withstand adverse changes in economic or other conditions.

D-IN DEFAULT.  In default on payment of principal, interest or other terms and
conditions.  The rating also is utilized when a bankruptcy petition, or similar
action, has been filed.

Ratings from "aa" to "ccc" may be enhanced with a "+" (plus) or "-" (minus) to
indicate whether credit quality is near the top or bottom of a category.  A
company's Long-Term Credit Rating also may be assigned an Under Review modifier
("u") that generally is event-driven (positive, negative or developing) and
indicates that the company's A.M. Best Rating opinion is under review and may be
subject to near-term change.  Ratings prefixed with an ("i") denote indicative
ratings.  Ratings may also be assigned a Public Data modifier ("pd") which
indicates that a company does not subscribe to A.M. Best's interactive rating
process.


A.M. BEST SHORT-TERM DEBT RATINGS
An A.M. Best Short-Term Debt Rating (issue credit rating) is an opinion as to
the issuer's ability to meet its obligations having maturities generally less
than one year, such as commercial paper.

AMB-1+ -STRONGEST.  Assigned to issues where the issuer has, in A.M. Best's
opinion, the strongest ability to repay short-term debt obligations.

AMB-1 -OUTSTANDING.  Assigned to issues where the issuer has, in A.M. Best's
opinion, an outstanding ability to repay short-term debt obligations.

AMB-2 -SATISFACTORY.  Assigned to issues where the issuer has, in A.M. Best's
opinion, a satisfactory ability to repay short-term debt obligations.

AMB-3 -ADEQUATE.  Assigned to issues where the issuer has, in A.M. Best's
opinion, an adequate ability to repay short-term debt obligations; however,
adverse economic conditions will likely lead to a reduced capacity to meet its
financial commitments on short-term debt obligations.

AMB-4 -SPECULATIVE.  Assigned to issues where the issuer has, in A.M. Best's
opinion, speculative credit characteristics and is vulnerable to economic or
other external changes, which could have a marked impact on the company's
ability to meet its commitments on short-term debt obligations.

D-IN DEFAULT.  In default on payment of principal, interest or other terms and
conditions.  The rating also is utilized when a bankruptcy petition, or similar
action, has been filed.

A company's Short-Term Credit Rating also may be assigned an Under Review
modifier ("u") that generally is event-driven (positive, negative or developing)
and indicates that the company's A.M. Best Rating opinion is under review and
may be subject to near-term change.  Ratings prefixed with an ("i") denote
indicative ratings.


A.M. BEST RATING OUTLOOK
A.M. Best Credit Ratings (aaa to c) are assigned a Rating Outlook that indicates
the potential direction of a company's rating for an intermediate period,
generally defined as the next 12 to 36 months.  Public Data Ratings are not
assigned an Outlook.  Ratings Outlooks are as follows:

POSITIVE-Indicates a company's financial/market trends are favorable, relative
to its current rating level, and if continued, the company has a good
possibility of having its rating upgraded.

NEGATIVE-Indicates a company is experiencing unfavorable financial/market
trends, relative to its current rating level, and if continued, the company has
a good possibility of having its rating downgraded.

STABLE-Indicates a company is experiencing stable financial/market trends and
that there is a low likelihood that its rating will change in the near term.

</R>










                               - 3 -














ADDRESSES


FEDERATED EQUITY INCOME FUND

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


Federated Investors Funds

5800 Corporate Drive

Pittsburgh, PA 15237-7000


DISTRIBUTOR
Federated Securities Corp.

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779


INVESTMENT ADVISER
Federated Equity Management Company of Pennsylvania

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779


CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company

P.O. Box 8600

Boston, MA 02266-8600


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst &Young LLP

200 Clarendon Street

Boston, MA 02116-5072






                               - 4 -














APPENDIX

<R>

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


CUSTODIAN
State Street Bank and Trust Company


SECURITIES LENDING AGENT
Metropolitan West Securities LLC


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst &Young LLP


LEGAL COUNSEL
Dickstein Shapiro LLP
Reed Smith LLP

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

SECURITY PRICING SERVICES
Reuters
Standard &Poor's
FT Interactive Data
Bear Stearns

RATINGS AGENCIES
Standard &Poor's


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

OTHER
Investment Company Institute
Astec Consulting Group, Inc.
</R>

Endnotes











<R>
</R>
Federated Equity Income Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Contact us at FEDERATEDINVESTORS.COM
or call 1-800-341-7400.

Federated Securities Corp., Distributor

8062806B (2/07)

Federated is a registered mark
of Federated Investors, Inc.
2007 {copyright}Federated Investors, Inc.



PART C.      OTHER INFORMATION

Item 23.     Exhibits:

             (a)    (i)          Conformed copy of Articles of
                                 Restatement of the Registrant; (15)
                    (ii)         Conformed copy of Articles of Amendment
                                 of the Registrant; (15)
                    (iii)        Conformed copy of Amendment No. 13
                                 under the Registrant's Articles of
                                 Amendment; (17)
             (b)                 Copy of By-Laws of the Registrant as
                                 Restated and Amended; (3)
                    (i)          Copy of Amendment No. 6 to By-Laws
                                 effective February 23, 1998; (15)
                    (ii)         Copy of Amendment No. 7 to By-Laws
                                 effective February 27, 1998; (15)
                    (iii)        Copy of Amendment No. 8 to By-Laws
                                 effective May 12, 1998; (15)
                    (iv)         Copy of Amendment No. 9 to By-Laws
                                 effective August 23, 2002; (19)
                    (v)          Copy of Amendment No. 10 to By-Laws
                                 effective August 25, 2003; (20)
                    (vi)         Copy of Amendment No. 11 to By-Laws
                                 effective September 21, 2004; (22)
                    (vii)        Copy of Amendment No. 12 to By-Laws
                                 effective August 18, 2005; (22)
                    (viii)       Copy of Amendment No. 13 to By-Laws
                                 effective January 1, 2006; (23)
             (c)                 Copies of Specimen Certificates for
                                 Shares of Capital Stock for Class A
                                 Shares, Class B Shares, Class C Shares,
                                 and Class F Shares of the Registrant;
                                 (12)
             (d)    (i)          Conformed copy of Investment Advisory
                                 Contract of the Registrant; (5)
                    (ii)         Conformed copy of Amendment to
                                 Investment Advisory Contract of the
                                 Registrant; (18)
                    (iii)        Conformed copy of Assignment of
                                 Investment Advisory Contract; (20)
             (e)    (i)          Conformed copy of Distributor's
                                 Contract of the Registrant, through and
                                 including Exhibit C; (11)
                    (ii)         Conformed copy of Exhibit D to the
                                 Distributor's Contract of the
                                 Registrant; (12)
                    (iii)        Conformed copy of Amendment to
                                 Distributor's Contract of the
                                 Registrant; (18)
                    (iv)         The Registrant hereby incorporates the
                                 conformed copy of the specimen Mutual
                                 Funds Sales and Service Agreement;
                                 Mutual Funds Service Agreement; and
                                 Plan Trustee/Mutual Funds Service
                                 Agreement from Item 24(b)(6) of the
                                 Cash Trust Series II Registration
                                 Statement on Form N-1A, filed with the
                                 Commission on July 24, 1995. (File Nos.
                                 33-38550 and 811-6269).
                    (v)          Conformed copy of Distributor's
                                 Contract (Class B Shares) including
                                 Exhibit 1 and Schedule A; (14)
                    (iv)         Conformed copy of Amendment to
                                 Distributor's Contract (Class B Shares)
                                 of the Registrant; (18)
                    (v)          Amendment to Distributors Contracts
                                 between the Federated Funds and
                                 Federated Securities Corp.; (20)
             (f)                 Not applicable;
             (g)    (i)          Conformed copy of Custodian Contract of
                                 the Registrant; (10)
                    (ii)         Conformed Copy of Custody Fee Schedule;
                                 (14)
             (h)    (i)          The responses described in Item
                                 23(e)(iv) are hereby incorporated by
                                 reference.
                    (ii)         Conformed copy of Principal Shareholder
                                 Service's Agreement (Class B Shares)
                                 including Exhibit 1 and Schedule A;
                                 (14)
                    (iii)        Conformed copy of Shareholders Services
                                 Agreement (Class B Shares) including
                                 Exhibit 1 and Schedule A; (14)
                    (iv)         The Registrant hereby incorporates the
                                 conformed copy of the Shareholder
                                 Services Sub-Contract between Fidelity
                                 and Federated Shareholder Services from
                                 Item 24(b)(9)(iii) of the Federated
                                 GNMA Trust Registration Statement on
                                 Form N-1A, filed with the Commission on
                                 March 26, 1996. (File Nos. 2-75670 and
                                 811-3375).
                    (v)          The Registrant hereby incorporates by
                                 reference the conformed copy of the
                                 Agreement for Administrative Services
                                 with Exhibit 1 and Amendments 1 and 2
                                 attached, between Federated
                                 Administrative Services and the
                                 Registrant from Item 23(h)(iv) of the
                                 Federated Total Return Series, Inc.
                                 Registration Statement on Form N-1A
                                 filed with the Commission on November
                                 29, 2004. (File Nos. 33-50773 and 811-
                                 7115)
                    (vi)         The Registrant hereby incorporates the
                                 conformed copy of the Second Amended
                                 and Restated Services Agreement, with
                                 attached Schedule 1 revised 6/30/04,
                                 from Item 23(h)(vii) of the Cash Trust
                                 Series, Inc. Registration Statement on
                                 Form N-1A, filed with the Commission on
                                 July 29, 2004. (File Nos. 33-29838 and
                                 811-5843);
                    (vii)        The Registrant hereby incorporates the
                                 conformed copy of the Second Amended
                                 and Restated Services Agreement, with
                                 attached Exhibit A revised 6/30/04,
                                 from Item (h)(viii) of the Cash Trust
                                 Series, Inc. Registration Statement on
                                 Form N-1A, filed with the Commission on
                                 July 29, 2004. (File Nos. 33-29838 and
                                 811-5843);
                    (viii)       The Registrant hereby incorporates by
                                 reference the conformed copy of
                                 Amendment No. 3 to the Agreement for
                                 Administrative Services between
                                 Federated Administrative Services
                                 Company and the Registrant dated June
                                 1, 2005, from Item 23 (h) (ii) of the
                                 Cash Trust Series, Inc. Registration
                                 Statement on Form N-1A, filed with the
                                 Commission on July 27, 2005. (File Nos.
                                 33-29838 and 811-5843);
                    (ix)         The Registrant hereby incorporates the
                                 conformed copy of the Transfer Agency
                                 and Service Agreement between the
                                 Federated Funds and State Street Bank
                                 and Trust Company from Item 23(h)(ix)of
                                 the Federated Stock Trust Registration
                                 Statement on Form N-1A, filed with the
                                 Commission on December 29, 2005. (File
                                 Nos. 2-75756 and 811-3385)
                    (x)          Conformed cop of the Financial
                                 Administration and Accounting Services
                                 Agreement; (24)
             (i)                 Conformed copy of Opinion and Consent
                                 of Counsel as to legality of shares
                                 being registered; (2)
             (j)                 Conformed Copy of Consent of
                                 Independent Registered Public
                                 Accounting Firm; +
             (k)                 Not applicable;
             (l)                 Copy of Initial Capital Understanding;
                                 (2)
             (m)    (i)          Conformed Copy of the Distribution
                                 Plan; through and including Exhibit B
                                 (Class C and Class F Shares)(21)
                    (ii)         Amended and Restated Plan; including
                                 Exhibit A (Class A Shares); (21)
                    (iii)        Conformed copy of Exhibit 1 and
                                 Schedule A to the 12b-1 Distribution
                                 Plan (Class B Shares) of the
                                 Registrant; (14)
                    (iv)         The responses described in Item
                                 23(e)(iv) are hereby incorporated by
                                 reference.
             (n)    (i)          Conformed copy of the Multiple Class
                                 Plan and attached Exhibits;(22)
                    (ii)         The Registrant hereby incorporates the
                                 Copy of the Multiple Class Plan and
                                 attached Exhibits from Item (n) of the
                                 Federated Short-Term Municipal Trust
                                 Registration Statement on Form N-1A,
                                 filed with the Commission on August 28,
                                 2006. (File Nos. 2-72277 and 811-3181)
             (o)    (i)          Conformed copy of Power of Attorney of
                                 the Registrant;  (17)
                    (ii)         Conformed copy of Power of Attorney of the
                                 President and Director and the Vice
                                 Chairman of the Registrant; (19)
                    (iii)        Conformed copy of Power of Attorney of
                                 Chief Investment Officer of the
                                 Registrant; (19)
                    (iv)         Conformed copy of Power of Attorney of
                                 Treasurer of the Registrant; (22)
                    (v)          Conformed copy of Power of Attorney of
                                 Director of the Registrant; (15)
                    (vi)         Conformed copy of Power of Attorney of
                                 Director of the Registrant; (22)
                    (vii)        Conformed copy of Power of Attorney of
                                 Director of the Registrant, James F.
                                 Will; (23)
                    (viii)       Conformed copy of Power of Attorney of
                                 Director of the Registrant, Thomas
                                 O'Neill; +
             (p)                 The Registrant hereby incorporates the
                                 conformed copy of the Federated
                                 Investors, Inc. Code of Ethics for
                                 Access Persons, effective 1/1/2005,
                                 from Item 23(p) of the Money Market
                                 Obligations Trust Registration
                                 Statement on Form N-1A, filed with the
                                 Commission on February 25, 2005.(File
                                 Nos. 33-31602 and 811-5950);




+  All exhibits have been filed electronically.

2.     Response is incorporated by reference to Registrant's Pre-
       Effective Amendment No. 2 on Form N-1A filed December 15, 1986
       (File Nos. 33-6901 and 811-4743).
3.     Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 2 on Form N-1A filed May 18, 1988 (File
       Nos. 33-6901 and 811-4743).
5.     Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 6 on Form N-1A filed July 28, 1989 (File
       Nos. 33-6901 and 811-4743).
10.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 17 on Form N-1A filed May 24, 1995 (File
       Nos. 33-6901 and 811-4743).
11.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 21 on Form N-1A filed May 29, 1996 (File
       Nos. 33-6901 and 811-4743).
12.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 22 on Form N-1A filed May 30, 1997 (File
       Nos. 33-6901 and 811-4743).
14.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 25 on Form N-1A filed May 28, 1998 (File
       Nos. 33-6901 and 811-4743).
15.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 26 on Form N-1A filed March 29, 1999
       (File Nos. 33-6901 and 811-4743).
17.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 30 on Form N-1A filed May 25, 2001 (File
       Nos. 33-6901 and 811-4743).
18.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 31 on Form N-1A filed May 28, 2002 (File
       Nos. 33-6901 and 811-4743).
19.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 32 on Form N-1A filed May 29, 2003 (file
       Nos. 33-6901 and 811-4743).
20.    Response is incorporated by reference to Registrant's Post-
       Effective Amendment No. 33 on Form N-1A filed January 30, 2004
       (file Nos. 33-6901 and 811-4743).
21.    Response is incorporated by reference to Registrants' Post-
Effective Amendment No. 34 on Form N-1A filed November 15,   2004 (file
Nos. 33-6901 and 811-4743).
22.    Response is incorporated by reference to Registrants' Post-
Effective Amendment No. 35 on Form N-1A filed January 27,   2006 (file
Nos. 33-6901 and 811-4743).
23.    Response is incorporated by reference to Registrants' Post-
Effective Amendment No. 37 on Form N-1A filed November 15,    2006 (file
Nos. 33-6901 and 811-4743).
24.    Response is incorporated by reference to Registrants' Post-
Effective Amendment No. 38 on Form N-1A filed January 10,   2007 (file
Nos. 33-6901 and 811-4743).




Item 24.     Persons Controlled by or Under Common Control with the
             Fund:

             None

Item 25.     Indemnification:  (5)


Item 26.     Business and Other Connections of Investment Adviser:

             For a description of the other business of the investment adviser,
             see the section entitled "Who Manages the Fund?" in Part A. The
             affiliations with the Registrant of one of the Trustees and one of
             the Officers of the investment adviser are included in Part B of
             this Registration Statement under "Who Manages and Provides
             Services to the Fund?"  The remaining Trustees of the investment
             adviser and, in parentheses, their principal occupations are:
             Thomas R. Donahue, (Chief Financial Officer, Federated Investors,
             Inc.), 1001 Liberty Avenue, Pittsburgh, PA, 15222-3779 and Mark D.
             Olson (a principal of the firm, Mark D. Olson & Company, L.L.C.
             and Partner, Wilson, Halbrook & Bayard, P.A.), 800 Delaware
             Avenue, P.O. Box 2305, Wilmington, DE  19899-2305.

The remaining Officers of the investment adviser are:

President/ Chief Executive Officer
and Trustee:                                         John B. Fisher

Executive Vice President:                            Stephen F. Auth

Senior Vice Presidents:                              Linda A. Duessel
                                                     Steven Lehman
                                                     Carol R. Miller

Vice Presidents:                                     G. Andrew Bonnewell
                                                     David P. Gilmore
                                                     Igor Golalic
                                                     John W. Harris
                                                     Angela Kohler
                                                     Kevin McClosky
                                                     John L. Nichol
                                                     Michael R. Tucker

Assistant Vice Presidents:                           Dana Meissner

Secretary:                                           G. Andrew Bonnewell

Treasurer:                                           Thomas R. Donahue


Assistant Treasurer:                                 Denis McAuley, III

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


Item 27.     Principal Underwriters:

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

                    Cash  Trust  Series,  Inc.;  Cash  Trust  Series  II;
                    Federated  Adjustable Rate Securities Fund; Federated
                    American Leaders  Fund,  Inc.;  Federated Core Trust;
                    Federated  Core  Trust  II,  L.P.;  Federated  Equity
                    Funds; Federated Equity Income Fund,  Inc.; Federated
                    Fixed Income Securities, Inc.; Federated  GNMA Trust;
                    Federated   Government   Income   Securities,   Inc.;
                    Federated High Income Bond Fund, Inc.; Federated High
                    Yield   Trust;  Federated  Income  Securities  Trust;
                    Federated   Income   Trust;  Federated  Index  Trust;
                    Federated Institutional  Trust;  Federated  Insurance
                    Series; Federated Intermediate Government Fund,  Inc.
                    Federated   International   Series,  Inc.;  Federated
                    Investment  Series  Funds,  Inc.;  Federated  Managed
                    Allocation Portfolios; Federated Managed Pool Series;
                    Federated MDT Series;  Federated Municipal High Yield
                    Advantage Fund, Inc.; Federated  Municipal Securities
                    Fund,  Inc.;  Federated  Municipal Securities  Income
                    Trust;   Federated   Short-Term    Municipal   Trust;
                    Federated Stock and Bond Fund, Inc.;  Federated Stock
                    Trust; Federated Total Return Government  Bond  Fund;
                    Federated  Total  Return Series, Inc.; Federated U.S.
                    Government  Bond  Fund;   Federated  U.S.  Government
                    Securities Fund: 1-3 Years; Federated U.S. Government
                    Securities   Fund:   2-5   Years;   Federated   World
                    Investment   Series,  Inc.;  Intermediate   Municipal
                    Trust; Edward  Jones  Money  Market  Fund  and  Money
                    Market Obligations Trust.


         (b)

          (1)                          (2)                           (3)
Positions and Offices                                      Positions and Offices
  With Distributor                     Name                    With Registrant
_____________________           _________________          _____________________

Chairman:                       Richard B. Fisher          Vice Chairman

Executive Vice
Vice President, Assistant
Secretary and Director:         Thomas R. Donahue

President and Director:         Thomas E. Territ

Vice President and Director:    Peter J. Germain

Treasurer and Director:         Denis McAuley III

Senior Vice Presidents:         Michael Bappert
                                Richard W. Boyd
                                Laura M. Deger
                                Peter W. Eisenbrandt
                                Theodore Fadool, Jr.
                                Christopher Fives
                                James S. Hamilton
                                James M. Heaton
                                Harry J. Kennedy
                                Anne H. Kruczek
                                Amy Michaliszyn
                                Keith Nixon
                                Solon A. Person, IV
                                Colin B. Starks
                                Robert F. Tousignant
                                Paul Uhlman

Vice Presidents:                Irving Anderson
                                Dan Berry
                                John B. Bohnet
                                Edward R. Bozek
                                Jane E. Broeren-Lambesis
                                Daniel Brown
                                Bryan Burke
                                Mark Carroll
                                Dan Casey
                                Scott Charlton
                                Steven R. Cohen
                                James Conely
                                Kevin J. Crenny
                                G. Michael Cullen
                                Beth C. Dell
                                Ron Dorman
                                Donald C. Edwards
                                Lee England
                                Timothy Franklin
                                Jamie Getz
                                Scott Gundersen
                                Peter Gustini
                                Dayna C. Haferkamp
                                Raymond J. Hanley
                                Vincent L. Harper, Jr.
                                Bruce E. Hastings
                                Jeffrey S. Jones
                                Michael W. Koenig
                                Ed Koontz
                                Christopher A. Layton
                                Michael H. Liss
                                Michael R. Manning
                                Michael Marcin
                                Martin J. McCaffrey
                                Mary A. McCaffrey
                                Richard C. Mihm
                                Vincent T. Morrow
                                Doris T. Muller
                                Alec H. Neilly
                                Rebecca Nelson
                                John A. O'Neill
                                James E. Ostrowski
                                Stephen Otto
                                Brian Paluso
                                Mark Patsy
                                Robert F. Phillips
                                Josh Rasmussen
                                Richard A. Recker
                                Ronald Reich
                                Christopher Renwick
                                Diane M. Robinson
                                Brian S. Ronayne
                                Timothy A. Rosewicz
                                Thomas S. Schinabeck
                                Edward J. Segura
                                Peter Siconolfi
                                Edward L. Smith
                                John A. Staley
                                Jack L. Streich
                                Mark Strubel
                                William C. Tustin
                                Michael Vahl
                                David Wasik
                                G. Walter Whalen
                                Stephen White
                                Jeff Wick
                                Lewis Williams
                                Edward J. Wojnarowski
                                Michael P. Wolff
                                Erik Zettlemayer
                                Paul Zuber

Assistant Vice Presidents:      Robert W. Bauman
                                Charles L. Davis, Jr.
                                William Rose

Secretary:                      C. Todd Gibson

Assistant Treasurer:            Lori A. Hensler
                                Richard A. Novak

The business address of each of the Officers of Federated Securities
Corp. is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779.

          (c)     Not applicable

Item 28.     Location of Accounts and Records:

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

Registrant                       Reed Smith LLP
                                 Investment Management Group (IMG)
                                 Federated Investors Tower
                                 12th Floor
                                 1001 Liberty Avenue
                                 Pittsburgh, PA  15222-3779
                                 (Notices should be sent to the Agent for
                                 Service at above address)

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

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

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

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


Item 29.     Management Services:  Not applicable.

Item 30.     Undertakings:

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




                               SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED EQUITY INCOME
FUND, INC., has duly caused this Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized,
in the City of Pittsburgh and Commonwealth of Pennsylvania, on the 29th
day of January, 2007.

                   FEDERATED EQUITY INCOME FUND, INC.

                    BY: /s/ Nelson W. Winter
                    Nelson W. Winter, Assistant Secretary
                    January 29, 2007

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

     NAME                            TITLE                     DATE
By:/s/ Nelson W. Winter          Attorney In Fact          January 29, 2007
Nelson W. Winter                 For the Persons
ASSISTANT SECRETARY              Listed Below

     NAME                                    TITLE

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

John F. Donahue*                       Director

Richard B. Fisher*                     Vice Chairman

J. Christopher Donahue*                President and Director
                                       (Principal Executive Officer)

Richard A. Novak*                      Treasurer
                                       (Principal Financial Officer)

Thomas G. Bigley*                      Director

John T. Conroy, Jr.*                   Director

Nicholas P. Constantakis*              Director

John F. Cunningham*                    Director

Lawrence D. Ellis, M.D.*               Director

Peter E. Madden*                       Director

Thomas O'Neill*                        Director

Marjorie P. Smuts*                     Director

John S. Walsh*                         Director

James F. Will*                         Director

*  By Power of Attorney

EX-99.CONSENT

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



            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We  consent  to  the  references  to  our  firm  under  the  captions "Financial
Highlights" in the Class A, Class B, Class C, and Class F Shares' Prospectus and
"Independent Registered Public Accounting Firm" in the Class A,  Class  B, Class
C,  and  Class  F  Shares' Statement of Additional Information for the Federated
Equity  Income  Fund,   Inc.  in  Post-Effective  Amendment  Number  40  to  the
Registration Statement (Form N-1A, No. 33-6901) of Federated Equity Income Fund,
Inc. and to the incorporation  by reference of our report dated January 12, 2007
on  Federated  Equity  Income Fund,  Inc.  included  in  the  Annual  Report  to
Shareholders for the fiscal year ended November 30, 2006.



                                               ERNST & YOUNG LLP


Boston, Massachusetts
January 25, 2007

EX-99.POA

                                               Exhibit (o)(viii) under Form N-1A
                                              Exhibit 24 under Item 601/Reg. S-K

                               POWER OF ATTORNEY


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


SIGNATURES                           TITLE                                  DATE





/s/ Thomas O'Neill                   Director                    October 1, 2006
Thomas O'Neill