FEDERATED EQUITY FUNDS, 485APOS, 2000-12-05

FEDERATED EQUITY FUNDS
485APOS, 2000-12-05

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As filed with the Securities and Exchange Commission on December 5, 2000

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

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ..................................
---- -----

Post-Effective Amendment No. 48 .................................. X
---- -----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 42 ............................................... X
---- -----

FEDERATED EQUITY FUNDS

(Exact Name of Registrant as Specified in Charter)

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

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

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

It is proposed that this filing will become effective:

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

If appropriate, check the following box:

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

Copy to:

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

<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. AN OFFER TO
SELL THESE SECURITIES IS ALSO CONTINGENT ON APPROVAL BY SHAREHOLDERS OF THE
KAUFMANN FUND, INC. OF A PLAN TO REORGANIZE THAT FUND INTO THE FEDERATED
KAUFMANN FUND.

FEDERATED KAUFMANN FUND

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ____________________________

A Portfolio of Federated Equity Funds

CLASS A
CLASS B
CLASS C
CLASS K

A mutual fund seeking capital appreciation by investing principally in common
stocks.

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

CONTENTS

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

NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE

[DATE]

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is 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?

To achieve its objective, the Fund invests primarily in the stocks of small and
medium-sized companies that are traded on national security exchanges, the
NASDAQ stock market and on the over-the-counter market. Up to 25% of the Fund's
net assets may be invested in foreign securities.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

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

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

o RISKS RELATED TO COMPANY SIZE. Because the smaller companies in which
the Fund may invest may have unproven track records, a limited product
or service base and limited access to capital, they may be more likely
to fail than larger companies.

o SECTOR RISKS. Because the Fund may allocate relatively more assets to
certain industry sectors than others, the Fund's performance may be
more susceptible to any developments which affect those sectors
emphasized by the Fund.

o LIQUIDITY RISKS. The equity securities in which the Fund invests may be
less readily marketable and may be subject to greater fluctuation in
price than other securities.

o RISKS OF FOREIGN INVESTING. Because the Fund invests in securities
issued by foreign companies, the Fund's share price may be more
affected by foreign economic and political conditions, taxation
policies and accounting and auditing standards than could otherwise be
the case.

o CURRENCY RISKS. Exchange rates for currencies fluctuate daily. Foreign
securities are normally denominated and traded in foreign currencies.
As a result, the value of the Fund's foreign investments and the value
of the shares may be affected favorably or unfavorably by changes in
currency exchange rates relative to the U.S. dollar.

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.

2
<PAGE>

RISK/RETURN BAR CHART AND TABLE

The Fund is the successor to The Kaufmann Fund, Inc. (Kaufmann Fund) pursuant
to a reorganization that took place on _______, 2001. Prior to that date, the
Fund had no investment operations. Accordingly, the performance information and
financial information provided in this prospectus for periods prior to
___________, 2001 is historical information of the Kaufmann Fund. The Kaufmann
Fund was managed by Edgemont Asset Management Corp. and had the same investment
objectives and strategies as the Fund and substantially the same investment
policies as the Fund. The reorganization was approved by Kaufmann Fund
shareholders, who on the date thereof, received Class K Shares of the Fund.

[SEE APPENDIX FOR DESCRIPTION OF BAR CHART]

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

The bar chart shows the variability of the Fund's Class K Shares total return on
a calendar year-end basis for periods prior to _____________, 2001. The total
return of the Fund's Class K Shares is the total return of the Fund's
predecessor, the Kaufmann Fund.

The Fund's Class K Shares are sold without a sales charge (load). The total
returns displayed above are based upon net asset value. Therefore, the total
returns displayed for the Fund's Class K Shares do not reflect the payment of
any sales charges or recurring shareholder account fees. The Fund's Class A, B
and C Shares have higher expenses and are sold with a sales charge. If these
charges or fees had been included, the returns for Class A, B and C would have
been lower.

Within the period shown in the Chart, the Fund's Class K Shares highest
quarterly return was __% (quarter ended _______). Its lowest quarterly return
was __% (quarter ended _________).

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

3
<PAGE>

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Class A Shares, Class B Shares, Class
C Shares and Class K Shares Average Annual Total Returns, reduced to reflect
applicable sales charges (if any), for the calendar periods ended December 31,
2000. The table shows the Fund's total returns averaged over a period of years
relative to the Russell 2000 Index (Russell 2000), a broad-based market index.
[Insert one-sentence definitions of broad-based index and any optional indexes.]
Total returns for the indexes shown do not reflect 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.

RUSSELL
CALENDAR 2000
PERIOD CLASS A(1) CLASS B(1) CLASS C(1) CLASS K INDEX
--------------------------------------------------------------------------------
1 Year
--------------------------------------------------------------------------------
5 Years
--------------------------------------------------------------------------------
10 Years
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
1 THE TOTAL RETURNS SHOWN FOR THE FUND'S CLASS K SHARES ARE THOSE OF THE FUND'S
PREDECESSOR, THE KAUFMANN FUND FOR PERIODS PRIOR TO _________, 2001. THE FUND'S
CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES TOTAL RETURNS FOR SUCH PERIODS
ARE ALSO THOSE OF THE KAUFMANN FUND, BUT HAVE BEEN ADJUSTED TO REFLECT THE SALES
CHARGE OR CDSC AND EXPENSES APPLICABLE TO THAT CLASS.

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

4
<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED KAUFMANN FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
CLASS A CLASS B CLASS C CLASS K
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on 5.50% None None None
Purchases (as a percentage of offering
price)
Maximum Deferred Sales Charge (Load) (as None 5.50% 1.00% None
a percentage of original purchase price
or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on None None None None
Reinvested Dividends (and other
Distributions) (as a percentage of
offering price)
Redemption Fee (as a percentage of None None None 0.20%
amount redeemed, if applicable)

ANNUAL FUND OPERATING EXPENSES (Before
Reimbursements/Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (2) 1.425% 1.425% 1.425% 1.425%
Distribution (12b-1) Fee 0.25% 0.75% 0.75% 0.50%
Shareholder Services Fee 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.24% 0.24% 0.24% 0.24%
Total Annual Fund Operating Expenses 2.165% 2.665%(3) 2.665% 2.415%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser has voluntarily
agreed to waive fees and/or reimburse expenses so that on an annual basis the
total net expenses of the Fund's Class K Shares do not exceed 1.95% for two
years from its commencement of operations. The net expenses the Fund EXPECTS
TO PAY for the fiscal year ended October 31, 2001 are shown below.
Total Reimbursements/Waivers of Fund
Expenses 0.22% 0.15% 0.15% 0.47%
Total Actual Annual Fund Operating
Expenses (after waivers) 1.95% 2.52% 2.52% 1.95%
2 The adviser expects to voluntarily waive a portion of the management fee. The
manager can terminate this voluntary waiver at any time. The management fee
paid by the Fund (after voluntary waivers) is expected to be 1.275% for the
fiscal year ending October 31, 2001.
3 After Class B Shares have been held for eight years from the date of
purchase, they will automatically convert to Class A Shares on the 15th of
the following month. Class A Shares pay lower operating expenses than Class B
Shares.

5
<PAGE>

EXAMPLE

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

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

SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
CLASS A:
--------------------------------------------------------------------------------
Expenses assuming redemption $758 $1,191 $1,650 $2,915
--------------------------------------------------------------------------------
Expenses assuming no redemption $758 $1,191 $1,650 $2,915
--------------------------------------------------------------------------------
CLASS B:
--------------------------------------------------------------------------------
Expenses assuming redemption $820 $1,229 $1,614 $2,881*
--------------------------------------------------------------------------------
Expenses assuming no redemption $270 $829 $1,414 $2,881*
--------------------------------------------------------------------------------
CLASS C:
--------------------------------------------------------------------------------
Expenses assuming redemption $370 $829 $1,414 $3,002
--------------------------------------------------------------------------------
Expenses assuming no redemption $270 $829 $1,414 $3,002
--------------------------------------------------------------------------------
CLASS K
--------------------------------------------------------------------------------
Expenses assuming redemption $265 $774 $1,310 $2,775
--------------------------------------------------------------------------------
Expenses assuming no redemption** $245 $754 $1,290 $2,755
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

(*) Reflects operating expenses of Class A Shares once Class B Shares have been
converted to Class A shares after being held for eight years from the date of
purchase.
(**)These are the expenses you would pay if you purchased shares of the Kaufmann
Fund, the Fund's predecessor, prior to Februrary 1, 1985, whether or not you
redeem your shares.

6
<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

In seeking to meet its objective, the Fund invests primarily in the stocks of
small and medium-sized companies that are traded on national security exchanges,
Nasdaq Stock Market and on the over-the-counter market. Up to 25% of the Fund's
net assets may be invested in foreign securities. When deciding which securities
to buy the Fund considers:

o the growth prospects of existing products and new product development
o the economic outlook of the industry
o the price of the security and its estimated fundamental value
o relevant market, economic and political environments.

The Fund's Adviser uses a bottom up approach to portfolio management. There is
an emphasis on individual stock selection rather than trying to time the highs
and lows of the market or concentrating in certain industries or sectors. This
hands-on approach means that in addition to sophisticated computer analysis, the
Adviser conducts in-depth meetings with management, industry analysts and
consultants. Through this interaction with companies the Adviser seeks to
develop a thorough knowledge of the dynamics of the businesses in which the Fund
invests.

The Fund assesses individual companies from the perspective of a long-term
investor. It buys stocks of companies that it believes:

o are profitable and leaders in the industry
o have distinct products and services which address substantial markets
o can grow annual earnings by at least 20% for the next three to five years
o have superior proven management and solid balance sheets.

Typically, the Fund sells an individual security when the company fails to meet
expectations, there is a deterioration of underlying fundamentals or the
intermediate and long-term prospects [become] poor.

The Fund may loan up to 30% of its total assets in the form of its portfolio
securities to unaffiliated broker-dealers, banks or other recognized
institutional borrowers to generate additional income. The Fund receives cash
and/or U.S. Treasury obligations as collateral. The Fund also may invest up to
15% of its net assets in illiquid securities.

TEMPORARY DEFENSIVE INVESTMENTS

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

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

EQUITY SECURITIES

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

COMMON STOCKS

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

7
<PAGE>

FOREIGN SECURITIES

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

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

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

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

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

ILLIQUID SECURITIES

Illiquid securities are securities for which there is no readily available
market or securities with legal or contractual restrictions. These may include
private placements, repurchase agreements maturing in more than seven days, and
securities eligible for resale under Rule 144A of the Securities Act of 1933.

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.

TREASURY SECURITIES

The Fund may receive Treasury securities as collateral on portfolio
securities loans and [may invest in Treasury securities on a short-term
basis. Treasury securities are direct obligations of the federal government
of the United States. Treasury securities are generally regarded as having
the lowest credit risks.

8
<PAGE>

SPECIAL TRANSACTIONS

SECURITIES LENDING

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

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

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

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

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

STOCK MARKET RISKS

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

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

RISKS RELATED TO INVESTING FOR GROWTH

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

RISKS RELATED TO COMPANY SIZE

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

9
<PAGE>

SECTOR RISKS

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

LIQUIDITY RISKS

o Trading opportunities are more limited for equity securities that are
not widely held. This may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have
to accept a lower price to sell a security, sell other securities to
raise cash or give up an investment opportunity, any of which could
have a negative effect on the Fund's performance. Infrequent trading
of securities may also lead to an increase in their price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it
wants to. If this happens, the Fund will be required to continue to
hold the security or keep the position open, and the Fund could incur
losses.
o Over-the-counter (OTC) derivative contracts generally carry greater
liquidity risk than exchange-traded contracts.

RISKS OF FOREIGN INVESTING

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

[CURRENCY RISKS

o Exchange rates for currencies fluctuate daily. Foreign securities are
normally denominated and traded in foreign currencies. As a result,
the value of the Fund's foreign investments and the value of the
shares may be affected favorably or unfavorably by changes in currency
exchange rates relative to the U.S. dollar.
o The Adviser attempts to limit 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.

10
<PAGE>

CREDIT RISKS

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

LEVERAGE RISKS

o Leverage risk is created when an investment exposes the Fund to a
level of risk that exceeds the amount invested. Changes in the value
of such an investment magnify the Fund's risk of loss and potential
for gain.

INTEREST RATE RISKS

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

WHAT DO SHARES COST?

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

The Fund generally values equity securities according to the last sale price in
the market in which they are primarily traded (either a national securities
exchange or the over-the-counter market).

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

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

MAXIMUM SALES CHARGE
------------------------------
MINIMUM
INITIAL/ CONTINGENT
SUBSEQUENT FRONT-END DEFERRED
INVESTMENT SALES SALES REDEMPTION
SHARES OFFERED AMOUNTS(1) CHARGE(2) CHARGE(3) FEE(4)
--------------------------------------------------------------------------------
Class A $1,500/$100 5.50% 0.00% None
--------------------------------------------------------------------------------
Class B $1,500/$100 None 5.50% None
--------------------------------------------------------------------------------
Class C $1,500/$100 None 1.00% None
--------------------------------------------------------------------------------
Class K $[None]/100 None None 0.20%
--------------------------------------------------------------------------------
1 THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT AMOUNTS FOR RETIREMENT PLANS
ARE $250 AND $100, RESPECTIVELY. THE MINIMUM SUBSEQUENT INVESTMENT AMOUNTS FOR
SYSTEMATIC INVESTMENT PROGRAMS IS $50. INVESTMENT PROFESSIONALS MAY IMPOSE
HIGHER OR LOWER MINIMUM INVESTMENT REQUIREMENTS ON THEIR CUSTOMERS THAN THOSE
IMPOSED BY THE FUND. ORDERS FOR $250,000 OR MORE WILL BE INVESTED IN CLASS A
SHARES INSTEAD OF CLASS B SHARES TO MAXIMIZE YOUR RETURN AND MINIMIZE THE SALES
CHARGES AND MARKETING FEES. ACCOUNTS HELD IN THE NAME OF AN INVESTMENT
PROFESSIONAL MAY BE TREATED DIFFERENTLY. AFTER CLASS B SHARES HAVE BEEN HELD FOR
EIGHT YEARS FROM THE DATE OF PURCHASE, THEY WILL AUTOMATICALLY CONVERT TO CLASS
A SHARES ON THE 15TH OF THE FOLLOWING MONTH. THIS CONVERSION IS A NON-TAXABLE
EVENT.

11
<PAGE>

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."

4 THE REDEMPTION FEE APPLIES TO REDEMPTIONS OR EXCHANGES OF ALL CLASS K SHARES
PURCHASED AFTER _____________, 2001. IF YOU ARE A FORMER KAUFMANN FUND
SHAREHOLDER WHO RECEIVED CLASS K SHARES IN EXCHANGE FOR YOUR KAUFMANN FUND
SHARES, THE REDEMPTION FEE ONLY APPLIES TO SUCH CLASS K SHARES IF YOU PURCHASED
YOUR KAUFMANN FUND SHARES AFTER FEBRUARY 1, 1985.

SALES CHARGE WHEN YOU PURCHASE

CLASS A SHARES
--------------------------------------------------------------------------------
Sales Charge
as a Percentage Sales Charge
of Public as a Percentage
Purchase Amount Offering Price 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%
--------------------------------------------------------------------------------
1 A CONTINGENT DEFERRED SALES CHARGE OF 0.75% OF THE REDEMPTION AMOUNT APPLIES
TO CLASS A SHARES REDEEMED UP TO 24 MONTHS AFTER PURCHASE UNDER CERTAIN
INVESTMENT PROGRAMS WHERE AN INVESTMENT PROFESSIONAL RECEIVED AN ADVANCE PAYMENT
ON THE TRANSACTION.

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

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

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

o combining concurrent purchases of Shares:

- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Federated Funds (other than money
market funds);

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

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

THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE CLASS A SHARES:

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

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

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

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

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

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

SALES CHARGE OR REDEMPTION FEE WHEN YOU REDEEM

Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC), or in the case of Class K Shares,
a redemption fee.

12
<PAGE>

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

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

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

CLASS K SHARES
--------------------------------------------------------------------------------
Class K Shares are subject to a 0.20% redemption fee if your Kaufmann Fund (the
Fund's predecessor) shares were purchased after February 1, 1985 or if you have
purchased additional Class K Shares.
--------------------------------------------------------------------------------

You will not be charged a CDSC when redeeming Class A, B or C Shares:

o purchased with reinvested dividends or capital gains;

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

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

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

o if, after you purchase Shares, you become disabled as defined by the IRS;

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

o if your redemption is a required retirement plan distribution; or

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

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

o Shares that are not subject to a CDSC; and

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

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

You will not be charged a redemption fee when redeeming Class K Shares:

o If you purchased shares of the Kaufmann Fund (the Fund's predecessor) before
February 1, 1985.

13
<PAGE>

HOW IS THE FUND SOLD?

The Fund offers four share classes: Class A, B, C and K, each representing
interests in a single portfolio of securities. Each share class has different
sales charges and other expenses, which affect their performance. CLASS K SHARES
OF THE FUND ARE OFFERED FOR SALE AND MAY BE PURCHASED ONLY BY FORMER
SHAREHOLDERS OF THE KAUFMANN FUND, THE FUND'S PREDECESSOR.

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

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

RULE 12B-1 PLAN

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

HOW TO PURCHASE SHARES

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

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

THROUGH AN INVESTMENT PROFESSIONAL

o Establish an account with the investment professional; and

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

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

DIRECTLY FROM THE FUND

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

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

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

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

14
<PAGE>

BY WIRE Send your wire to:

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

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

BY CHECK

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

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

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

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

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

THROUGH AN EXCHANGE

You may purchases Shares (other than Class K Shares) through an exchange from
the same Share class of another Federated Fund. You must meet the minimum
initial investment requirement for purchasing Shares and both accounts must have
identical registrations.

BY SYSTEMATIC INVESTMENT PROGRAM

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

BY AUTOMATED CLEARING HOUSE (ACH)

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

RETIREMENT INVESTMENTS

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

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:

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

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

15
<PAGE>

THROUGH AN INVESTMENT PROFESSIONAL

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

DIRECTLY FROM THE FUND

BY TELEPHONE

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

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

BY MAIL

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

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

Send requests by mail to:

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

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

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

All requests must include:

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

o amount to be redeemed or exchanged; and

o signatures of all shareholders exactly as registered; and

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

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

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

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

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

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

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

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

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

16
<PAGE>

REDEMPTION IN KIND

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

o to allow your purchase to clear;

o during periods of market volatility; or

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGE

You may exchange Shares of Class K into Class A Shares of another Federated Fund
and you may exchange Class A, Class B, and Class C Shares of the Fund into
Shares of the same class of another Federated Fund. To do this, you must:

o ensure that the account registrations are identical;

o meet any minimum initial investment requirements; and

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

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

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

SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES

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

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

o you reinvest all dividends and capital gains distributions; and

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

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

17
<PAGE>

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

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

SHARE CERTIFICATES

The Fund does not issue share certificates.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

DIVIDENDS AND CAPITAL GAINS

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

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

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

ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

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

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

WHO MANAGES THE FUND?

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

The Adviser has delegated daily management of the Fund to the Sub-Adviser,
Federated Global Investment Management Corp., who is paid by the Adviser and not
by the Fund. The Sub-Adviser's address is [175 Water Street, New York, NY
10038-4965].

The Adviser, Sub-Adviser and other subsidiaries of Federated advise
approximately 176 mutual funds and separate accounts, which totaled
approximately $125 billion in assets as of December 31, 1999. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with approximately 1,900 employees. More than 4,000 investment
professionals make Federated Funds available to their customers. [UPDATE FOR
12/31/00]

18
<PAGE>

Prior to _______, 2001, the Fund's predecessor, the Kaufmann Fund, was advised
by Edgemont Asset Management Corp. ("Edgemont"). Edgemont received an annual
investment advisory fee of 1.50% of the Fund's average daily net assets[, a
portion of which covered fund administration services.] Edgemont voluntarily
reimbursed expenses to the Kaufmann Fund when certain annual operating expenses
of that fund exceeded $650,000.

THE FUND'S PORTFOLIO MANAGERS ARE:

LAWRENCE AURIANA

Lawrence Auriana has been the Fund's portfolio manager since _______, 2001. He
is [INSERT TITLES FOR TRUST AND FEDERATED]. Mr. Auriana was the portfolio
manager of the Fund's predecessor, the Kaufmann Fund, since 1985. From 1984 to
2000, he was the President and Treasurer of Edgemont Asset Management Corp., the
adviser to the Kaufmann Fund. Mr. Auriana has been engaged in the securities
business since 1965.

HANS P. UTSCH

Hans P. Utsch has been the Fund's portfolio manager since _______, 2001. He is
[INSERT TITLES FOR TRUST AND FEDERATED]. Mr. Utsch was the portfolio manager of
the Fund's predecessor, the Kaufmann Fund, since 1985. From 1984 to 2000, he was
Chairman of the Board and Secretary of Edgemont Asset Management Corp., the
adviser to the Kaufmann Fund. Mr. Utsch has been engaged in the securities
business since 1962.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 1.425% 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.

19
<PAGE>

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the financial
performance of the Fund's predecessor, The Kaufmann Fund, Inc., for the 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 Sanville & Company, whose report, along
with the Fund's audited financial statements, is included in the Kaufmann Fund's
Annual Report to Shareholders, dated December 31, 2000.

SELECTED DATA FOR A SHARE OUTSTANDING THROUGH EACH YEAR

Year Ended December 31,
----------------------------------------------

2000 1999 1998 1997 1996

NET ASSET VALUE, BEGINNING OF YEAR $5.68 $6.37 $5.84 $5.05
Income from Investment
Operations:

Net Investment Income (Loss) (0.060) (0.040) (0.060) (0.030)

Net Realized and Unrealized
Gain on Investments 1.316 0.017 0.795 1.083
-----------------------------------

Total Income (Loss) from
Investment Operations 1.256 (0.023) 0.735 1.053

Less Distributions:

From Net Investment Income - - - -

From Net Realized Gains 0.986 0.667 0.205 0.263
-----------------------------------

Total Distributions 0.986 0.667 0.205 0.263

NET ASSET VALUE, END OF YEAR $5.95 $5.68 $6.37 $5.84

Total Return (a) 26.01% 0.72% 12.59% 20.91%

RATIOS AND SUPPLEMENTAL DATA

Net Assets, End of Year (in millions) $3,476 $4,621 $6,008 $5,341

Ratio of Expenses (after expense
reimbursement) to Average
Net Assets (%) 1.95% 1.96% 1.89% 1.93%

Ratio of Interest Expense to
Average Net Assets (%) 0.01% 0.01% 0.01% 0.01%
-----------------------------------

20
<PAGE>

Ratio of Expenses (after expense
reimbursement less interest
expense) to Average Net Assets (%) 1.94% 1.95% 1.88% 1.92%

Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (1.19)% (0.66)% (1.00)% (0.82)%

Portfolio Turnover Rate (%) 78% 59% 65% 72%

(a)The total returns would have been lower if certain expenses had not been
reduced.

21
<PAGE>

FEDERATED KAUFMANN FUND

A Portfolio of Federated Equity Funds

CLASS A
CLASS B
CLASS C
CLASS K

A Preliminary Statement of Additional Information (SAI) dated [____], is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management's Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. AS OF THE DATE OF THIS PROSPECTUS, THE FUND'S MOST RECENT
REPORT TO SHAREHOLDERS IS THE DECEMBER 31, 2000 ANNUAL REPORT TO SHAREHOLDERS OF
THE KAUFMANN FUND, INC., THE FUND'S PREDECESSOR. To obtain the SAI, Annual
Report, Semi-Annual Report and other information without charge, and to make
inquiries, call your investment professional or the Fund at 1-800-341-7400.

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

INVESTMENT COMPANY ACT FILE NO. 811-4017
CUSIP 000000000

000000-00 (0/00)

<PAGE>

Appendix
Prospectus - Risk/Return Bar Chart

Federated Kaufmann Fund

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Kaufmann Fund as of the calendar year-end for
each of ten years.

The `y' axis reflects the "% Total Return" beginning with "-10" and increasing
in increments of 10% up to 80%.

The `x' axis represents calculation periods from the calendar year ended 1991
through the calendar year ended 2000. The light gray shaded chart features ten
distinct vertical bars, each shaded in charcoal, and each visually representing
by height the total return percentages for the calendar year stated directly at
its base. The calculated total return percentage for the Fund for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1991 through 2000, The percentages noted are: 79.18%, 11.32%, 18.18%,
8.99%, 36.89%, 20.91%, 12.59%, 0.72%, 26.01% and [ ]%.

<PAGE>

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.

AN OFFER TO SELL THESE SECURITIES IS ALSO CONTINGENT ON APPROVAL BY SHAREHOLDERS
OF THE KAUFMAN FUND, INC. OF A PLAN TO REORGANIZE THAT FUND INTO THE FEDERATED
KAUFMANN FUND.

FEDERATED KAUFMANN FUND

SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED ___________

A Portfolio of Federated Equity Funds

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

CLASS K SHARES

THIS PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION (SAI) IS NOT A PROSPECTUS.
READ THIS SAI IN CONJUNCTION WITH THE PRELIMINARY PROSPECTUS FOR CLASS A, B, C
AND K SHARES OF THE FEDERATED KAUFMANN FUND (FUND), DATED [DATE]. OBTAIN THE
PROSPECTUS AND THE ANNUAL REPORT'S MANAGEMENT DISCUSSION & ANALYSIS WITHOUT
CHARGE BY CALLING 1-800-341-7400.

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

CUSIP 000000000

00000000 (0/00)

<PAGE>

HOW IS THE FUND ORGANIZED?

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

The Fund is the successor to The Kaufmann Fund, Inc. ("Kaufmann Fund") pursuant
to a reorganization that took place on _______, 2001. Prior to that date, the
Fund had no investment operations. Accordingly, the performance information and
financial information provided in the prospectus for periods prior to _______,
2001 is historical information of the Kaufmann Fund. The Kaufmann Fund was
managed by Edgemont Asset Management Corp. and had the same investment
objectives and strategies as the Fund and substantially the same investment
policies as the Fund. The reorganization was approved by Kaufmann Fund
shareholders, who on the date thereof, received Class K Shares of the Fund.

The Board of Trustees (the Board) has established four classes of shares of the
Fund, known as Class A, Class B, Class C, and Class K (Shares). This SAI relates
to all classes of Shares. The Fund's investment adviser is Federated Investment
Management Company and the Fund's sub-adviser is Federated Global Investment
Management Corp. (collectively, the 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

COMMON STOCKS

PREFERRED STOCKS

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

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

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

REAL ESTATE INVESTMENT TRUSTS (REITS)

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

WARRANTS

Up to 5% of the Fund's assets may be invested in 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

2
<PAGE>

does not rise above the exercise price by the expiration date. This increases
the MARKET RISKS of warrants as compared to the underlying security. Rights
are the same as warrants, except companies typically issue rights to existing
stockholders.

CONVERTIBLE SECURITIES

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

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

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

FIXED INCOME SECURITIES

The Fund may receive Treasury securities as collateral on portfolio securities
loans and may invest in Treasury securities on a short-term basis. The Fund also
may invest in the following types of fixed income securities.

TREASURY SECURITIES

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

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

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

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maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.

BANK INSTRUMENTS

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

FOREIGN SECURITIES

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

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

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

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

DEPOSITARY RECEIPTS

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

FOREIGN EXCHANGE CONTRACTS

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

DERIVATIVE CONTRACTS

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

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

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on

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the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

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

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to STOCK
MARKET AND CURRENCY RISKS, and may also expose the Fund to LIQUIDITY AND
LEVERAGE RISKS. OTC contracts also expose the Fund to CREDIT RISKS in the event
that a counterparty defaults on the contract.

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

OPTIONS

The Fund may use up to 10% of its net assets to purchase and sell put and
call options. Options are rights to buy or sell an underlying asset for a
specified price (the exercise price) during, or at the end of, a specified
period. A call option gives the holder (buyer) the right to buy the
underlying asset from the seller (writer) of the option. A put option gives
the holder the right to sell the underlying asset to the writer of the
option. The writer of the option receives a payment, or premium, from the
buyer, which the writer keeps regardless of whether the buyer uses (or
exercises) the option.

The Fund may:

o Buy call options on portfolio securities and currencies in
anticipation of an increase in the value of the underlying asset;

o Buy put options on portfolio securities and currencies in
anticipation of a decrease in the value of the underlying asset; and

o Buy or write options to close out existing options positions.

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

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities. Illiquid
securities are securities for which there is no readily available market or
securities with legal or contractual restrictions. These may include private
placements, repurchase agreements maturing in more than seven days, and
securities eligible for resale under Rule 144A of the Securities Act of 1933
("1933 Act"). Rule 144A allows certain qualified institutional investors to
trade privately placed securities despite the fact that such securities are not
registered under the 1933 Act. In deciding whether to purchase such securities,
the Fund, acting pursuant to guidelines approved by the board, will consider the
frequency of such trades and quotes, the number of dealers and potential
purchasers, dealer undertakings to make a market, the nature of the securities
and the marketplace trades. If a Rule 144A security is illiquid, the Fund's
Board of Trustees will determine what action, if any, is required.

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

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<PAGE>

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.

SECURITIES LENDING

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

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

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

Securities lending activities are subject to INTEREST RATE RISKS AND CREDIT
RISKS.

BORROWING FOR LEVERAGE

The Fund may borrow from banks for temporary or emergency purposes, clearing
transactions or for other investment purposes. Borrowing to purchase
securities is a speculative practice known as leveraging, which increases
stock market risk by magnifying the effect of any change in the market value
of the Fund's portfolio. Interest paid on any borrowed funds may have the
effect of lowering the Fund's return. In addition, the Fund may have to sell
the securities when it would normally keep them in order to make interest
payments.

SHORT SALES

The Fund may make short sales of securities listed on one or more national
exchange or on the Nasdaq Stock Market. A short sale means selling a security
the Fund does not own to take advantage of an anticipated decline in the
stock's price. Once the Fund sells the security short, it has an obligation
to replace the borrowed security. If it can buy the security back at a lower
price, a profit results. In no event will the Fund engage in short sales
transactions if it would cause the market value of all the Fund's securities
sold short to exceed 25% of its net assets. The value of the securities of
any one issuer that may be shorted by the Fund is limited to the lesser of 2%
of the value of the Fund's net assets or 2% of the securities of any class of
the issuer. The Fund may also sell short "against the box," i.e., the Fund
owns securities identical to those sold short. Short sales against the box
are not subject to the 25% limitation. A capital gain or loss is recognized
immediately upon the sale of a short against the box. Short sales are
speculative in nature, and may reduce returns or increase volatility.

INTER-FUND BORROWING AND LENDING ARRANGEMENTS

The 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 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

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<PAGE>

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 (the "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 (the "Bank Loan Rate"), as determined by the Board. The
interest rate imposed on inter-fund loans is the average of the Repo Rate and
the Bank Loan Rate.

ASSET COVERAGE

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

INVESTMENT RISKS

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

STOCK MARKET RISKS

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

LIQUIDITY RISKS

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

o Over-the-counter (OTC) derivative contracts generally carry greater
liquidity risk than exchange-traded contracts.

RISKS OF FOREIGN INVESTING

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

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

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<PAGE>
CURRENCY RISKS

o The Adviser attempts to limit 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.

LEVERAGE RISKS

o Leverage risk is created when an investment exposes the Fund to a
level of risk that exceeds the amount invested. Changes in value of
such an investment magnify the Fund's risk of loss and potential for
gain.

CREDIT RISKS

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

INTEREST RATE RISKS

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

FUNDAMENTAL INVESTMENT OBJECTIVE

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

INVESTMENT LIMITATIONS

DIVERSIFICATION

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

CONCENTRATION

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

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 1933 Act.

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<PAGE>
INVESTING IN COMMODITIES

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

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.

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 1940 Act, any rule or order
thereunder, or any SEC staff interpretation thereof.

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.

THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD AND BY
THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
1940 ACT. THE FOLLOWING LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD
WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL
CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.

ILLIQUID SECURITIES

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

INVESTING IN OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses. At the present time, the Fund expects
that its investments in other investment companies may include shares of money
market funds, including funds affiliated with the Fund's investment adviser.

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

PURCHASES ON MARGIN

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

PLEDGING ASSETS

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

For purposes of the above limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.

DETERMINING MARKET VALUE OF SECURITIES

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

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

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<PAGE>

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

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

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

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

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

TRADING IN FOREIGN SECURITIES

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

WHAT DO SHARES COST?

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

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE [CLASS A SHARES] You can
reduce or eliminate the applicable front-end sales charge, as follows:

QUANTITY DISCOUNTS

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

ACCUMULATED PURCHASES

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

CONCURRENT PURCHASES

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

LETTER OF INTENT CLASS A SHARES

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

REINVESTMENT PRIVILEGE

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

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<PAGE>

PURCHASES BY AFFILIATES OF THE FUND

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

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

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

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

FEDERATED LIFE MEMBERS

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

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

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

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

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

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

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

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

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

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

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

CLASS B SHARES ONLY

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

HOW IS THE FUND SOLD?

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

FRONT-END SALES CHARGE REALLOWANCES

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

11
<PAGE>

RULE 12B-1 PLAN

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

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

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

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

SHAREHOLDER SERVICES

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

SUPPLEMENTAL PAYMENTS

Investment professionals (such as broker-dealers or banks) may be paid fees, in
significant amounts, out of the assets of the Distributor and/or Federated
Shareholder Services Company (these fees do not come out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related
and/or shareholder services, such as advertising, providing incentives to their
sales personnel, sponsoring other activities intended to promote sales, and
maintaining shareholder accounts These payments may be based upon such factors
as the number or value of Shares the investment professional sells or may sell;
the value of client assets invested; and/or the type and nature of sales or
marketing support furnished by the investment professional.

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

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

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

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

CLASS A SHARES

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

ADVANCE PAYMENTS
AS A PERCENTAGE OF
AMOUNT PUBLIC OFFERING PRICE
------------------------------------------------------
First $1 - $5 million 0.75%
------------------------------------------------------
Next $5 - $20 million 0.50%
------------------------------------------------------
Over $20 million 0.25%

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

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

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

12
<PAGE>

EXCHANGING SECURITIES FOR SHARES

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

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

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

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

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

MASSACHUSETTS PARTNERSHIP LAW

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

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

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

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

13
<PAGE>

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

As of [a DATE not more than 30 days before date of filing], the following
shareholders owned of record, beneficially, or both, 5% or more of outstanding
Shares: [Name & Address of Shareholder, % and Class[Class K only.] (To be filed
by amendment.)

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

TAX INFORMATION

FEDERAL INCOME TAX

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

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

FOREIGN INVESTMENTS

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

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

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

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

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of seven
funds and the Federated Fund Complex is comprised of 43 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.

As of [DATE], the Fund's Board and Officers as a group owned [approximately
(insert # of shares) (___%)] [less than 1%] of the Fund's outstanding Class A,
B, C, and K Shares.

14
<PAGE>
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND FUND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM FUND COMPLEX
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer and Director or Trustee of the $0 $0 for the Trust and
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated 43 other investment
Federated Investors Tower Investors, Inc.; Chairman, Federated Investment companies in the Fund
1001 Liberty Avenue Management Company, Federated Global Investment Complex
Pittsburgh, PA Management Corp. and Passport Research, Ltd.; formerly:
CHAIRMAN and TRUSTEE Trustee, Federated Investment Management Company and
Chairman and Director, Federated Investment Counseling.
------------------------------------------------------------------------------------------------------------------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; $116,760.63 for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's $ Trust and 43 other
15 Old Timber Trail Hospital of Pittsburgh; Director and Chairman of Audit investment companies
Pittsburgh, PA Committee, Robroy Industries, Inc. (coated steel in the Fund Complex
TRUSTEE conduits/computer storage equipment); formerly: Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group,
Inc. (physician practice management); Director, Member of
Executive Committee, University of Pittsburgh.
------------------------------------------------------------------------------------------------------------------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; $128,455.37 for the
Birth Date: June 23, 1937 Chairman of the Board, Investment Properties Corporation; $ Trust and 43 other
Grubb & Ellis/Investment Partner or Trustee in private real estate ventures in investment companies
Properties Corporation Southwest Florida; formerly: President, Investment in the Fund Complex
3201 Tamiami Trail North Properties Corporation; Senior Vice President,
Naples, FL John R. Wood and Associates, Inc., Realtors; President,
TRUSTEE Naples Property Management, Inc. and Northgate Village
Development Corporation.
------------------------------------------------------------------------------------------------------------------------------------
NICHOLAS P. CONSTANTAKIS Director or Trustee of the Federated Fund Complex; $73,191.21 for the
Birth Date: September 3, 1939 Director and Chairman of the Audit Committee, Michael $ Trust and 37 other
175 Woodshire Drive Baker Corporation (engineering, construction, operations investment companies
Pittsburgh, PA and technical services); formerly: Partner, Andersen in the Fund Complex
TRUSTEE Worldwide SC.

------------------------------------------------------------------------------------------------------------------------------------
JOHN F. CUNNINGHAM Director or Trustee of some of the Federated Fund Complex; $ $93,190.48 for the
Birth Date: March 5, 1943 Chairman, President and Chief Executive Officer, Trust and 37 other
353 El Brillo Way Cunningham & Co., Inc. (strategic business consulting); investment companies
Palm Beach, FL Trustee Associate, Boston College; Director, Iperia Corp. in the Fund Complex
TRUSTEE (communications/software); formerly: Director, Redgate
Communications and EMC Corporation (computer storage
systems).

Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.; President and
Chief Operating Officer, Wang Laboratories; Director,
First National Bank of Boston; Director, Apollo Computer,
Inc.
------------------------------------------------------------------------------------------------------------------------------------
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; $ $116,760.63 for the
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Medical Trust and 43 other
3471 Fifth Avenue Director, University of Pittsburgh Medical Center - investment companies
Suite 1111 Downtown; Hematologist, Oncologist and Internist, in the Fund Complex
Pittsburgh, PA University of Pittsburgh Medical Center; Member, National
TRUSTEE Board of Trustees, Leukemia Society of America.
------------------------------------------------------------------------------------------------------------------------------------
PETER E. MADDEN Director or Trustee of the Federated Fund Complex; $ $109,153.60 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Massachusetts Trust and 43 other
One Royal Palm Way General Court; President, State Street Bank and Trust investment companies
100 Royal Palm Way Company and State Street Corporation. in the Fund Complex
Palm Beach, FL
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation; Director, The Boston Stock Exchange.
------------------------------------------------------------------------------------------------------------------------------------

15
<PAGE>

Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, HSBC Bank USA (formerly, Marine Midland Bank);
Vice President, Citibank; Assistant Professor of Banking
and Finance, Frank G. Zarb School of Business, Hofstra
University.
------------------------------------------------------------------------------------------------------------------------------------
JOHN E. MURRAY, JR., J.D., Director or Trustee of the Federated Fund Complex; $ $128,455.37 for the
S.J.D.# President, Law Professor, Duquesne University; Consulting Trust and 43 other
Birth Date: December 20, 1932 Partner, Mollica & Murray; Director, Michael Baker Corp. investment companies
President, Duquesne University (engineering, construction, operations and technical in the Fund Complex
Pittsburgh, PA services).
TRUSTEE
Previous Positions: Dean and Professor of Law, University
of Pittsburgh School of Law; Dean and Professor of Law,
Villanova University School of Law.
------------------------------------------------------------------------------------------------------------------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; Public $ $116,760.63 for the
Birth Date: June 21, 1935 Relations/Marketing/Conference Planning. Fund and 43 other
4905 Bayard Street investment companies
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum in the Fund Complex
TRUSTEE Company of America; television producer; business
owner; conference coordinator.
------------------------------------------------------------------------------------------------------------------------------------
JOHN S. WALSH Director or Trustee of some of the Federated Fund $ $94,536.85 for the
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc. Fund and 39 other
2604 William Drive (manufacturer of construction temporary heaters); investment companies
Valparaiso, IN President and Director, Manufacturers Products, Inc. in the Fund Complex
TRUSTEE (distributor of portable construction heaters);
President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly,
Inc. (heavy highway contractor); formerly: Vice
President, Walsh & Kelly, Inc.
------------------------------------------------------------------------------------------------------------------------------------
J. CHRISTOPHER DONAHUE*+ President or Executive Vice President of the Federated $0 $0 for the Trust and
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the Funds in 30 other investment
Federated Investors Tower the Federated Fund Complex; President, Chief Executive companies in the Fund
1001 Liberty Avenue Officer and Director, Federated Investors, Inc.; Complex
Pittsburgh, PA President, Chief Executive Officer and Trustee, Federated
PRESIDENT and TRUSTEE Investment Management Company; Trustee, Federated
Investment Counseling; President, Chief Executive
Officer and Director, Federated Global Investment
Management Corp.; President and Chief Executive Officer,
Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company; Director, Federated Services Company;
formerly: President, Federated Investment Counseling.
------------------------------------------------------------------------------------------------------------------------------------
EDWARD C. GONZALES President, Executive Vice President and Treasurer of some $0 $0 for the Trust and
Birth Date: October 22, 1930 of the Funds in the Federated Fund Complex; Vice 42 other investment
Federated Investors Tower Chairman, Federated Investors, Inc.; Trustee, Federated companies in the Fund
1001 Liberty Avenue Administrative Services; formerly: Trustee or Complex
Pittsburgh, PA Director of some of the Funds in the Federated Fund
EXECUTIVE VICE PRESIDENT Complex; CEO and Chairman, Federated Administrative
Services; Vice President, Federated Investment Management
Company, Federated Investment Counseling, Federated
Global Investment Management Corp. and Passport Research,
Ltd.; Director and Executive Vice President, Federated
Securities Corp.; Director, Federated Services Company;
Trustee, Federated Shareholder Services Company.
------------------------------------------------------------------------------------------------------------------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary of the Federated $0 $0 for the Trust and
Birth Date: October 26, 1938 Fund Complex; Executive Vice President, Secretary and 43 other investment
Federated Investors Tower Director, Federated Investors, Inc.; formerly: Trustee, companies in the Fund
1001 Liberty Avenue Federated Investment Management Company and Federated Complex
Pittsburgh, PA Investment Counseling; Director, Federated Global
EXECUTIVE VICE PRESIDENT and Investment Management Corp., Federated Services Company
SECRETARY and Federated Securities Corp.
------------------------------------------------------------------------------------------------------------------------------------

16
<PAGE>

------------------------------------------------------------------------------------------------------------------------------------
NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND FUND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM FUND COMPLEX
------------------------------------------------------------------------------------------------------------------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Senior Vice $0 $0 for the Trust and
Birth Date: June 17, 1954 President, Federated Administrative Services; formerly: 43 other investment
Federated Investors Tower Vice President, Federated Administrative Services; held companies in the Fund
1001 Liberty Avenue various management positions within Funds Financial Complex
Pittsburgh, PA Services Division of Federated Investors, Inc.
TREASURER
------------------------------------------------------------------------------------------------------------------------------------
RICHARD B. FISHER President or Vice President of some of the Funds in the $0 $0 for the Trust and
Birth Date: May 17, 1923 Federated Fund Complex; Vice Chairman, Federated 41 other investment
Federated Investors Tower Investors, Inc.; Chairman, Federated Securities Corp.; companies in the Fund
1001 Liberty Avenue formerly: Director or Trustee of some of the Funds in the Complex
Pittsburgh, PA Federated Fund Complex,; Executive Vice President,
VICE PRESIDENT Federated Investors, Inc. and Director and Chief
Executive Officer, Federated Securities Corp.
------------------------------------------------------------------------------------------------------------------------------------
HENRY A. FRANTZEN Chief Investment Officer of this Fund and various other $0 $0 for the Trust and 2
Birth Date: November 28, 1942 Funds in the Federated Fund Complex; Executive Vice other investment
Federated Investors Tower President, Federated Investment Counseling, Federated companies in the Fund
1001 Liberty Avenue Global Investment Management Corp., Federated Investment Complex
Pittsburgh, PA Management Company and Passport Research, Ltd.; Director,
CHIEF INVESTMENT OFFICER Federated Global Investment Management Corp. and
Federated Investment Management Company; Registered
Representative, Federated Securities Corp.; Vice
President, Federated Investors, Inc.; formerly: Executive
Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division;
Chief Investment Officer/Manager, International Equities,
Brown Brothers Harriman & Co.; Managing Director, BBH
Investment Management Limited.
------------------------------------------------------------------------------------------------------------------------------------

J. THOMAS MADDEN Chief Investment Officer of this Fund and various other $0 $0 for the Trust and
Birth Date: October 22, 1945 Funds in the Federated Fund Complex; Executive Vice 11 other investment
Federated Investors Tower President, Federated Investment Counseling, Federated companies in the Fund
1001 Liberty Avenue Global Investment Management Corp., Federated Investment Complex
Pittsburgh, PA Management Company and Passport Research, Ltd.; Director,
CHIEF INVESTMENT OFFICER Federated Global Investment Management Corp. and Federated
Investment Management Company; Vice President, Federated
Investors, Inc.; formerly: Executive Vice
President and Senior Vice President, Federated Investment
Counseling Institutional Portfolio Management Services
Division; Senior Vice President, Federated Investment
Management Company and Passport Research, Ltd.
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

[INCLUDE:

JAMES GREFENSTETE
ANSH SHAAH]

* AN ASTERISK DENOTES A TRUSTEE WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE 1940 ACT.
# A POUND SIGN DENOTES A MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH
HANDLES THE BOARD'S RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, PRESIDENT AND TRUSTEE OF
THE TRUST.

INVESTMENT ADVISER

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

The Adviser is a wholly owned subsidiary of Federated.

17
<PAGE>

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

OTHER RELATED SERVICES

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

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

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

BROKERAGE TRANSACTIONS

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

RESEARCH SERVICES

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

For the fiscal year ended, December 31, 2000, THE INVESTMENT ADVISER TO THE
KAUFMANN FUND, EDGEMONT ASSET MANAGEMENT CORP., directed brokerage transactions
to certain brokers due to research services they provided. The total amount of
these transactions was $_______ for which the Fund paid $_______ in brokerage
commissions.

On December 31, 2000, the Fund owned securities of the following regular
broker/dealers: [identify issuer name and aggregate dollar amount of debt and
equity securities held by Fund].

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

ADMINISTRATOR

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

AVERAGE AGGREGATE DAILY
MAXIMUM NET ASSETS OF THE
ADMINISTRATIVE FEE FEDERATED FUNDS
------------------------------------------------------
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of
$750 million

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

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

18
<PAGE>

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young, LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.

FEES PAID BY THE KAUFMANN FUND FOR SERVICES

FOR THE YEAR ENDED
DECEMBER 31, 2000 2000 1999 1998
--------------------------------------------------------------------------------
Advisory Fee Earned $ $50,896,555 $79,655,324
Advisory Fee Reduction $ $5,168,466 $5,697,251
Brokerage Commissions $ $ $
Administrative Fee $ $ $
12b-1 Fee -- --
--------------------------------------------------------------------------------

The Fund's fees will be allocated among classes based on their pro rata share of
Fund assets, except for marketing (Rule 12b-1) fees and shareholder services
fees, which will be borne only by the applicable class of Shares.

If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.

HOW DOES THE FUND MEASURE PERFORMANCE?

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

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

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

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

THE TOTAL RETURNS SHOWN FOR THE FUND'S CLASS K SHARES ARE THOSE OF THE FUND'S
PREDECESSOR, THE KAUFMANN FUND. THE FUND'S CLASS A SHARES, CLASS B SHARES AND
CLASS C SHARES TOTAL RETURNS ARE ALSO THOSE OF THE KAUFMANN FUND, BUT HAVE BEEN
ADJUSTED TO REFLECT THE SALES CHARGE OR CDSC AND EXPENSES APPLICABLE TO THAT
CLASS. Total returns are given for the one-year and, five-year and ten-year
periods ended December 31, 2000.

Yield is given for the 30-day period ended December 31, 2000.

30-DAY PERIOD 1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
CLASS A

Total Return
Yield

19
<PAGE>

30-DAY PERIOD 1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
CLASS B

Total Return
Yield

30-DAY PERIOD 1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
CLASS C

Total Return
Yield

30-DAY PERIOD 1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
CLASS K

Total Return
Yield

TOTAL RETURN

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

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

YIELD

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

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

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

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

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

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

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

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

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

20
<PAGE>

WHO IS FEDERATED INVESTORS, INC.?

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

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

FEDERATED FUNDS OVERVIEW [UPDATE FOR 12/31/00]

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 27 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16 government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.8 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime, 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and $115
million, respectively.

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

MUTUAL FUND MARKET

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

FEDERATED CLIENTS OVERVIEW

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

21
<PAGE>

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 1,160 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

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

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

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

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended December 31,
2000 are incorporated herein by reference to the Annual Report to Shareholders
of the Kaufmann Fund, the Fund's predecessor, dated December 31, 2000. (To be
filed by amendment.)

22
<PAGE>

ADDRESSES

FEDERATED KAUFMANN FUND

Class A

Class B

Class C

Class K

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

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

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

SUB-ADVISER

Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965 [include Edgemont's NY address?]

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

INDEPENDENT PUBLIC AUDITORS

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

<PAGE>

PART C. OTHER INFORMATION.

Item 23. EXHIBITS
(a) Conformed copy of Amended and Restated Declaration of Trust;
(12)
(i) Conformed copy of Amendment No. 8 of the Amended and
Restated Declaration of Trust; (19)
(b) Copy of Amended and Restated By-Laws, effective
August 15, 1995; (12)
(i) Copy of Amendment No. 5 to By-Laws, effective
February 23, 1998; (18)
(ii) Copy of Amendment No. 6 to By-Laws, effective
February 27, 1998; (18)
(iii) Copy of Amendment No. 7 to By-Laws, effective
May 12, 1998; (18)
(c) (i) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (Federated Small Cap
Strategies Fund); (7)
(ii) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (Federated Growth Strategies
Fund); (8)
(iii) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (Federated Capital
Appreciation Fund); (9)
(iv) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (Federated Aggressive Growth
Fund); (13)
(d) (i) Conformed copy of Investment Advisory Contract on behalf
of Federated Growth Strategies Fund; (5)
(ii) Conformed copy of Investment Advisory Contract on behalf
of the Registrant, which includes Exhibits A and B for
Federated Small Cap Strategies Fund and Federated
Capital Appreciation Fund, respectively; (10)

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

+ All exhibits have been filed electronically.

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed June 30, 1995. (File Nos. 2-91090
and 811-4017)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed July 17, 1995. (File Nos. 2-91090
and 811-4017)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed August 31, 1995. (File Nos. 2-91090
and 811-4017)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2-91090
and 811-4017)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed June 11, 1996. (File Nos. 2-91090 and
811-4017)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed December 30, 1996. (File Nos. 2-91090
and 811-4017)
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 41 on Form N-1A filed November 2, 1998. (File Nos. 2-91090
and 811-4017)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed December 28, 1999. (File Nos. 2-91090
and 811-4017)

<PAGE>

(iii) Conformed copy of Exhibit C to the Investment Advisory
Contract for Federated Aggressive Growth Fund; (14)
(iv) Conformed copies of Exhibits D & E for Federated Large
Cap Growth Fund and Federated Communications
Technology Fund, respectively; (19)
(v) Confirmed copy of Exhibit F to the Investment Advisory
Contract for Federated New Economy Fund; (20)
(e) Conformed copy of Distributor's Contract of the
Registrant; (10)
(i) Conformed copies of Exhibits A and C to the
Distributor's Contract for Federated Small Cap
Strategies Fund, (Class A and C Shares); (10)
(ii) Conformed copies of Exhibits D and F to the
Distributor's Contract for Federated Growth Strategies
Fund, (Class A and C Shares); (10)
(iii) Conformed copies of Exhibits G and I to the
Distributor's Contract for Federated Capital
Appreciation Fund, (Class A and C Shares); (10)
(iv) Conformed copies of Exhibits J and L to the
Distributor's Contract for Federated Aggressive Growth
Fund, (Class A and C Shares); (14)
(v) Conformed copy of Distributor's Contract (Class B
Shares); (16)
(vi) Conformed copies of Exhibits M and N to the
Distributor's Contract for Federated Large Cap Growth
Fund, (Class A and C Shares); (19)
(vii) Conformed copies of Exhibits O and P to the
Distributor's Contract for Federated Communications
Technology Fund, (Class A and C Shares); (19)
(viii) Conformed copies of Exhibits Q and R to the
Distributor's Contract for Federated New Economy Fund,
(Class A and C Shares); (20)
(ix) 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
No. 33-38550 and 811-6269)
(f) Not applicable;

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

+ All exhibits have been filed electronically.

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos.
2-91090 and 811-4017)
14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 29 on Form N-1A filed May 29, 1997. (File Nos. 2-910090
and 811-4017)
16. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 35 of Form N-1A filed December 30, 1997 (File Nos. 2-91090
and 811-4017)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed December 28, 1999. (File Nos. 2-91090
and 811-4017)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 46 on Form N-1A filed September 15, 2000. (File Nos. 2-91090
and 811-4017)

<PAGE>

(g) (i) Conformed Copy of the Custodian Agreement of the
Registrant; (6)
(ii) Conformed copy of Custodian Fee Schedule; (15)
(h) (i) Conformed copy of Amended and Restated Shareholder
Services Agreement; (15)
(ii) Conformed copy of Amended and Restated Agreement for
Fund Accounting Services, Administrative Services,
Shareholder Transfer Agency Services and Custody
Services Procurement; (17)
(iii) Conformed copy of Principal Shareholder Servicer's
Agreement (Class B Shares); (16)
(iv) Conformed copy of Shareholder Services Agreement
(Class B Shares); (16)
(v) The Registrant hereby incorporates by reference 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 25, 1996 (File Nos. 2-75670 and
811-3375).
(i) Conformed copy of the Opinion and Consent of Counsel regarding
legality of shares being registered; (6)
(j) Not Applicable;
(k) Not Applicable;
(l) Conformed copy of Initial Capital Understanding; (2)
(m) Conformed Copy of Distribution Plan of the Registrant; (10)
(i) Conformed copies of Exhibits A and C to the Distribution
Plan for Federated Small Cap Strategies Fund, (Class A
and C Shares); (10)
(ii) Conformed copy of Exhibit E to the Distribution Plan for
Federated Growth Strategies Fund, (Class C Shares); (10)

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

2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed February 28, 1985. (File Nos. 2-91090
and 811-4017)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 29, 1994. (File Nos. 2-91090
and 811-4017)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2-91090
and 811-4017)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed October 30, 1997. (File Nos. 2-91090
and 811-4017)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed December 30, 1997. (File Nos. 2-91090
and 811-4017)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 on Form N-1A filed October 9, 1998. (File Nos. 2-91090
and 811-4017)

<PAGE>

(iii) Conformed copies of Exhibit F and H to the Distribution
Plan for Federated Capital Appreciation Fund, (Class A
and C Shares); (10)
(iv) Conformed copies of Exhibits I and K to the Distribution
Plan for Federated Aggressive Growth Fund (Class A and
C Shares); (14)
(v) The responses described in Item 23(e)(v) are hereby
incorporated by reference;
(vi) Conformed copy of Amendment to the Distribution Plan
(Class B Shares); (16)
(vii) Conformed copies of Exhibits L, M, N & O to the
Distribution Plan; (19)
(viii) Conformed copies of Exhibits P and Q to the Distribution
Plan for Federated New Economy Fund, (Class A and
C Shares); (20)
(ix) Copy of Schedule A to the Distribution Plan; (19)
(n) (i) The Registrant hereby incorporates the conformed copy of
the specimen Multiple Class Plan from Item 24(b)(18) of
the World Investment Series, Inc. Registration Statement
on Form N-1A, filed with the Commission on
January 26, 1996. (File Nos. 33-52149 and 811-07141);
(ii) Multiple Class Plan (18f-3) Exhibits; (19)
(o) Conformed copy of Power of Attorney; (19)
(i) Conformed copy of Power of Attorney of Chief Investment
Officer of the Registrant; (19)
(ii) Conformed copy of Power of Attorney of Trustee
John F. Cunningham; (19)
(iii) Conformed copy of Power of Attorney of Trustee
Charles F. Mansfield; (19)
(iv) Conformed copy of Power of Attorney of Trustee
John S. Walsh; (19)
(v) Conformed copy of Limited Power of Attorney; (19)
(p) The Registrant hereby incorporates the conformed copy of the
Code of Ethics for Access Persons from Item 23(p) of the Money
Market Obligations Trust Registration Statement on Form N-1A
filed with the Commission on February 25, 2000. (File Nos.
33-31602 and 811-5950).

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

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed July 9, 1984. (File Nos. 2-91090 and
811-4017)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2-91090
and 811-4017)
14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 29 on Form N-1A filed May 29, 1997. (File Nos. 2-
910090 and 811-4017)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed December 30, 1997. (File Nos. 2-91090
and 811-4017)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed December 28, 1999. (File Nos. 2-
91090 and 811-4017)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 46 on Form N-1A filed September 15, 2000. (File Nos. 2-
91090 and 811-4017)

<PAGE>

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUNDS
------------------------------------------------------------

None.

Item 25. INDEMNIFICATION: (1)
---------------

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 four of the Trustees and one
of the Officers of the investment adviser are included in Part B
of this Registration Statement under "Who Manages and Provides
Services to the Fund?" The remaining 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.), Suite 301 Little Falls
Center Two, 2751 Centerville Road, Wilmington, DE 19808.

The remaining Officers of the investment adviser are:

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

Senior Vice Presidents: Stephen F. Auth
Joseph M. Balestrino
David A. Briggs
Jonathan C. Conley
Deborah A. Cunningham
Michael P. Donnelly
Linda A. Duessel
Mark E. Durbiano
James E. Grefenstette
Jeffrey A. Kozemchak
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Bernard A. Picchi
Peter Vutz

Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
G. Andrew Bonnewell
Micheal W. Casey
Robert E. Cauley
Lee R. Cunningham, II
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Donald T. Ellenberger
Eamonn G. Folan
Kathleen M. Foody-Malus
Thomas M. Franks
Marc Halperin
John W. Harris

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

1. Response is incorporated by reference to Registrant's Pre Effective
Amendment No. 1 on Form N-1A filed July 9, 1984. (File Nos. 2-91091 and
811-4017)

<PAGE>

Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Robert M. Kowit
Richard J. Lazarchic
Steven J. Lehman
Marian R. Marinack
Christopher Matyszewski
Joseph M. Natoli
Jeffrey A. Petro
John Quartarolo
Keith J. Sabol
Ihab Salib
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Edward J. Tiedge
Timothy G. Trebilcock
Leonardo A. Vila
Paige M. Wilhelm
Richard Winkowski
Lori A. Wolff
George B. Wright

Assistant Vice Presidents: Catherine A. Arendas
Angela Auchey
Nancy J. Belz
Regina Chi
Ross M. Cohen
James R. Crea, Jr.
Karol M. Krummie
Fred B. Crutchfield
James H. Davis, II
Joseph DelVecchio
Paul S. Drotch
Salvatore A. Esposito
John T. Gentry
David Gilmore
Nikola A. Ivanov
Carol Kayworth
Nathan H. Kehm
John C. Kerber
J. Andrew Kirschler
Ted T. Lietz, Sr.
Monica Lugani
Natalie F. Metz
Theresa Miller
Thomas Mitchell
Bob Nolte
Mary Kay Pavuk
Rae Ann Rice
Roberto Sanchez-Dahl, Sr.
Sarath Sathkumara
James W. Schaub
John Sidawi
Diane R. Startari
Diane Tolby
Peter Tropaitis
Michael R. Tucker
Steven J. Wagner

Secretary: G. Andrew Bonnewell

Treasurer: Thomas R. Donahue

<PAGE>

Assistant Secretaries: C. Grant Anderson
Leslie K. Ross

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 II; Cash Trust Series, Inc.; CCB Funds; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Limited Duration Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fixed Income Securities, Inc.; Federated Fund for U.S. Government 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
International Series, Inc.; Federated Investment Series Funds, Inc.; Federated
Managed Allocation Portfolios; Federated Municipal Opportunities 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 Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; Federated World
Investment Series, Inc.; FirstMerit Funds; Hibernia Funds; Independence One
Mutual Funds; Intermediate Municipal Trust; Marshall Funds, Inc.; Money Market
Obligations Trust; Regions Funds; RIGGS Funds; SouthTrust Funds; Wachovia
Variable Insurance Funds; The Wachovia Funds; The Wachovia Municipal Funds; and
Vision Group of Funds, Inc.

(b)

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

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

Arthur L. Cherry Director, --
Federated Investors Tower Federated
1001 Liberty Avenue Securities Corp.
Pittsburgh, PA 15222-3779

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

Charles L. Davis, Jr. Assistant Vice President, --
Federated Investors Tower Federated Securities
1001 Liberty Avenue Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

Lynn Sherwood-Long Assistant Vice President, --
Federated Investors Tower Federated Securities
1001 Liberty Avenue Corp.
Pittsburgh, PA 15222-3779

Kirk A. Montgomery Secretary, --
Federated Investors Tower Federated Securities
1001 Liberty Avenue Corp.
Pittsburgh, PA 15222-3779

<PAGE>

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

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

Timothy S. Johnson Assistant Secretary, --
Federated Investors Tower Federated Securities
1001 Liberty Avenue Corp.
Pittsburgh, PA 15222-3779

Victor R. Siclari Assistant Secretary, --
Federated Investors Tower Federated Securities
1001 Liberty Avenue Corp.
Pittsburgh, PA 15222-3779

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 Federated Investors Tower
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

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

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

Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend 1001 Liberty Avenue
Disbursing Agent") Pittsburgh, PA 15222-3779

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

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
Trustees and the calling of special shareholder meetings by
shareholders.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, FEDERATED EQUITY FUNDS, has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, duly authorized, in the City of Pittsburgh and Commonwealth
of Pennsylvania, on the 4th day of December, 2000.

FEDERATED EQUITY FUNDS

By: /s/ Amanda J. Reed
Amanda J. Reed, Assistant Secretary
Attorney in Fact for John F. Donahue
December 4, 2000

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/ Amanda J. Reed Attorney In Fact December 4, 2000
Amanda J. Reed For the Persons
ASSISTANT SECRETARY Listed Below

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

J. Christopher Donahue* President and Trustee

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

J. Thomas Madden* Chief Investment Officer

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

Nicholas P. Constantakis* Trustee

John F. Cunningham* Trustee

Lawrence D. Ellis, M.D.* Trustee

Peter E. Madden* Trustee

Charles F. Mansfield, Jr.* Trustee

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

Marjorie P. Smuts* Trustee

John S. Walsh* Trustee

* By Power of Attorney