As filed with the Securities and Exchange Commission on November 27, 2000
Registration Nos. 2-91090, 811-4017
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-effective Amendment No.____ Post-Effective Amendment No.____
(Check appropriate box or boxes)
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) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-341-7400
John W. McGonigle, Esquire
Federated Investors Towers
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Robert J. Zutz, Esquire
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
(Names and Addresses of Agents for Service of Process)
Approximate date of proposed public offering: as soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933. The
public offering of shares of Registrant's series is on-going. The title of
securities being registered is shares of beneficial interest.
It is proposed that this filing will become effective on December 27, 2000,
pursuant to Rule 488.
<PAGE>
No filing fee is due because of Registrant's reliance on Section 24(f) of the
Investment Company Act of 1940, as amended.
<PAGE>
Federated Equity Funds
Contents of Registration Statement on Form N-14
This Registration Statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
o Form N-14 Cross Reference Sheet
o Notice of Special Meeting
o Part A - Prospectus/Proxy Statement
o Part B - Statement of Additional Information
o Part C - Other Information
Signature Page
Exhibits
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<TABLE>
<CAPTION>
FEDERATED EQUITY FUNDS
FORM N-14 CROSS REFERENCE SHEET
Part A Item No. Prospectus/Proxy
And Caption Statement Caption
----------- -----------------
<S> <C> <C>
1. Beginning of Registration Statement and Outside Front Cover Page
Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Prospectus Table of Contents
3. Synopsis and Risk Factors Summary
4. Information about the Transaction Information About the Reorganization
5. Information about the Registrant Summary; Information About the Reorganization;
Information About the Federated Fund and the
Kaufmann Fund.
6. Information about the Company Being Acquired Summary; Information About the Reorganization;
Information about the Federated Fund and the
Kaufmann Fund; See also the Prospectus dated May
1, 2000 and the Annual Report to Shareholders
for the fiscal year ended December 31, 1999 for
The Kaufmann Fund, Inc., previously filed on
EDGAR, Accession Numbers 0000950156-00-000216.
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Not Applicable
9. Additional Information Required for Re-offering by Not Applicable
Persons Deemed to be Underwriters
Part B Item No. Statement of Additional
And Caption Information Caption
----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents in Statement of Additional
Information of Federated Equity Funds, dated
December __, 2000.
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12. Additional Information about the Registrant Statement of Additional Information of Federated
Equity Funds, dated December __, 2000.
13. Additional Information about the Company Being Acquired Annual Report to Shareholders for the fiscal year
ended December 31, 1999 for The Kaufmann Fund,
Inc., previously filed on EDGAR, Accession Number
0000950156-00-000216; Semi-Annual Report to
Shareholders for the period ended June 30, 2000
for The Kaufmann Fund, Inc., previously filed on
EDGAR, Accession Number 0000950156-00-000469.
14. Financial Statements Annual Report to Shareholders of The Kaufmann
Fund, Inc. for the fiscal year ended December 31,
1999, previously filed on EDGAR, Accession Number
0000950156-00-000216; Semi-Annual Report to
Shareholders for the period ended June 30, 2000
for The Kaufmann Fund, Inc., previously filed on
EDGAR, Accession Number 0000950156-00-000469.
</TABLE>
<PAGE>
THE KAUFMANN FUND, INC.
140 EAST 45TH STREET
NEW YORK, NEW YORK 10017
Dear Shareholder:
The Board of Directors (the "Board") of The Kaufmann Fund, Inc. (the
"Kaufmann Fund") is pleased to submit for your vote a proposal to reorganize the
Kaufmann Fund into the Federated Kaufmann Fund, a newly organized series of
Federated Equity Funds. The Federated Kaufmann Fund would be advised by
Federated Investment Management Company, a subsidiary of Federated Investors,
Inc. ("Federated Investors"). HANS P. UTSCH AND LAWRENCE AURIANA, THE CURRENT
PORTFOLIO MANAGERS OF THE KAUFMANN FUND, WILL CONTINUE AS CO-MANAGERS TO BE
RESPONSIBLE FOR THE DAY-TO-DAY PORTFOLIO MANAGEMENT OF THE FEDERATED KAUFMANN
FUND UNDER EMPLOYMENT CONTRACTS WITH FEDERATED INVESTORS. THE FEDERATED KAUFMANN
FUND WOULD HAVE THE SAME INVESTMENT OBJECTIVE AND STRATEGIES AND SUBSTANTIALLY
THE SAME INVESTMENT POLICIES AS THE KAUFMANN FUND.
The Board of the Kaufmann Fund and the management of its investment
manager, Edgemont Asset Management Corporation ("Edgemont"), believe this
reorganization is in the best interests of Kaufmann Fund shareholders.
As a result of the reorganization, you will receive shares of a mutual
fund that is part of the Federated Investors family of funds. Federated
Investors was established in 1955 and is one of the largest mutual fund
investment managers in the United States. It advises 185 mutual funds and
separate accounts, which totaled approximately $130 billion in assets as of
September 30, 2000, and maintains [1.3] million shareholder accounts. The
reorganization is being proposed in conjunction with the recent decision by
Edgemont to sell its mutual fund advisory business to Federated Investors. If
the proposal is approved, the Federated Kaufmann Fund would acquire
substantially all of the assets of the Kaufmann Fund and assume certain
liabilities of the Kaufmann Fund. In return, you would receive Class K Shares of
the Federated Kaufmann Fund equal in number and value to the Kaufmann Fund
shares you own at the time of the reorganization, and the Kaufmann Fund would be
liquidated. In order to effect the reorganization, the Board submits for your
approval an Agreement and Plan of Reorganization.
The Board considered various factors in reviewing this proposal on
behalf of Kaufmann Fund shareholders, including the following: First, the Board
considered the fact that the new Federated Kaufmann Fund will have the same
portfolio management team, investment objective and strategies, and
substantially the same investment policies as the Kaufmann Fund. Second, because
Federated Investors has a much larger mutual fund business, the Board believes
the reorganization will likely provide you with the benefit of improved
shareholder services. Third, you will not pay a sales charge or a redemption fee
to acquire shares of the Federated Kaufmann Fund through the reorganization, nor
will you have to pay any front-end sales charges in the future if you wish to
add to your investment in the Federated Kaufmann Fund, or acquire Class A Shares
of any other mutual fund advised by Federated Investors, assuming that you meet
<PAGE>
that fund's minimum investment requirements.(1) Fourth, the Board believes that
access to a much larger family of mutual funds will provide you with a
convenient way to make investments in other Federated mutual funds. Fifth, as a
condition to the proposed transaction, the Federated Kaufmann Fund and the
Kaufmann Fund will receive an opinion of counsel to the effect that neither the
Federated Kaufmann Fund or the Kaufmann Fund nor the shareholders of the
Kaufmann Fund will recognize any gain or loss as a direct result of the
reorganization transaction for federal income tax purposes.
Your vote on the transaction is critical to its success. The
reorganization of the Kaufmann Fund will occur only if approved by two-thirds of
all the votes entitled to be cast on the matter. Whether or not you plan to
attend the meeting, please vote your shares by telephone, by the Internet or by
mail. Following this letter is a Q&A summarizing the reorganization and
information on how to vote your shares. Please read the entire prospectus/proxy
statement carefully before you vote.
THE BOARD BELIEVES THAT THE TRANSACTION IS IN THE BEST INTERESTS OF THE
KAUFMANN FUND AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,
--------------------------------------
Lawrence E. Auriana
Chairman of the Board and Secretary
--------------------------------------
Hans P. Utsch
President and Treasurer
Dated: ________, 2000
---------------
(1) If you purchased shares of the Kaufmann Fund after February 1, 1985, the
current 0.20% redemption fee will continue to apply to redemptions and exchanges
into other funds advised by Federated Investors.
2
<PAGE>
THE KAUFMANN FUND, INC./FEDERATED KAUFMANN FUND
PROXY Q&A
THE FOLLOWING IS IMPORTANT INFORMATION TO HELP YOU UNDERSTAND THE PROPOSAL ON
WHICH YOU ARE BEING ASKED TO VOTE. PLEASE READ THE ENTIRE PROSPECTUS/PROXY
STATEMENT.
WHY IS THIS REORGANIZATION TAKING PLACE?
The reorganization described in this Prospectus/Proxy Statement is being
proposed in conjunction with the sale by Edgemont Asset Management Corporation
("Edgemont"), investment adviser to The Kaufmann Fund, Inc. ("Kaufmann Fund"),
of its mutual fund advisory business to Federated Investors, Inc. ("Federated
Investors" or "Federated"). In determining to sell Edgemont's mutual fund
advisory business, Hans P. Utsch and Lawrence Auriana, Edgemont's sole
shareholders, considered Edgemont's ability to remain competitive in an
environment where the amount of assets under management was becoming more and
more important to running a successful mutual fund business. After such
consideration, Messrs. Utsch and Auriana concluded that larger mutual fund
companies would be in the best position to offer excellent products and services
in the years ahead. Messrs. Utsch and Auriana found that Federated Investors,
with $130 billion of assets under management across a broad product line, is in
a good position to provide such high-quality services to Kaufmann Fund
shareholders. The Board of Directors of the Kaufmann Fund reached the same
conclusion after undertaking its own evaluation of Federated Investors.
UPON REORGANIZATION, WILL THE PORTFOLIO MANAGEMENT OF THE FEDERATED KAUFMANN
FUND DIFFER FROM THAT OF THE KAUFMANN FUND?
Federated and Edgemont are making every effort to make the reorganization a
seamless transaction for the shareholders. MESSRS. UTSCH AND AURIANA, THE
CURRENT PORTFOLIO MANAGERS OF THE KAUFMANN FUND, WILL CONTINUE AS CO-MANAGERS TO
BE RESPONSIBLE FOR THE DAY-TO-DAY PORTFOLIO MANAGEMENT OF THE FEDERATED KAUFMANN
FUND PURSUANT TO EMPLOYMENT CONTRACTS WITH FEDERATED INVESTORS. As Federated
employees, they will have access to a wealth of resources to help them manage
the Federated Kaufmann Fund that were not previously available to them. In
addition, it is expected that the current team of investment professionals at
Edgemont will also continue to serve the Federated Kaufmann Fund as Federated
employees. Federated Investment Management Company will serve as the Federated
Kaufmann Fund's adviser and Federated Global Investment Management Corporation
will serve as the Federated Kaufmann Fund's sub-adviser.
WHEN WILL THIS REORGANIZATION OCCUR?
The reorganization is scheduled to take place shortly after it is approved by
Kaufmann Fund shareholders. At that time, you will receive new account
information on your new ownership in the Federated Kaufmann Fund.
<PAGE>
WHAT DO I HAVE TO DO TO BECOME A SHAREHOLDER IN THE FEDERATED KAUFMANN FUND?
Shareholders are being asked to approve this reorganization through voting at
the Special Meeting of Shareholders, which is scheduled to occur in [______].
YOUR VOTE IS VERY IMPORTANT. You have the flexibility to cast your vote either
by phone, Internet or mail.
At the time of the reorganization, shareholders' accounts will automatically be
transferred to the Federated Kaufmann Fund and shareholders will receive
Federated Kaufmann Fund Class K Shares equal in number and value to the Kaufmann
Fund shares they owned on the day of the reorganization.
Shareholders who hold certificates for their Kaufmann Fund shares are urged to
surrender those certificates BEFORE the reorganization occurs.
WHAT WILL HAPPEN TO MY KAUFMANN FUND ACCOUNT?
After the reorganization, shareholders will be assigned a new account with the
Federated Kaufmann Fund and Kaufmann Fund accounts will be closed. This process
will occur automatically, with no action required by you. Each shareholder's
financial interest and number of shares will remain the same immediately before
and after the reorganization.
WILL ALL OF MY CURRENT ACCOUNT OPTIONS SUCH AS SYSTEMATIC PURCHASES AND
WITHDRAWAL PLANS TRANSFER OVER TO FEDERATED?
Account servicing features generally will transfer to new Federated accounts.
Shortly after the reorganization, shareholders will receive information that
further describes these options and Federated's diversified product line and
world-class investment management services.
WHAT BENEFITS WILL I HAVE AS A FEDERATED SHAREHOLDER?
With over 45 years of investment management experience, Federated has made a
significant commitment to the development of world-class investment management
strategies and superior shareholder services. Federated has a diversified
product line, strong performance history and competitive fund expenses.
Shareholders of record at the time of the reorganization will be allowed to
acquire Class A Shares of any other Federated mutual fund in the future without
paying any front-end sales charge, assuming shareholders meet that new fund's
minimum investment requirement. Shareholders who purchased their Kaufmann Fund
shares after February 1, 1985 will be charged a 0.20% redemption fee on
redemptions, as well as on any exchanges into another Federated mutual fund.
WILL I INCUR TAX LIABILITY AS A RESULT OF THIS REORGANIZATION?
The reorganization will be a TAX-FREE event. Shareholders will not recognize any
taxable gains or losses pursuant to the proposed transaction. Furthermore, the
cost basis and holding period of each fund investment will remain the same.
Of course, shareholders may recognize taxable gains or losses if they sell or
otherwise dispose of their Kaufmann Fund shares before the reorganization or
sell/exchange their Federated Kaufmann Fund shares after the reorganization.
2
<PAGE>
Shareholders generally will be liable for any taxes that are associated with
periodic distributions that occur prior to or after the reorganization, which
distributions may include realized gains from sales of portfolio securities.
Please note that retirement plans and accounts are generally exempt from such
tax consequences, although distributions from tax qualified plans are not exempt
from tax consequences.
WHERE CAN I GET MORE INFORMATION ABOUT THIS REORGANIZATION?
Visit the Kaufmann Fund's website at WWW.KAUFMANN.COM or call the Kaufmann Fund
at 1-800-261-0555.
WHERE CAN I GET MORE INFORMATION ABOUT FEDERATED INVESTORS?
Visit Federated's website at WWW.FEDERATEDINVESTORS.COM or call Federated
Investors at 1-800-341-7400. Additionally, we encourage you to contact your
financial advisor.
HOW CAN I VOTE MY SHARES?
Internet voting is available at WWW.PROXYVOTE.COM. You may also vote your Shares
by phone at 1-800-690-6903, or by completing and signing the enclosed proxy
card(s) and returning in the enclosed postage-paid envelope.
3
<PAGE>
THE KAUFMANN FUND, INC.
140 EAST 45TH STREET
NEW YORK, NEW YORK 10017
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of The Kaufmann Fund, Inc. (the "Kaufmann
Fund") will be held on [_____], 2001, at [__] Eastern Time at 140 East 45th
Street, New York, New York 10017, for the following purposes:
1. TO APPROVE OR DISAPPROVE A PROPOSED AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN THE KAUFMANN FUND AND THE FEDERATED KAUFMANN FUND, A NEWLY ORGANIZED
SERIES OF FEDERATED EQUITY FUNDS.
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
Dated [_____], 2000 By Order of the Board of Directors,
Lawrence E. Auriana
Chairman of the Board and Secretary
Shareholders of record at the close of business on [_____], 2001 are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please vote your shares over the Internet at WWW.PROXYVOTE.COM. You may also
vote your shares by telephone at 1-800-690-6903, or by completing and signing
the enclosed proxy card(s) and returning in the enclosed postage-paid envelope.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER
MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY ALSO
VOTE BY TELEPHONE OR THE INTERNET. YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR
BEFORE THE MEETING OR VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
FEDERATED KAUFMANN FUND
(A SERIES OF FEDERATED EQUITY FUNDS)
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
1-800-341-7400
TO ACQUIRE THE ASSETS OF:
THE KAUFMANN FUND, INC.
140 EAST 45TH STREET
NEW YORK, NEW YORK 10017
1-800-261-0555
PROSPECTUS/PROXY STATEMENT
[____], 2000
This Prospectus/Proxy Statement describes the proposed Agreement and Plan
of Reorganization (the "Plan") pursuant to which you would receive Class K
Shares of Federated Kaufmann Fund, a mutual fund that will be advised by
Federated Investment Management Company, in exchange for your shares of The
Kaufmann Fund, Inc. (the "Kaufmann Fund"), which is advised by Edgemont Asset
Management Corporation ("Edgemont"). HANS P. UTSCH AND LAWRENCE AURIANA, THE
CURRENT PORTFOLIO MANAGERS OF THE KAUFMANN FUND, WILL CONTINUE AS CO-MANAGERS TO
BE RESPONSIBLE FOR THE DAY-TO-DAY PORTFOLIO MANAGEMENT OF THE FEDERATED KAUFMANN
FUND UNDER EMPLOYMENT AGREEMENTS WITH FEDERATED INVESTORS. The Federated
Kaufmann Fund and the Kaufmann Fund (each a "Fund") are both diversified,
open-end management investment companies and have the same investment objective
and strategies and substantially the same investment policies. If the Plan is
approved, the Federated Kaufmann Fund would acquire substantially all of the
assets, and assume certain liabilities of the Kaufmann Fund. Federated Kaufmann
Fund shares would be distributed PRO RATA by the Kaufmann Fund to the holders of
its shares and the Kaufmann Fund would subsequently be dissolved. As a result of
the Plan, each Kaufmann Fund shareholder would become the owner of an equivalent
number of Federated Kaufmann Fund shares having a total net asset value equal to
the total net asset value of each shareholder's holdings in the Kaufmann Fund on
the day of the proposed transaction.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF THE KAUFMANN FUND UNANIMOUSLY RECOMMENDS
APPROVAL OF THE PLAN.
--------------------------------------------------------------------------------
You should retain this Prospectus/Proxy Statement for future reference.
It sets forth concisely the information about the Federated Kaufmann Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement was first mailed to shareholders the week of [_____], 2000. A
Statement of Additional Information, dated [_______,] 2000, containing
additional information about the proposed reorganization and the Federated
Kaufmann Fund, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by this reference. A copy of the Statement of
Additional Information may be obtained upon request and without charge by
writing or calling the Federated Kaufmann Fund at the address and telephone
number shown above.
The Prospectus and Statement of Additional Information for the Kaufmann
Fund, each dated May 1, 2000, and the Annual Report to Shareholders, dated
December 31, 1999, have been filed with the SEC and are incorporated herein by
<PAGE>
this reference. Copies of these documents may be obtained upon request and
without charge from the Kaufmann Fund by calling 1-800-261-0555, or by writing
to The Kaufmann Fund, Inc., 140 East 45th Street, New York, New York 10017.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES, OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY......................................................................1
ABOUT THE PROPOSED REORGANIZATION.........................................1
COMPARATIVE FEE TABLE.....................................................1
COMPARISON OF INVESTMENT OBJECTIVE, POLICIES, STRATEGIES AND PRINCIPAL
RISKS OF THE KAUFMANN FUND AND THE FEDERATED KAUFMANN FUND................4
COMPARISON OF OPERATIONS..................................................8
INVESTMENT ADVISORY AGREEMENT..........................................8
ADMINISTRATIVE AND SHAREHOLDER SERVICES................................9
DISTRIBUTION SERVICES..................................................9
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES..........................10
DIVIDENDS AND OTHER DISTRIBUTIONS.....................................12
TAX CONSEQUENCES.........................................................13
INFORMATION ABOUT THE REORGANIZATION........................................13
AGREEMENT BETWEEN EDGEMONT AND FEDERATED INVESTORS FOR SALE OF
EDGEMONT'S MUTUAL FUND ADVISORY BUSINESS.................................13
CONSIDERATIONS BY THE BOARD..............................................14
DESCRIPTION OF THE PLAN OF REORGANIZATION................................16
DESCRIPTION OF FEDERATED KAUFMANN FUND SHARES............................17
FEDERAL INCOME TAX CONSEQUENCES..........................................17
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS............18
CAPITALIZATION...........................................................20
ADDITIONAL INFORMATION ABOUT THE FEDERATED FUND AND THE KAUFMANN FUND.......20
FEDERATED KAUFMANN FUND..................................................20
KAUFMANN FUND............................................................20
VOTING INFORMATION..........................................................21
OUTSTANDING SHARES AND VOTING REQUIREMENTS...............................21
OTHER MATTERS............................................................23
BOARD RECOMMENDATION.....................................................23
i
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
the Statement of Additional Information (relating to this Prospectus/Proxy
Statement), dated _________, 2000, the Prospectus and Statement of Additional
Information of the Kaufmann Fund, dated May 1, 2000, and the Plan, [a form][an
executed copy] of which is attached to this Prospectus/Proxy Statement as
EXHIBIT A.
ABOUT THE PROPOSED REORGANIZATION
The Board of Directors of the Kaufmann Fund (the "Board") has voted to
recommend approval of the Plan to shareholders of the Kaufmann Fund. Under the
Plan, the Federated Kaufmann Fund would acquire substantially all of the assets
of the Kaufmann Fund in exchange solely for (1) the Federated Kaufmann Fund's
shares to be distributed PRO RATA by the Kaufmann Fund to its shareholders and
(2) the Federated Kaufmann Fund's assumption of certain liabilities of the
Kaufmann Fund's liabilities (the "Reorganization"). As a result of the
Reorganization, each shareholder of the Kaufmann Fund would become the owner of
an equivalent number of Federated Kaufmann Fund Class K Shares having a total
net asset value equal to the total net asset value of the shareholder's holdings
in the Kaufmann Fund on the date of the Reorganization.
As a condition to the Reorganization, each Fund will receive an opinion
of counsel that the Reorganization will be considered a tax-free
"reorganization" under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), so that neither the Federated Kaufmann Fund nor
the Kaufmann Fund, nor the shareholders of the Kaufmann Fund, will recognize any
gain or loss on the Reorganization for federal income tax purposes. Generally,
the tax basis in the Federated Kaufmann Fund shares received by each Kaufmann
Fund shareholder will be the same as the tax basis in his or her shares in the
Kaufmann Fund, and each shareholder's holding period for those Federated
Kaufmann Fund shares will include the holding period for his or her Kaufmann
Fund shares. Following the Reorganization, the Kaufmann Fund will be dissolved.
COMPARATIVE FEE TABLE
The Kaufmann Fund, like all mutual funds, incurs certain expenses in
its operations, and as a shareholder of the Kaufmann Fund, you pay these
expenses indirectly. The Federated Kaufmann Fund also will incur expenses in its
operations. These expenses include management fees, as well as the costs of
maintaining accounts, administration, providing shareholder services and
distribution services, and other activities. The following table compares the
expenses paid by the Kaufmann Fund with the expenses that you are expected to
incur indirectly as a shareholder of the Federated Kaufmann Fund. The table also
includes any shareholder fees that are paid directly from your investment. YOU
WILL NOT BE CHARGED ANY SALES CHARGES FOR ACQUIRING SHARES OF THE FEDERATED
KAUFMANN FUND IN EXCHANGE FOR SHARES OF THE KAUFMANN FUND THROUGH THE
REORGANIZATION, NOR WILL YOU BE CHARGED A FRONT-END SALES LOAD IF YOU WISH TO
ADD TO YOUR INVESTMENT IN THE FEDERATED KAUFMANN FUND, OR ACQUIRE CLASS A SHARES
OF ANY OTHER MUTUAL FUND ADVISED OR DISTRIBUTED BY FEDERATED INVESTORS, INC.
("FEDERATED INVESTORS" AND, TOGETHER WITH ITS SUBSIDIARIES, "FEDERATED"),
ASSUMING YOU MEET THAT FUND'S MINIMUM INVESTMENT REQUIREMENTS. For shareholders
1
<PAGE>
who purchased their Kaufmann Fund shares after February 1, 1985, the current
0.20% redemption fee will continue to apply to redemptions and exchanges into
another Federated mutual fund of your Federated Kaufmann Fund shares.
2
<PAGE>
This table shows the estimated fees and expenses of Federated Kaufmann Fund
Class K Shares and the fees and expenses of the Kaufmann Fund for its fiscal
year ended December 31, 1999.
<TABLE>
<CAPTION>
FEDERATED KAUFMANN FUND
KAUFMANN FUND
CLASS K SHARES
<S> <C> <C>
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT.......................................................None None
REDEMPTION FEE
AS PERCENTAGE OF REDEMPTION PROCEEDS..........................................................0.20%(2) 0.20%(2)
ANNUAL FUND OPERATING EXPENSES (Before Waivers)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee................................................................................1.425% 1.50%
Distribution (12b-1) Fee......................................................................0.50%(3) 0.36%(3)
Shareholder Services Fee......................................................................0.25% None
Other Expenses................................................................................0.315% 0.24%
Total Annual Fund Operating Expenses..........................................................2.49%(1) 2.10%(1)
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(1) Reimbursements/Waivers of Fund Expenses.............................................(0.54)% (0.15)%
Total Annual Fund Operating Expenses (after reimbursement/waivers).................. 1.95% 1.95%
</TABLE>
Federated Investment Management Company has agreed to waive fees and/or
reimburse expenses so that on an annual basis the total net expenses of Class K
Shares of the Federated Kaufmann Fund do not exceed 1.95% for two years from the
commencement of the Federated Kaufmann Fund's operations. Edgemont currently
reimburses expenses voluntarily when certain annual operating expenses of the
Kaufmann Fund exceed $650,000.
2 The Kaufmann Fund imposes a 0.20% fee on the redemption or exchange of any
shares purchased after February 1, 1985. The Federated Kaufmann Fund will impose
the same 0.20% fee on the redemption or exchange of any shares held by those
shareholders who purchased their Kaufmann Fund shares after February 1, 1985,
and upon the redemption or exchange of any Class K Shares purchased after the
Reorganization.
3 Both the Kaufmann Fund and the Federated Kaufmann Fund have 12b-1 plans.
The maximum 12b-1 fees that could be paid by the Federated Kaufmann Fund and the
Kaufmann Fund are 0.50% and 0.75%, respectively.
3
<PAGE>
EXAMPLE
The following Example is intended to help you compare the cost of
investing in the Kaufmann Fund with the cost of investing in Class K Shares of
the Federated Kaufmann Fund.
The Example assumes that you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that the Federated Kaufmann Fund and the Kaufmann Fund operating expenses are
BEFORE REIMBURSEMENTS/WAIVERS as shown in the table above and remain the same
over the time periods indicated.* Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated Kaufmann Fund................................ $273 $797 $1,348 $2,852
Kaufmann Fund.......................................... $234 $680 $1,152 $2458
You would pay the following expenses if you did not redeem your shares or if you purchased
shares of the Kaufmann Fund before February 1, 1985:
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Kaufmann Fund................................ $252 $776 $1,326 $2,826
Kaufmann Fund.......................................... $213 $658 $1,129 $2,431
--------------------------------------------
* The following Example shows your actual costs AFTER WAIVERS:
1 year 3 years 5 years 10 years
---------- ----------- ---------- ------------
Federated Kaufmann Fund
WITH REDEMPTION FEE.................................... $219 $634 $1,075 $2,301
WITHOUT REDEMPTION FEE................................. $198 $612 $1,052 $2,274
Kaufmann Fund
WITH REDEMPTION FEE.................................... $219 $634 $1,075 $2,301
WITHOUT REDEMPTION FEE................................. $198 $612 $1,052 $2,274
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVE, POLICIES, STRATEGIES AND PRINCIPAL RISKS
OF THE KAUFMANN FUND AND THE FEDERATED KAUFMANN FUND
INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES
The Federated Kaufmann Fund has not yet commenced investment operations
and was established solely for the purpose of effecting the Reorganization and
continuing the investment program of the Kaufmann Fund following the
Reorganization. Thus, the investment objective and strategies of the Funds are
the same, and their investment policies are substantially the same.
4
<PAGE>
Both funds have an investment objective of capital appreciation. They
seek to achieve their investment objective by investing 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 each Fund's net assets may be invested in foreign securities. When deciding
which securities to buy, each 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; and
o relevant market, economic and political environments.
The portfolio co-managers use a "bottom up" approach to portfolio
management. They emphasize 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 co-managers conduct in-depth meetings with management, industry
analysts and consultants. Through this interaction, the co-managers seek to
develop a thorough knowledge of the dynamics of the businesses in which each
Fund invests.
The co-managers assess individual companies from the perspective of a
long-term investor. They buy stocks of companies that they believe:
o are profitable and leaders in their industry;
o have distinct products and services that address substantial
markets;
o can grow annual earnings by at least 20% for the next three to five
years; and
o have superior proven management and solid balance sheets.
Typically, the Funds sell an individual security when the issuer of that
security fails to meet expectations, there is a deterioration of underlying
fundamentals or the intermediate and long-term prospects are poor.
Each 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. Each Fund receives cash
and/or U.S. Treasury obligations as collateral. The Federated Kaufmann Fund may
invest up to 15% of its net assets in illiquid securities, while the Kaufmann
Fund may invest up to 10% in such securities.
PRINCIPAL RISKS
Because the Federated Kaufman Fund will have the same investment program
as the Kaufmann Fund, the principal risks of the Federated Kaufmann Fund will be
the same as those of the Kaufmann Fund. Neither Fund can eliminate risk or
assure achievement of its objective, and you may lose money on your investment.
The following discussion summarizes some of the more significant risk factors
relating to each Fund.
5
<PAGE>
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 portfolio co-managers attempt to manage market risk by limiting
the amount the Fund invests in each o 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.
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 portfolio co-managers allocate 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 a 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.
6
<PAGE>
o Over-the-counter (OTC) derivative contracts generally carry greater
liquidity risk than exchange-traded contracts.
RISKS RELATED TO 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 investment 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 co-managers 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.
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.
7
<PAGE>
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.
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.
COMPARISON OF OPERATIONS
INVESTMENT ADVISORY SERVICES
A Board of Trustees governs the Federated Kaufmann Fund. This Board
selects and oversees the Advisers (as defined below), which will manage the
Fund's assets, including buying and selling portfolio securities. Federated
Investment Management Company, Inc., ("FIMC") a subsidiary of Federated
Investors, will act as investment adviser to the Federated Kaufmann Fund, and
Federated Global Investment Management Corporation (collectively, with FIMC, the
"Advisers") will act as the Federated Kaufmann Fund's sub-adviser. The address
of FIMC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
15222-3779. The address of Federated Global Investment Management Corporation is
175 Water Street, New York, New York 10038-9965. Pursuant to an investment
advisory agreement, the Federated Kaufmann Fund will pay 1.425% of average net
assets to FIMC for investment advisory services, and FIMC has agreed to waive
fees and/or reimburse expenses so that on an annual basis the total net expenses
of Class K Shares of the Federated Kaufmann Fund do not exceed 1.95% for two
years from the commencement of the Federated Kaufmann Fund's operations.
The Advisers advise approximately 185 mutual funds and separate
accounts, which totaled approximately $130 billion in assets as of September 30,
2000. Federated Investors 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 Kaufmann
Funds available to their customers.
Edgemont, incorporated in New York in August 1984, with its principal
office at 140 East 45th Street, 43rd Floor, New York, New York 10017, serves as
the Kaufmann Fund's investment adviser. Pursuant to an investment advisory
agreement, the Kaufmann Fund has agreed to 1.50% of average net assets to
Edgemont for investment advisory services. Edgemont currently reimburses
expenses voluntarily when certain annual operating expenses of the Kaufmann Fund
exceed $650,000. Messrs. Utsch and Auriana, the portfolio co-managers of the
Kaufmann Fund, are the sole shareholders and control persons of Edgemont.
Pursuant to employment contracts with Federated Investors, Messrs. Utsch and
Auriana will continue to perform the services they currently do for the Kaufmann
Fund and be responsible for the Federated Kaufmann Fund's day-to day investment
8
<PAGE>
operations [INSERT NEW TITLES]. Mr. Utsch is Chairman of the Board and Secretary
of Edgemont, and Mr. Auriana is its President and Treasurer. Mr. Utsch has been
engaged in the securities business since 1962, and Mr. Auriana since 1965.
Messrs. Utsch and Auriana co-founded Edgemont in August 1984 and have managed
the Kaufmann Fund since March 15, 1985.
ADMINISTRATIVE AND SHAREHOLDER SERVICES
Federated Services Company, an affiliate of the Advisers, will provide
certain administrative personnel and services necessary to operate the Federated
Kaufmann Fund at an effective rate of 0.075% per annum of the average daily net
assets of the Federated Kaufmann Fund. Federated Services Company also will
provide certain accounting and recordkeeping services with respect to the
Federated Kaufmann Fund's portfolio investments for a fee based on Fund assets
plus out-of-pocket expenses.
The Federated Kaufmann Fund will enter into a Shareholder Services
Agreement under which the Fund may make payments of up to 0.25% of the average
daily net asset value of its shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts. The Shareholder
Services Agreement will provide that Federated Shareholder Services Company
("FSSC"), an affiliate of the Advisers, either will perform shareholder services
directly or will select financial institutions or other investment professionals
to perform those services. Financial institutions may receive fees based upon
services performed and shares owned by their clients or customers. The schedule
of those fees and the basis upon which they will be paid will be determined from
time to time by the Federated Kaufmann Fund and FSSC.
Federated Services Company, through its registered transfer agent
subsidiary, Federated Shareholder Services Company, will maintain all necessary
shareholder records. The Federated Kaufmann Fund will pay the transfer agent a
fee based on the size, type and number of accounts and transactions by
shareholders.
Boston Financial Data Services, Inc., 2 Heritage Drive, North Quincy,
Massachusetts 02171, acts as shareholder servicing, dividend paying and transfer
agent of the Kaufmann Fund. State Street Bank and Trust Company ("State Street")
acts as the Kaufmann Fund's custodian and accounting agent, calculating the net
asset value and providing other accounting services to the Fund. State Street
also will serve as the Federated Kaufmann Fund's custodian.
DISTRIBUTION SERVICES
Federated Securities Corp. ("Distributor"), an affiliate of the
Advisers, will be the principal distributor for shares of the Federated Kaufmann
Fund. AFTER THE REORGANIZATION IS COMPLETED, KAUFMANN FUND SHAREHOLDERS WILL BE
ABLE TO ACQUIRE CLASS A SHARES OF ANY OTHER FEDERATED MUTUAL FUND WITHOUT PAYING
A FRONT-END SALES CHARGE, ASSUMING THE SHAREHOLDER MEETS THAT FUND'S INVESTMENT
MINIMUM REQUIREMENTS. For shareholders who purchased their Kaufmann Fund shares
after February 1, 1985, the current 0.20% redemption fee will continue to apply
9
<PAGE>
to redemptions of Class K Shares and exchanges into another Federated mutual
fund.
The Federated Kaufmann Fund has adopted a 12b-1 plan permitting it to
pay an annual fee in connection with the sale and distribution of its shares of
up to 0.50% of the Fund's average daily net assets. Since this fee is paid on an
ongoing basis, it may cost more than other types of sales charges over time.
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, potentially significant, amounts (including
items of material value) to investment professionals for marketing and servicing
Class K Shares.
The Federated Kaufmann Fund will offer four share classes: Class A, B,
C and K, each representing interests in the same portfolio of securities. Each
share class will have different sales charges and /or other expenses, which will
affect their performance. Class K Shares will have no front-end or contingent
deferred sales charges but are subject to a 0.20% redemption fee.
Shares of the Kaufmann Fund are self-distributed, I.E., distributed
directly by the Kaufmann Fund, and are sold at the net asset value next
determined after payment is received. The Kaufman Fund, however, directly or
indirectly may pay qualifying broker-dealers, financial institutions and other
entities for providing distribution services to the Fund. The Kaufmann Fund has
adopted a 12b-1 plan whereby the Fund or Edgemont may finance activities that
are primarily intended to result in the sale of Fund shares, including
advertising, printing and mailing of prospectuses and reports for prospective
shareholders, printing and distribution of advertising material and sales
literature and compensation of persons primarily engaged in the sale and
marketing of the Kaufmann Fund's shares. According to the 12b-1 plan, the
Kaufmann Fund may incur distribution expenses of up to 0.75% per annum of its
average net assets.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
Procedures for the purchase, exchange and redemption of the Federated
Kaufmann Fund's Class K Shares will differ slightly from procedures applicable
to the purchase, exchange and redemption of the Kaufmann Fund shares. Reference
is made to the Prospectus of the Kaufmann Fund, which is incorporated herein by
reference, for a complete description of the purchase and redemption procedures
applicable to the Kaufmann Fund shares. See Exhibit B for information on the
purchase, exchange and redemption procedures of the Federated Kaufmann Fund. Set
forth below are the significant differences in the purchase, exchange and
redemption procedures of the Federated Kaufmann Fund and the Kaufmann Fund.
Purchases of shares of each Fund may be made through an investment
professional or directly from the Fund. Purchases of Federated Kaufmann Fund
shares may also be made through an exchange from another Federated fund. The
following chart shows the minimum subsequent investment amounts for the
Federated Kaufmann Fund and the Kaufmann Fund:
10
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
RETIREMENT PLAN SUBSEQUENT SYSTEMATIC INVESTMENT PLAN
SUBSEQUENT INVESTMENT MINIMUM INVESTMENT MINIMUM SUBSEQUENT INVESTMENT MINIMUM
--------------------------------------------------------------------------------------------------------------------------
CLASS K SHARES CLASS K SHARES CLASS K SHARES
FEDERATED FEDERATED FEDERATED
KAUFMANN FUND KAUFMANN FUND KAUFMANN FUND KAUFMANN FUND KAUFMANN FUND KAUFMANN FUND
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BY TELEPHONE $100 $1,000 $100 N/A $50 N/A
--------------------------------------------------------------------------------------------------------------------------
BY MAIL $100 $100 $100 N/A $50 N/A
--------------------------------------------------------------------------------------------------------------------------
BY AUTOMATIC N/A $50 N/A $50 N/A N/A
INVESTMENT monthly monthly
--------------------------------------------------------------------------------------------------------------------------
BY PAYROLL N/A $50 N/A $50 N/A N/A
DEDUCTION monthly monthly
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Accounts for both Funds held through investment professionals may be subject to
higher or lower minimum investment requirements.
The following charts compare the exchange features and the redemption
features of the Kaufmann Fund and the Federated Kaufmann Fund.
EXCHANGE FEATURES
FEDERATED KAUFMANN KAUFMANN FUND
FUND
(CLASS K SHARES)
----------------------------------------
Available Funds Class A Shares of Reserve Fund
a wide variety of
domestic equity
funds and
international/global
equity funds as
well as money
market funds and
domestic and
international bond
funds.
Minimum Amount Varies by fund $1,000
Clearance of Usually, same day At least four
Transfer business days
11
<PAGE>
Redemption Fee 0.20% 0.20%
Both Funds reserve the right to modify or terminate the exchange privilege at
any time.
REDEMPTION FEATURES
FEDERATED KAUFMANN FUND
(CLASS K SHARES) KAUFMANN FUND
--------------------------------------------------------
By Telephone Yes Yes
By Mail Yes Yes
Through Investment Yes Yes
Professional
Signature Guarantee Proceeds sent to address Same as Federated Kaufmann
Required If: other than address of Fund
record
Payable to someone other Same as Federated Kaufmann
than shareholder of record Fund
Address of record changed Same as Federated Kaufmann
within the last 30 days Fund
Not Required Redemption exceeds $30,000
Redemption Fee 0.20% 0.20%
Accounts With Low May be closed if account May be closed if account
Balances falls below $[500] falls below $500
DIVIDENDS AND OTHER DISTRIBUTIONS
The Kaufmann Fund declares and pays, and the Federated Kaufmann Fund
will declare and pay, distributions of net capital gain and net investment
income annually. With respect to both Funds, unless a shareholder otherwise
instructs, dividends and/or capital gain distributions will be reinvested
automatically in additional shares at net asset value.
12
<PAGE>
TAX CONSEQUENCES
As a condition to the Reorganization, the Funds will receive an opinion
of counsel that the Reorganization will be considered a tax-free
"reorganization" under applicable provisions of the Code so that neither Fund
nor the Kaufmann Fund shareholders would recognize any gain or loss on the
Reorganization. Generally, the tax basis in the Federated Kaufmann Fund's shares
received by each Kaufmann Fund shareholder will be the same as the tax basis in
his or her shares in the Kaufmann Fund, and each shareholder's holding period
for those Federated Kaufmann Fund shares will include the holding period for his
or her Kaufmann Fund shares.
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT BETWEEN EDGEMONT AND FEDERATED INVESTORS FOR SALE OF EDGEMONT'S MUTUAL
FUND ADVISORY BUSINESS
On October 20, 2000, Edgemont and Messrs. Utsch and Auriana, as the
sole shareholders of Edgemont, entered into an asset purchase agreement with
Federated Investors, whereby Federated agreed to purchase substantially all of
Edgemont's mutual fund advisory business. In addition, Messrs. Utsch and
Auriana, the Kaufmann Fund's portfolio co-managers, have entered into employment
agreements with Federated Investors to manage the Federated Kaufmann Fund. Under
the terms of the asset purchase agreement, Federated Investors would pay to
Edgemont approximately $200 million, the specific amount to be determined based
upon the average daily assets of the Kaufmann Fund for a thirty-day period prior
to the closing of the Reorganization. In addition, Federated Investors
additionally may pay Edgemont up to a maximum of $220 million over a period of
up to six years following the closing based upon the growth in Federated
revenues over that time period. Consummation of the agreement between Federated
Investors and Edgemont is conditioned upon, among other things, shareholders of
the Kaufmann Fund approving the Reorganization, and at the time of signing of
the agreement was conditioned upon the Board of the Kaufmann Fund approving the
Reorganization.
In determining to sell its mutual fund advisory business, Edgemont
considered its ability to remain competitive in an environment where the amount
of assets under management was becoming more and more important to running a
successful mutual fund business. After such consideration, Edgemont concluded
that larger mutual fund companies will be in the best position to offer
excellent products and services to fund shareholders in the years ahead.
Edgemont found that Federated Investors, with $130 billion of assets under
management across a broad product line, is in a good position to provide such
high-quality services to Kaufmann Fund shareholders. The Kaufmann Fund Board
subsequently reached the same conclusion after undertaking its own evaluation of
Federated Investors, as discussed below. The Reorganization described in this
Prospectus/Proxy Statement is being proposed in conjunction with the sale by
Edgemont of its mutual fund advisory business to Federated Investors.
13
<PAGE>
CONSIDERATIONS BY THE BOARD
The directors of the Kaufmann Fund who are not "interested persons," as
that term is defined in the 1940 Act (the "Independent Directors"), first
formally discussed Federated Investor's interest in reorganizing the Kaufmann
Fund into a Federated mutual fund at a regular meeting of the Board of Directors
held on October 10, 2000. At the meeting, Messrs. Auriana and Utsch advised the
other members of the Board that Federated Investors (together with its
subsidiaries) had expressed an interest in acquiring the property and other
assets of Edgemont and the Reorganization of the Kaufmann Fund into a Federated
mutual fund. They said that they had been engaged in discussions and
negotiations to that end with representatives of Federated. At the meeting, they
presented preliminary information to the Board concerning Federated Investors
and the Federated Kaufmann Fund. The Board expressed no objection to Messrs.
Auriana and Utsch engaging in further discussions and negotiations with
Federated concerning Edgemont and the Reorganization of the Kaufmann Fund.
In connection with these further discussions and negotiations, on
October 30, 2000, certain representatives of Federated met with members of the
Board and made a presentation concerning Federated and the advantages that the
Reorganization would have for Kaufmann Fund investors. At the meeting, these
representatives presented information concerning Federated's history, position
in the industry, financial soundness, investment management personnel and
processes, its shareholder servicing capabilities as well as its familiarity and
experience in executing transactions similar to the proposed Reorganization of
the Kaufmann Fund. They also stated that the Kaufmann Fund shareholders would
continue to be able to purchase shares of the Federated Kaufmann Fund without
paying a sales charge. Of particular interest to the Board were the strong
marketing capabilities that Federated would be able to provide to the Federated
Kaufmann Fund. The representatives reviewed Federated's marketing capabilities
and its initial plans for marketing the shares of the Federated Kaufmann Fund.
The Independent Directors also met with special counsel to Edgemont and
a financial consultant to Messrs. Auriana and Utsch in connection with the
Edgemont transaction, who described the rudiments of the transaction and
answered questions. The Independent Directors then met separately to consider
the presentation that had been made by the representatives of Federated. The
members were presented with substantial "due diligence" materials and
information which had been received by counsel in response to a written request
to Federated and which had been promptly forwarded. These "due diligence"
materials related to, among other things, the proposed adviser and subadviser to
the Federated Kaufmann Fund, the proposed structure and expenses for the
Federated Kaufmann Fund, the continuation of the investment objective,
strategies and substantially the same policies of the Kaufmann Fund and the
service and expense structure of other funds in the Federated fund complex with
particular regard to their share distribution methods and their compliance
histories. The Independent Directors inquired specifically about the investment
advisory fee that the Federated Kaufmann Fund would be charged. It was noted
that the investment management fee currently being paid by Kaufmann -- 1.5% per
annum -- includes the provision of administrative services and operating
personnel by Edgemont. Federated representatives had acknowledged this and
explained that they had designed the Federated Kaufmann Fund's fees so that
there would be no increase in the Fund's total costs for investment advisory and
fund administration services. Thus, the investment advisory fee for Federated
14
<PAGE>
Kaufmann Fund would be 1.425% per annum with an additional 0.075% per annum fee
payable to Federated Services Company, an affiliate, for administrative
services, as described above under "Administrative and Shareholder Services" for
a total of 1.5% per annum.
PLEASE NOTE THAT A VOTE IN FAVOR OF THE PLAN WILL, IN EFFECT, REFLECT
YOUR ACKNOWLEDGEMENT OF THE INVESTMENT ADVISORY ARRANGEMENT FOR THE FEDERATED
KAUFMANN FUND
In connection with their consideration of the Reorganization, the
Independent Directors were advised by their outside legal counsel and the Board
as a whole was advised by Kaufmann Fund's outside counsel.
After consideration of the "due diligence" materials that were provided
and certain subsequently requested and obtained materials, including a report of
the examination of the operation of Federated Shareholder Services Company, the
proposed transfer agent, the Board met again on November 20, 2000 to consider
approval of the Reorganization. After a thorough discussion and review of the
materials and the terms of the Plan with its counsel, the Board, including all
the Independent Directors, unanimously approved the Plan and recommended its
approval by the Kaufmann Fund shareholders. In approving the Plan, the Board
determined that, in its best judgment, it would be in the best interests of the
Kaufmann Fund shareholders and that those interests would not be diluted as a
result of the Reorganization. In connection with the approval, the Board
considered, among other things, the following factors:
o Messrs. Auriana and Utsch, the Kaufmann Fund's portfolio
co-managers, have entered into employment contracts with Federated
Investors and would continue to manage the portfolio of Federated
Kaufmann Fund after the Reorganization. Additionally, they would
have access to the extensive investment advisory resources and
personnel of Federated's subsidiaries.
o The Reorganization will result in Kaufmann Fund shareholders
becoming part of the Federated fund family, Federated being one of
the largest investment managers in the United States. It advises 185
mutual funds and separate accounts which total approximately $130
billion in assets. It is anticipated that the Kaufmann Fund's
association with Federated will help further the Fund's competitive
position in the mutual fund industry.
o The Reorganization will enable current Kaufmann Fund shareholders to
continue their investment program with the Federated Kaufmann Fund,
which will have the same investment objective and strategies and
substantially the same investment policies as the Kaufmann Fund.
o Kaufmann Fund shareholders will not have to pay a sales charge or
redemption fee upon the Reorganization. Moreover, Kaufmann Fund
shareholders as of the date of the Reorganization will not have to
pay a sales charge upon any future purchases of Federated Kaufmann
Fund shares or upon the purchase of Class A (front-end load) shares
15
<PAGE>
of any other Federated mutual fund. This will have the added
advantage of enabling these shareholders to invest within the
Federated fund complex without paying a front-end sales charge.
o The extensive and experienced marketing and distribution services
that will be available to the Federated Kaufmann Fund as a member of
the Federated complex of funds, whereas the Kaufmann Fund serves as
its own share distributor.
o Each Fund would receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under
applicable provisions of the Internal Revenue Code so that neither
the Federated Kaufmann Fund nor the Kaufmann Fund or its
shareholders would recognize any gain or loss on the Reorganization
for federal income tax purposes.
o Neither the Kaufmann Fund nor its shareholders will incur any
expenses related to the Reorganization.
o Because the Reorganization will be effected on the basis that the
net asset value of the Federated Kaufmann Fund following the
Reorganization will be the same as the net asset value of the
Kaufmann Fund immediately prior to the Reorganization, shareholders
of the Kaufmann Fund will not experience any dilution in the value
of their investments as a result of the Reorganization.
o There will be no increase in total annual operating expenses for two
years after the Reorganization as the result of expense waivers and
reimbursements made by Federated.
o The size of the Federated organization has enabled it to make
substantial investments in personnel and technology to provide the
required operational services to the Federated Kaufmann Fund and its
shareholders.
The Board did not assign relative weights to the foregoing factors or
deem any one or group of them to be controlling in and of themselves.
The Board of Trustees of Federated Equity Funds (including a majority
of the Trustees who are not "interested persons," as that term is defined in the
1940 Act) approved the Plan on October 19, 2000.
DESCRIPTION OF THE PLAN
The Plan provides that the Kaufmann Fund will transfer substantially
all its assets to the Federated Kaufmann Fund in exchange for Federated Kaufmann
Fund Class K Shares to be distributed PRO RATA by the Kaufmann Fund to its
shareholders on or about [______], 2001 (the "Closing Date") and the Federated
Kaufmann Fund's assumption of certain Kaufmann Fund liabilities. The Kaufmann
Fund will be dissolved following the Reorganization.
16
<PAGE>
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt by each Fund of an opinion in form and
substance reasonably satisfactory to the Funds, as described under the caption
"Federal Income Tax Consequences" below. The Plan may be terminated and the
Reorganization may be abandoned at any time before or after approval by the
Kaufmann Fund shareholders prior to the Closing Date by either party if it
believes that consummation of the Reorganization would not be in the best
interests of its shareholders.
Pursuant to a separate agreement, Federated Investors and Edgemont are
responsible for the payment of the Funds' expenses related to consummating the
Reorganization. Such expenses include accountants' fees, legal fees,
registration fees, the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to the
Kaufmann Fund shareholders and the costs of holding the Special Meeting (as
hereinafter defined). Even if the Reorganization is not consummated, Federated
and Edgemont will split the proxy-related expenses.
The foregoing description of the Plan is qualified in its entirety by
its terms and provisions. [The form] [an executed copy] of the Plan is attached
hereto as EXHIBIT A and incorporated herein by this reference.
DESCRIPTION OF FEDERATED KAUFMANN FUND SHARES
Full and fractional Class K Shares (rounded to the third decimal place)
of the Federated Kaufmann Fund will be issued without the imposition of a sales
charge or other fee to the Kaufmann Fund shareholders in accordance with the
procedures described above. Shares of the Federated Kaufmann Fund to be issued
to Kaufmann Fund shareholders under the Plan will be fully paid and
non-assessable by Federated Equity Funds when issued transferable without
restriction and have no preemptive or conversion rights.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to the Reorganization, each Fund will receive an opinion
of counsel substantially to the effect that, on the basis of the existing
provisions of the Code and tax regulations, current administrative rules and
court decisions, for federal income tax purposes: (1) the Reorganization will
qualify as a "reorganization" under section 368(a)(1)(F) of the Code, and each
Fund will be "a party to a reorganization" within the meaning of section 368(b)
of the Code; (2) the Kaufmann Fund will recognize no gain or loss on the
transfer of its assets to the Federated Kaufmann Fund in exchange solely for
Federated Kaufmann Fund Class K Shares and the Federated Kaufmann Fund's
assumption of certain Kaufmann Fund liabilities or on the subsequent
distribution of those shares to the Kaufmann Fund shareholders in constructive
exchange for their Kaufmann Fund shares; (3) the Federated Kaufmann Fund will
recognize no gain or loss on its receipt of those assets in exchange solely for
its shares and its assumption of those liabilities; (4) the Federated Kaufmann
Fund's basis in those assets will be the same as the Kaufmann Fund's basis
therein immediately before the Reorganization, and the Federated Kaufmann Fund's
holding period for those assets will include the Kaufmann Fund's holding period
therefor; (5) a Kaufmann Fund shareholder will recognize no gain or loss on the
17
<PAGE>
constructive exchange of the shareholder's Kaufmann Fund shares solely for
Federated Kaufmann Fund shares pursuant to the Reorganization; (6) a Kaufmann
Fund shareholder's aggregate basis in the Federated Kaufmann Fund shares the
shareholder receives in the Reorganization will be the same as the aggregate
basis in the shareholder's Kaufmann Fund shares to be constructively surrendered
in exchange for those Federated Kaufmann Fund shares, and the shareholder's
holding period for those Federated Kaufmann Fund shares will include the
shareholder's holding period for those Kaufmann Fund shares, provided the
shareholder holds them as capital assets at the time of the Reorganization; and
(7) for purposes of section 381 of the Code, the Federated Kaufmann Fund will be
treated as if there had been no Reorganization.
The foregoing opinion may state that no opinion is expressed as to the
effect of a Reorganization on either Fund or any Kaufmann Fund shareholder with
respect to any asset as to which any unrealized gain or loss is required to be
recognized for federal income tax purposes on the termination or transfer
thereof under a mark-to market system of accounting.
You should recognize that an opinion of counsel is not binding on the
Internal Revenue Service ("IRS") or any court. Neither Fund expects to seek a
ruling from the IRS regarding the tax consequences of the Reorganization.
Accordingly, if the IRS sought to challenge the tax treatment of the
Reorganization and was successful, neither of which is anticipated, the
Reorganization would be treated as a taxable sale of assets of the Kaufmann
Fund, followed by the taxable liquidation thereof.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
The chart below describes some of the differences between your rights
under state law and each Fund's organizational documents as a shareholder of the
Kaufmann Fund and your rights as a shareholder of the Federated Kaufmann Fund.
The Kaufmann Fund is organized as Maryland corporation, and the Federated
Kaufmann Fund is a series of Federated Equity Funds, a Massachusetts business
trust.
18
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
KAUFMANN FEDERATED
CATEGORY FUND FUND
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Preemptive Rights None None
------------------------------------------------------------------------------------------------------------------------------
2. Preferences None None
------------------------------------------------------------------------------------------------------------------------------
3. Appraisal Rights None None
------------------------------------------------------------------------------------------------------------------------------
4. Conversion Rights None None
------------------------------------------------------------------------------------------------------------------------------
5. Exchange Rights (not None None
including right to
exchange among Funds)
------------------------------------------------------------------------------------------------------------------------------
6. Shareholder Rights No right to call for any partition or No right to call for any partition or
division of property, profits, rights or division of property, profits, rights or
interests of the Fund interest of Federated Equity Funds
------------------------------------------------------------------------------------------------------------------------------
7. Annual meetings No annual meetings required No annual meetings required
------------------------------------------------------------------------------------------------------------------------------
8. Right to call meeting of Shall be called upon written request of Shall be called upon request of
shareholders shareholders holding at least 25% of the shareholders owning at least 10% of the
votes entitled to be cast at the meeting votes entitled to be cast at the meeting
------------------------------------------------------------------------------------------------------------------------------
9. Notice of meetings Mailed to each shareholder entitled to Mailed to each shareholder entitled to vote
vote not less than 10 days, nor more at least seven days before the meeting
than 90 days before the meeting
------------------------------------------------------------------------------------------------------------------------------
10. Record date for meetings Directors may close the share transfer Trustees may close the share transfer book
book for a period not exceeding 90 days for a period not exceeding 60 days prior to
and not less than 10 days prior to the the date of any meeting of the shareholders
date of any meeting of the shareholders
------------------------------------------------------------------------------------------------------------------------------
11. Election of Directors or A plurality of the votes cast at the A plurality [of the votes cast at the
Trustees meeting meeting]
------------------------------------------------------------------------------------------------------------------------------
12. Adjournment of meetings Majority of shares represented at Majority of shares represented at meeting
meeting or by proxy entitled to vote may or by proxy entitled to vote may vote to
vote to adjourn adjourn
------------------------------------------------------------------------------------------------------------------------------
13. Removal of Directors or May be removed from office by a vote of May be removed by a vote of at least
Trustees by Shareholders a majority of the Fund's outstanding two-thirds of the outstanding shares of
shares Federated Equity Funds
------------------------------------------------------------------------------------------------------------------------------
14. Personal Liability of None Under Massachusetts law, there is a
Shareholders possibility that a shareholder may be
personally liable; however, the
Trust's Declaration of Trust requires
the Trust to use its property to
protect or compensate the shareholder
if a shareholder is held personally
liable for the Trust's obligations
19
<PAGE>
------------------------------------------------------------------------------------------------------------------------------
KAUFMANN FEDERATED
CATEGORY FUND FUND
------------------------------------------------------------------------------------------------------------------------------
15. Par Value Each share has a par value of $.01 No par value
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the
Kaufmann Fund and of the Federated Kaufmann Fund as of [__________], 2000:
FEDERATED KAUFMANN
KAUFMANN FUND
FUND
------------- ------------
Net Assets........ N/A
Net Asset Value
Per Share......... N/A
Shares Outstanding
ADDITIONAL INFORMATION ABOUT THE FEDERATED FUND
AND THE KAUFMANN FUND
FEDERATED KAUFMANN FUND
Information about the Federated Kaufmann Fund is contained in this
Prospectus/Proxy Statement and in the Statement of Additional Information dated
__________, 2000 (relating to this Prospectus/Proxy Statement), which is
incorporated herein by this reference. A copy of the Statement of Additional
Information may be obtained without charge by writing the Federated Kaufmann
Fund at 5800 Corporate Drive, Pittsburgh, PA 15237-7000 or by calling
1-800-341-7400.
KAUFMANN FUND
Information about the Kaufmann Fund is contained in its current
Prospectus, Annual Report to Shareholders, and Statement of Additional
Information, dated May 1, 2000 and in the Statement of Additional Information
(relating to this Prospectus/Proxy Statement), each of which is incorporated
herein by this reference. Copies of the Kaufmann Fund's current Prospectus,
Annual Report and Statement of Additional Information, which have been filed
with the SEC, may be obtained upon request and without charge from the Kaufmann
Fund by calling 1-800-261-0555, or by writing to The Kaufmann Fund, Inc., 140
East 45th Street, New York, New York 10017. The Kaufmann Fund is subject to the
20
<PAGE>
informational requirements of the 1933 Act, the Securities Exchange Act of 1934,
as amended, and the 1940 Act and in accordance therewith files reports and other
information with the SEC. Reports, proxy and information statements, charter
documents and other information filed by the Kaufmann Fund can be obtained by
calling or writing the Kaufmann Fund and can also be inspected at the public
reference facilities maintained by the SEC or obtained at prescribed rates at
the addresses listed in the previous section or from the SEC's Internet site at
http://www.sec.gov.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of proxies for use at the Special Meeting of
Shareholders to be held on [______], 2001 at [___], Eastern Time, at 140 East
45th Street, New York, New York 10017, and at any adjournments thereof (the
"Special Meeting"). The proxy confers discretionary authority on the persons
designated therein to vote on other business not currently contemplated which
may properly come before the Special Meeting. A proxy, if properly executed,
duly returned and not revoked, will be voted in accordance with the
specifications thereon; if no instructions are given, such proxy will be voted
in favor of the Plan. A shareholder may revoke a proxy at any time prior to use
by filing with the Secretary of the Kaufmann Fund an instrument revoking the
proxy, by submitting a proxy bearing a later date or by attending and voting at
the Special Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by Federated Investors and Edgemont pursuant to a
separate agreement. In addition to solicitations through the mails, proxies may
be solicited by officers, employees and agents of Edgemont. Such solicitations
may be by telephone, telegraph or personal contact. Federated Investors and
Edgemont will share the cost of reimbursing custodians, nominees and fiduciaries
for the reasonable costs incurred by them in connection with forwarding
solicitation materials to the beneficial owners of shares held of record by such
persons.
INTERNET VOTING IS AVAILABLE AT WWW.PROXYVOTE.COM. YOU MAY ALSO VOTE
YOUR SHARES BY TELEPHONE AT 1-800-690-6903, OR BY COMPLETING AND SIGNING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
[Shareholder Communications Corp. ("SCC")] has been hired to assist in the proxy
solicitation. For soliciting services, estimated proxy expenses total [$____],
and such expenses will be borne by Edgemont and Federated Investors not by the
Kaufmann Fund. If votes are recorded by telephone, [SCC] will use procedures
designed to authenticate shareholders' identities, to allow shareholders to
authorize the voting of their shares in accordance with their instructions, and
to confirm that a shareholder's instructions have been properly recorded.
OUTSTANDING SHARES AND VOTING REQUIREMENTS
The Board of Directors of the Kaufmann Fund has fixed the close of
business on [____], 2000, as the record date for the determination of
shareholders of the Kaufmann Fund entitled to notice of and to vote at the
Special Meeting and any adjournments thereof. Each share of the Kaufmann Fund is
entitled to one vote and fractional shares have proportionate voting rights.
21
<PAGE>
Only shareholders of record as of the record date are entitled to vote on the
proposal. As of the record date, the Kaufmann Fund had [_____] shares issued and
outstanding.
On the record date, the Directors and officers of the Kaufmann Fund
owned in the aggregate less than 1% of the outstanding shares of the fund. To
the best knowledge of the Kaufmann Fund, as of the record date, no person,
except as set forth in the table below, owned beneficially or of record 5% or
more of the outstanding shares of the Kaufmann Fund.
SHARES OWNED PERCENT OF
OF RECORD AND OUTSTANDING
NAME AND ADDRESS BENEFICIALLY SHARES
------------------------------ ---------------- ---------------
Approval of the Plan with respect to the Kaufmann Fund requires the
affirmative vote, in person or by proxy, of two-thirds of all the votes entitled
to be cast on the matter. In the event that shareholders of the Kaufmann Fund do
not approve the Plan, the Reorganization will not occur and the Board will
consider other options including assignment of the advisory contract.
In order for the shareholder meeting to go forward there must be a
quorum. This means that at least a majority of the Kaufmann Fund's shares
entitled to be cast at the meeting must be represented at the meeting--either in
person or by proxy. All returned proxies count toward a quorum, regardless of
how they are voted. Abstentions and broker non-votes will be counted as shares
present at the meeting in determining whether a proposal has been approved, and
will have the same effect as a vote "against" the proposal. (Broker non-votes
are shares for which (a) the underlying owner has not voted and (b) the broker
holding the shares does not have discretionary authority to vote on the
particular matter.)
In the event that at the time the meeting is called to order a quorum
is not present, the holders of a majority of the shares present in person or
represented by proxy shall have power to adjourn the meeting. If a quorum is
present but sufficient votes to approve any of the proposals are not received,
the persons named as proxies may propose one or more adjournments of the meeting
to permit further solicitation of proxies. In determining whether to adjourn the
meeting, the following factors may be considered: the nature of the proposal;
the percentage of votes actually cast; the percentage of negative votes actually
cast; the nature of any further solicitation; and the information to be provided
to shareholders with respect to the reasons for the solicitation. Any
adjournment will require a vote in favor of the adjournment by the holders of a
majority of the shares present in person or by proxy at the meeting (or any
adjournment of the meeting).
22
<PAGE>
OTHER MATTERS
Management of the Kaufmann Fund knows of no other matters that may
properly be, or which are likely to be, brought before the Special Meeting.
However, if any other business shall properly come before the Special Meeting,
the persons named in the proxy intend to vote thereon in accordance with their
best judgment.
BOARD RECOMMENDATION
After carefully considering the issues involved, the Board has
unanimously concluded that the proposed Reorganization is in the best interests
of the Kaufmann Fund shareholders. The Board recommends that you vote to approve
the Plan. Whether or not shareholders expect to attend the Special Meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
23
<PAGE>
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of
______ __, 2000, between The Kaufmann Fund, Inc., a Maryland corporation ("Old
Fund"), and Federated Equity Funds, a Massachusetts business trust ("Trust"), on
behalf of Federated Kaufmann Fund, a segregated portfolio of assets ("series")
thereof ("New Fund"). (Old Fund and New Fund are sometimes referred to herein
individually as a "Fund" and collectively as the "Funds"; and Old Fund and Trust
are sometimes referred to herein individually as an "Investment Company" and
collectively as the "Investment Companies"). All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
New Fund are made and shall be taken or undertaken by Trust on its behalf.
Old Fund intends to change its identity, form, and place of
organization -- by converting to a series of Trust -- through a reorganization
within the meaning of section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended ("Code"). Old Fund desires to accomplish such conversion by
transferring substantially all of its assets to New Fund (which is being
established solely for the purpose of acquiring such assets and continuing Old
Fund's business) in exchange solely for voting shares of beneficial interest in
New Fund and New Fund's assumption of certain of Old Fund's liabilities,
followed by the distribution of those shares PRO RATA to the holders of shares
of common stock of Old Fund ("Old Fund Shares"), all on the terms and conditions
set forth in this Agreement (which is intended to be, and is adopted as, a "plan
of reorganization" within the meaning of the regulations under section 368 of
the Code ("Regulations")). All such transactions are referred to herein as the
"Reorganization."
Old Fund has a single class of shares. New Fund's shares of beneficial
interest will be divided into multiple classes of shares, including Class K
shares. Only New Fund's Class K shares ("New Fund Shares") are involved in the
Reorganization.
In consideration of the mutual promises herein contained, the parties
agree as follows:
1. PLAN OF REORGANIZATION
1.1. Old Fund agrees to assign, sell, convey, transfer, and deliver
its assets described in paragraph 1.2 ("Assets") to New Fund. New Fund
agrees in exchange therefor --
(a) to issue and deliver to Old Fund the number of full and
fractional (rounded to the third decimal place) New Fund Shares
equal to the number of full and fractional Old Fund Shares then
outstanding, and
<PAGE>
(b) to assume Old Fund's liabilities described in the first
sentence of paragraph 1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 2.1).
1.2. The Assets shall include all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on Old Fund's books, and
other property owned by Old Fund (other than its leasehold interest under a
lease dated January 1, 1996, as amended, between it and Manhattan Pacific
Management Company, Inc. ("Lease") and assets excepted pursuant to paragraph
3.3.4) at the Effective Time (as defined in paragraph 2.1).
1.3. Subject to the remainder of this paragraph 1.3, the Liabilities
shall include only Old Fund's liabilities, debts, obligations, and duties with
respect to (a) portfolio transactions (made in accordance with applicable
investment limits) that have not yet settled in the ordinary course of business,
and investment contracts, including options, futures, and forward contracts
(made in accordance with such limits), that are open, as of the Effective Time,
(b) requests for redemptions of Old Fund Shares pursuant to section 22(e) of the
Investment Company Act of 1940, as amended ("1940 Act"), that have been received
in good order by Old Fund but not yet fulfilled as of the Effective Time, and
(c) current liabilities incurred in the ordinary course of Old Fund's business
as an investment company (excluding extraordinary items). The Liabilities shall
not include any other of Old Fund's liabilities, debts, obligations, or duties
of whatever kind or nature. Old Fund agrees (x) to use its commercially
reasonable best efforts to identify all of its liabilities, debts, obligations,
and duties before the Effective Time and (y) to discharge all such known
liabilities, debts, obligations, and duties at or before the Effective Time.
1.4. At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Share(s) issued pursuant to paragraph 5.7 shall
be redeemed by New Fund at the subscription price therefor and (b) Old Fund
shall distribute the New Fund Shares it receives pursuant to paragraph 1.1 to
its shareholders of record, determined as of the Effective Time (each a
"Shareholder"), in constructive exchange for their Old Fund Shares. Such
distribution shall be accomplished by Trust's transfer agent's opening accounts
on New Fund's share transfer books in the Shareholders' names and transferring
such New Fund Shares thereto. Each Shareholder's account shall be credited with
the respective PRO RATA number of full and fractional (rounded to the third
decimal place) New Fund Shares due that Shareholder. New Fund shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization.
1.5. When the New Fund Shares are distributed pursuant to paragraph
1.4, all outstanding Old Fund Shares, including any represented by certificates,
shall be canceled on Old Fund's share transfer books. No redemption or
repurchase of New Fund Shares credited to a Shareholder's account in respect of
Old Fund Shares represented by unsurrendered share certificates shall be
permitted until such certificates have been surrendered to Trust for
A-2
<PAGE>
cancellation or, if such certificates are lost or misplaced, lost certificate
affidavits and/or such other documentation that is satisfactory to Trust or its
transfer agent have been executed and delivered thereto.
1.6. As soon as reasonably practicable after distribution of the New
Fund Shares pursuant to paragraph 1.4, but in all events within twelve months
after the Effective Time, Old Fund shall be terminated and any further actions
shall be taken in connection therewith as required by applicable law.
1.7. Any reporting responsibility of Old Fund to a public authority
is and shall remain its responsibility up to and including the date on which it
is terminated.
1.8. Any transfer taxes payable on issuance of New Fund Shares in a
name other than that of the registered holder on Old Fund's books of the Old
Fund Shares constructively exchanged therefor shall be paid by the person to
whom such New Fund Shares are to be issued, as a condition of such transfer.
2. CLOSING AND EFFECTIVE TIME
2.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at Trust's principal office on the
"Closing Date" as defined in Section 2.5 of the Asset Purchase Agreement among
Edgemont Asset Management Corporation, Lawrence Auriana, and Hans P. Utsch (each
a "Seller"), and Federated Investors, Inc. ("Federated") dated as of October 20,
2000 ("Acquisition Agreement"), or at such other place and/or on such other date
as to which the Investment Companies may agree. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of business
on the date thereof or at such other time as to which the Investment Companies
may agree ("Effective Time").
2.2. Old Fund shall deliver to Trust at the Closing a schedule of the
Assets as of the Effective Time, which shall set forth the adjusted basis and
holding period for federal income tax purposes, by lot, of all portfolio
securities included therein and all other Assets. Old Fund's custodian shall
deliver at the Closing a certificate of an authorized officer stating that (a)
the Assets held by the custodian will be transferred to New Fund's custodian at
the Effective Time (or as soon as is reasonably practicable thereafter) and (b)
all necessary taxes in conjunction with the delivery of the Assets, including
all applicable federal and state stock transfer stamps, if any, have been paid
or provision for payment has been made.
2.3. Old Fund's transfer agent shall deliver to Trust's transfer agent
at the Closing a statement of an authorized officer thereof certifying that its
records contain the names and addresses of the Shareholders and the number of
outstanding Old Fund Shares owned by each Shareholder, all as of the Effective
Time. Trust's transfer agent shall deliver at the Closing (or as soon as is
reasonably practicable thereafter) a certificate as to the opening on New Fund's
share transfer books of accounts in the Shareholders' names. Trust or its
transfer agent shall issue and deliver a confirmation to Old Fund evidencing the
New Fund Shares to be credited to Old Fund at the Effective Time or provide
evidence satisfactory to Old Fund that such New Fund Shares have been credited
A-3
<PAGE>
to Old Fund's account on such books. At the Closing, each Investment Company
shall deliver to the other bills of sale, checks, assignments, stock
certificates, receipts, or other documents the other Investment Company or its
counsel reasonably requests.
2.4. Each Investment Company shall deliver to the other at the Closing
a certificate executed in its name by a duly appointed officer in form and
substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
2.5. Each Investment Company has delivered to the other on execution
hereof a statement executed in its name by a duly appointed officer and
addressed to the other ("Certificate"), and shall deliver a Certificate to the
other at the Closing, certifying (as of the date hereof and the Effective Time,
respectively) as to any exceptions to the representations contained in
paragraphs 3.1.6., 3.1.7., 3.1.8., and 3.1.13. (in Old Fund's case) and 3.2.7.
and 3.2.8. (in Trust's case) or, if that is the case, the absence of any such
exceptions.
3. REPRESENTATIONS AND WARRANTIES
3.1. Old Fund represents and warrants as follows:
3.1.1. Old Fund is a corporation that is duly organized, validly
existing, and in good standing under the laws of the State of Maryland;
it has the power to carry on its business as now being conducted and to
carry out this Agreement; and its Articles of Incorporation and
Articles of Amendment (collectively, "Articles of Incorporation") are
on file with the Department of Assessments and Taxation of Maryland;
3.1.2. Old Fund is duly registered as an open-end management
investment company under the 1940 Act, and such registration is in full
force and effect;
3.1.3. All Old Fund Shares outstanding at the Effective Time
will have been duly authorized and duly and validly issued and
outstanding shares of Old Fund, fully paid and non-assessable;
3.1.4. At the Closing, Old Fund will have good and marketable
title to the Assets and full right, power, and authority to sell,
assign, transfer, and deliver the Assets free of any liens or other
encumbrances; and on delivery and payment for the Assets, New Fund will
acquire good and marketable title thereto;
3.1.5. Old Fund's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended ("1933 Act"),
and the 1940 Act and the rules and regulations thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
A-4
<PAGE>
statements therein, in light of the circumstances under which they were
made, not misleading;
3.1.6. Old Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, applicable law
or any provision of its Articles of Incorporation or By-Laws or of any
agreement, instrument, lease, or other undertaking to which it is a
party or by which it is bound or result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which it is a party or by which it is bound,
except as otherwise disclosed in a Certificate by Old Fund accepted by
Trust;
3.1.7. Except as otherwise disclosed in a Certificate by Old
Fund accepted by Trust, all material contracts and other commitments of
or applicable to Old Fund (other than this Agreement and investment
contracts, including options, futures, and forward contracts) will be
terminated, or provision for discharge of any liabilities of Old Fund
thereunder will be made, at or prior to the Effective Time, without
either Fund's incurring any liability or penalty with respect thereto
and without diminishing or releasing any rights Old Fund may have had
with respect to actions taken or omitted to be taken by any other party
thereto prior to the Closing;
3.1.8. Except as otherwise disclosed in a Certificate by Old
Fund accepted by Trust, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Old Fund's knowledge) threatened against Old Fund or any
of its properties or assets that, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business; and Old Fund knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
3.1.9. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Old Fund's board of directors; and,
subject to approval by its shareholders, this Agreement constitutes a
valid and legally binding obligation of Old Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights
and by general principles of equity;
3.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Old Fund's
shareholders;
3.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934, as amended ("1934 Act"), the 1940 Act, or applicable state
securities laws for the execution or performance of this Agreement by
Old Fund, except for (a) the filing with the Securities and Exchange
A-5
<PAGE>
Commission ("SEC") of a registration statement by Trust on Form N-14
relating to the New Fund Shares issuable hereunder, and any supplement
or amendment thereto ("Registration Statement"), including therein a
prospectus/proxy statement, and (b) such consents, approvals,
authorizations, and filings as have been made or received or as may be
required subsequent to the Effective Time;
3.1.12. On the effective date of the Registration Statement, at
the time of the Shareholders' Meeting (as defined in paragraph 4.2),
and at the Effective Time, the Registration Statement will (a) comply
in all material respects with the applicable provisions of the 1933
Act, the 1934 Act, and the 1940 Act and the rules and regulations
thereunder and (b) not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which such statements were made, not misleading; provided that
the foregoing shall not apply to statements in or omissions from the
Registration Statement made in reliance on and in conformity with
information furnished by Trust or Federated for use therein;
3.1.13. There are no Liabilities other than Liabilities disclosed
or provided for in Old Fund's financial statements referred to in
paragraph 3.1.20 and Liabilities incurred by Old Fund in the ordinary
course of its business subsequent to June 30, 2000, or otherwise
disclosed in a Certificate by Old Fund accepted by Trust, none of which
has been materially adverse to the business, assets, or results of Old
Fund's operations;
3.1.14. Old Fund qualified for treatment as a regulated
investment company under Subchapter M of the Code ("RIC") for each past
taxable year since it commenced operations and will continue to meet
all the requirements for such qualification for its current taxable
year; the Assets shall be invested at all times through the Effective
Time in a manner that ensures compliance with the foregoing; and Old
Fund has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it;
3.1.15. The Liabilities were incurred by Old Fund in the ordinary
course of its business and are associated with the Assets;
3.1.16. Old Fund is not under the jurisdiction of a court in a
"title 11 or similar case" (within the meaning of section 368(a)(3)(A)
of the Code);
3.1.17. Not more than 25% of the value of Old Fund's total assets
(excluding cash, cash items, and U.S. government securities) is
invested in the stock and securities of any one issuer, and not more
than 50% of the value of such assets is invested in the stock and
securities of five or fewer issuers;
3.1.18. During the five-year period ending on the Closing Date,
neither Old Fund nor any person "related" (as defined in section
1.368-1(e)(3) of the Regulations without regard to section
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1.368-1(e)(3)(i)(A) thereof) to Old Fund will have directly or through
any transaction, agreement, or arrangement with any other person, (a)
acquired Old Fund Shares with consideration other than Old Fund Shares,
except for shares redeemed in the ordinary course of Old Fund's
business as an open-end investment company as required by the 1940 Act,
or (b) made distributions with respect to Old Fund Shares, except for
(i) dividends qualifying for the deduction for dividends paid (as
defined in section 561 of the Code) referred to in sections 852(a)(1)
and 4982(c)(1)(A) of the Code and (ii) additional distributions, to the
extent they do not exceed 50% of the value (without giving effect to
such distributions) of the proprietary interest in Old Fund on the
Closing Date;
3.1.19. Old Fund's federal income and excise tax returns, and all
applicable state and local tax returns, for all taxable years through
and including the taxable year ended December 31, 1999, have been
timely filed and all taxes payable pursuant to such returns have been
timely paid;
3.1.20. Old Fund's financial statements for the year ended
December 31, 1999, and for the six months ended June 30, 2000, as
delivered to Trust, fairly represent Old Fund's financial position as
of such respective dates and the results of its operations and changes
in its net assets for the respective period then ended; and
3.1.21. As of the Effective Time, Old Fund will not have
outstanding any warrants, options, convertible securities, or any other
type of rights pursuant to which any person could acquire Old Fund
Shares.
3.2. Trust represents and warrants as follows:
3.2.1. Trust is a trust operating under a written declaration of
trust, the beneficial interest in which is divided into transferable
shares ("Business Trust"), that is duly organized and validly existing
under the laws of the Commonwealth of Massachusetts; it has the power
to carry on its business as now being conducted and to carry out this
Agreement on behalf of New Fund; and a copy of its Amended and Restated
Declaration of Trust ("Declaration of Trust") is on file with the
Secretary of the Commonwealth of Massachusetts;
3.2.2. Trust is duly registered as an open-end management
investment company under the 1940 Act, and such registration is in full
force and effect;
3.2.3. Before the Effective Time, New Fund will be a duly
established and designated series of Trust;
3.2.4. New Fund has not commenced operations and will not do so
until after the Closing; and before the Effective Time there will be no
issued and outstanding shares in New Fund or any other securities
issued by it, except as provided in paragraph 5.7;
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3.2.5. No consideration other than New Fund Shares (and New
Fund's assumption of the Liabilities) will be issued in exchange for
the Assets in the Reorganization;
3.2.6. The New Fund Shares to be issued and delivered to Old
Fund hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly and
validly issued and outstanding shares of New Fund, fully paid and
non-assessable by Trust;
3.2.7. New Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, applicable law
or any provision of the Declaration of Trust or Trust's By-Laws or of
any provision of any agreement, instrument, lease, or other undertaking
to which New Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which New Fund is a party or by
which it is bound, except as otherwise disclosed in a Certificate by
Trust accepted by Old Fund;
3.2.8. Except as otherwise disclosed in a Certificate by Trust
accepted by Old Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or (to Trust's knowledge) threatened against Trust or any of
its properties or assets that, if adversely determined, would
materially and adversely affect New Fund's financial condition or the
conduct of its business; and Trust knows of no facts that might form
the basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to
consummate the transactions contemplated hereby;
3.2.9. The execution, delivery, and performance of this
Agreement have been duly authorized as of the date hereof by all
necessary action on the part of Trust's board of trustees (together
with Old Fund's board of directors, the "Boards"); no approval of this
Agreement by New Fund's shareholders is required under the Declaration
of Trust, Trust's By-Laws, or applicable law; and this Agreement
constitutes a valid and legally binding obligation of New Fund,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors' rights
and by general principles of equity;
3.2.10. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act, or
applicable state securities laws for the execution or performance of
this Agreement by Trust, except for (a) the filing with the SEC of the
Registration Statement, (b) the filing with the SEC of an amendment to
Trust's registration statement on Form N-1A, and (c) such consents,
approvals, authorizations, and filings as have been made or received or
as may be required subsequent to the Effective Time;
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3.2.11. On the effective date of the Registration Statement, at
the time of the Shareholders' Meeting, and at the Effective Time, the
Registration Statement will (a) comply in all material respects with
the applicable provisions of the 1933 Act, the 1934 Act, and the 1940
Act and the rules and regulations thereunder and (b) not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not misleading; provided that the foregoing shall not apply to
statements in or omissions from the Registration Statement made in
reliance on and in conformity with information furnished by Old Fund or
any Seller for use therein;
3.2.12. New Fund will be a "fund" as defined in section 851(g)(2)
of the Code and will meet all the requirements to qualify for treatment
as a RIC for its taxable year in which the Reorganization occurs;
3.2.13. New Fund has no plan or intention to issue additional New
Fund Shares following the Reorganization except for shares issued in
the ordinary course of its business as a series of an open-end
investment company; nor does New Fund, or any person "related" (within
the meaning of section 1.368-1(e)(3) of the Regulations) to New Fund,
have any plan or intention to redeem or otherwise reacquire any New
Fund Shares issued to the Shareholders pursuant to the Reorganization,
except to the extent it is required by the 1940 Act to redeem any of
its shares presented for redemption at net asset value in the ordinary
course of that business;
3.2.14. Following the Reorganization, New Fund (a) will continue
Old Fund's "historic business" (within the meaning of section
1.368-1(d)(2) of the Regulations) and (b) will use a significant
portion of Old Fund's "historic business assets" (within the meaning of
section 1.368-1(d)(3) of the Regulations) in a business; and New Fund
has no plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of that
business and dispositions necessary to maintain its status as a RIC;
3.2.15. There is no plan or intention for New Fund to be
dissolved or merged into another business trust or a corporation or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization; and
3.2.16. Immediately after the Reorganization, (a) not more than
25% of the value of New Fund's total assets (excluding cash, cash
items, and U.S. government securities) will be invested in the stock
and securities of any one issuer and (b) not more than 50% of the value
of such assets will be invested in the stock and securities of five or
fewer issuers.
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3.3. Each Investment Company represents and warrants as follows:
3.3.1. The fair market value of the New Fund Shares received by
each Shareholder will be approximately equal to the fair market value
of its Old Fund Shares constructively surrendered in exchange therefor;
3.3.2. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.3. Immediately following consummation of the Reorganization,
the Shareholders will own all the New Fund Shares and will own such
shares solely by reason of their ownership of Old Fund Shares
immediately before the Reorganization;
3.3.4. Immediately following consummation of the Reorganization,
New Fund will hold the same assets -- except for assets distributed to
shareholders who receive cash or other property -- and be subject to
the same liabilities that Old Fund held or was subject to immediately
prior to the Reorganization. Such excepted assets, together with the
amount of all redemptions and distributions (other than regular, normal
income and capital gain dividends) made by Old Fund immediately
preceding the Reorganization, will, in the aggregate, constitute less
than 1% of its net assets;
3.3.5. None of the compensation received by any Shareholder who
is an employee of or service provider to Old Fund will be separate
consideration for, or allocable to, any of the Old Fund Shares held by
such Shareholder; none of the New Fund Shares received by any such
Shareholder will be separate consideration for, or allocable to, any
employment agreement, investment advisory agreement, or other service
agreement; and the consideration paid to any such Shareholder will be
for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar services;
and
3.3.6. Neither Fund will be reimbursed for any expenses incurred
by it or on its behalf in connection with the Reorganization unless
those expenses are solely and directly related to the Reorganization
(determined in accordance with the guidelines set forth in Rev. Rul.
73-54, 1973-1 C.B. 187) ("Reorganization Expenses").
4. COVENANTS
4.1. Old Fund covenants to operate its business in the ordinary course
between the date hereof and the Closing, it being understood that such ordinary
course will include declaring and paying customary dividends and other
distributions and changes in operations contemplated by its normal business
activities.
4.2. Old Fund covenants to call a shareholders' meeting to consider
and act on this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated hereby ("Shareholders' Meeting").
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4.3. Old Fund covenants that the New Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
4.4. Old Fund covenants that it will assist Trust in obtaining
information Trust reasonably requests concerning the beneficial ownership of Old
Fund Shares.
4.5. Old Fund covenants that its books and records (including all
books and records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Trust at the Closing.
4.6. Each Fund covenants to cooperate in preparing the Registration
Statement in compliance with applicable federal and state securities laws.
4.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) New Fund, title to and possession of
all the Assets, and (b) Old Fund, title to and possession of the New Fund Shares
to be delivered hereunder, and otherwise to carry out the intent and purpose
hereof.
4.8. Subject to this Agreement, each Fund covenants to take or cause
to be taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
5. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance
by the other Fund of all its obligations to be performed hereunder at or before
the Effective Time and (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time. In addition, each Fund's obligations hereunder
shall be subject to the further conditions set forth in paragraphs 5.1, 5.2,
5.3, and 5.6, Old Fund's obligations hereunder shall be subject to the further
conditions set forth in paragraphs 5.4, 5.7, and 5.8, and New Fund's obligations
hereunder shall be subject to the further condition set forth in paragraph 5.5,
each such condition to be satisfied at or before the Effective Time:
5.1. This Agreement and the transactions contemplated hereby shall
have been duly adopted and approved by each Board and shall have been approved
by Old Fund's shareholders in accordance with its Articles of Incorporation and
By-Laws and applicable law.
5.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
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transactions contemplated hereby. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on either Fund's assets or properties, provided that either
Investment Company may for itself waive any of such conditions.
5.3. At the Effective Time, (a) no statute, rule, regulation, order,
decree, or injunction shall have been enacted, entered, promulgated, or enforced
by any court or governmental authority that prohibits or materially restricts
consummation of the Reorganization and (b) there shall not be any suit, action,
investigation, inquiry, or other proceeding instituted or pending by any
foreign, federal, state, or local court, legislative body, administrative agency
or commission, or other governmental authority or instrumentality that seeks to
enjoin or otherwise prevent consummation of the transactions contemplated
hereby.
5.4. Old Fund shall have received an opinion of Dickstein Shapiro
Morin & Oshinsky LLP, counsel to Trust, substantially to the effect that:
5.4.1. New Fund is a duly established series of Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with requisite power under the
Declaration of Trust to own all its properties and assets and, to the
knowledge of such counsel, to carry on its business as then being
conducted;
5.4.2. This Agreement has been duly authorized, executed, and
delivered by Trust on behalf of New Fund; no approval of this
Agreement by New Fund's shareholders is required under the Declaration
of Trust, Trust's By-Laws, or applicable law; and assuming due
authorization, execution, and delivery of this Agreement by Old Fund,
this Agreement is a valid and legally binding obligation of Trust with
respect to New Fund, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
5.4.3. The New Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized, validly
issued and outstanding, and fully paid and non-assessable by Trust;
5.4.4. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
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violate the Declaration of Trust or Trust's By-Laws or any provision
of any agreement (known to such counsel) to which Trust (with respect
to New Fund) is a party or by which it is bound or (to the knowledge
of such counsel) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Trust (with respect to New Fund) is a party or by which it is
bound, except as set forth in such opinion or as otherwise disclosed
in a Certificate by Trust accepted by Old Fund;
5.4.5. No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by Trust
(on behalf of New Fund) of the transactions contemplated herein,
except those obtained under the 1933 Act, the 1934 Act, and the 1940
Act and those that may be required under state securities laws;
5.4.6. Trust is registered with the SEC as an investment company
under the 1940 Act, such registration is in full force and effect, and
to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
5.4.7. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to Trust (with respect
to New Fund) and (b) Trust (with respect to New Fund) is not a party
to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially and adversely affects
New Fund's business, except as set forth in such opinion or as
otherwise disclosed in a Certificate by Trust accepted by Old Fund.
In rendering such opinion, such counsel may (1) rely, as to matters governed by
the laws of the Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel reasonably acceptable to Old Fund, (2) make assumptions
regarding the authenticity, genuineness, and/or conformity of documents and
copies thereof without independent verification thereof, (3) limit such opinion
to applicable federal and state law, and (4) define the word "knowledge" and
related terms to mean the knowledge (without any independent inquiry or
investigation) of attorneys then with such counsel who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
5.5. Trust shall have received an opinion of Pepper Hamilton LLP,
counsel to Old Fund, under the laws of the State of Maryland substantially to
the effect that:
5.5.1. Old Fund is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of Maryland
with requisite power under its Articles of Incorporation to own all
its properties and assets and, to the knowledge of such counsel, to
carry on its business as then being conducted;
5.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Old Fund and (b) assuming due authorization, execution,
and delivery of this Agreement by Trust on behalf of New Fund, is a
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valid and legally binding obligation of Old Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors'
rights and by general principles of equity;
5.5.3. The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not,
violate Old Fund's Articles of Incorporation or By-Laws or any
provision of any agreement (known to such counsel) to which Old Fund
is a party or by which it is bound or (to the knowledge of such
counsel) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree to
which Old Fund is a party or by which it is bound, except as set forth
in such opinion or as otherwise disclosed in a Certificate by Old Fund
accepted by Trust;
5.5.4. No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by Old Fund
of the transactions contemplated herein, except those obtained under
the 1933 Act, the 1934 Act, and the 1940 Act and those that may be
required under state securities laws;
5.5.5. Old Fund is registered with the SEC as an investment
company under the 1940 Act, such registration is in full force and
effect, and to the knowledge of such counsel no order has been issued
or proceeding instituted to suspend such registration; and
5.5.6. To the knowledge of such counsel, (a) no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is pending or threatened as to Old Fund or any of
its properties or assets and (b) Old Fund is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects its business,
except as set forth in such opinion or as otherwise disclosed in a
Certificate by Old Fund accepted by Trust.
In rendering such opinion, such counsel may (1) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies thereof
without independent verification thereof, (2) limit such opinion to applicable
federal and state law, and (3) define the word "knowledge" and related terms to
mean the knowledge (without any independent inquiry or investigation) of
attorneys then with such counsel who have devoted substantive attention to
matters directly related to this Agreement and the Reorganization.
5.6. Each Investment Company shall have received an opinion of
Kirkpatrick & Lockhart LLP, addressed to and in form and substance reasonably
satisfactory to it, as to the federal income tax consequences mentioned below
("Tax Opinion"). In rendering the Tax Opinion, such counsel may rely as to
factual matters, exclusively and without independent verification, on the
representations made in this Agreement, which such counsel may treat as
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representations and warranties made to it, and in separate letters addressed to
such counsel and the certificates delivered pursuant to paragraph 2.4. The Tax
Opinion shall be substantially to the effect that, based on the facts and
assumptions stated therein and conditioned on consummation of the Reorganization
in accordance with this Agreement, for federal income tax purposes:
5.6.1. New Fund's acquisition of the Assets in exchange solely
for New Fund Shares and New Fund's assumption of the Liabilities,
followed by Old Fund's distribution of those shares PRO RATA to the
Shareholders constructively in exchange for their Old Fund Shares,
will qualify as a reorganization within the meaning of section
368(a)(1)(F) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
5.6.2. Old Fund will recognize no gain or loss on the transfer of
the Assets to New Fund in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent distribution
of those shares to the Shareholders in constructive exchange for their
Old Fund Shares;
5.6.3. New Fund will recognize no gain or loss on its receipt of
the Assets in exchange solely for New Fund Shares and its assumption
of the Liabilities;
5.6.4. New Fund's basis in the Assets will be the same as Old
Fund's basis therein immediately before the Reorganization, and New
Fund's holding period for the Assets will include Old Fund's holding
period therefor;
5.6.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Old Fund Shares solely for New Fund
Shares pursuant to the Reorganization;
5.6.6. A Shareholder's aggregate basis in the New Fund Shares to
be received by it in the Reorganization will be the same as the
aggregate basis in its Old Fund Shares to be constructively
surrendered in exchange for those New Fund Shares, and its holding
period for those New Fund Shares will include its holding period for
those Old Fund Shares, provided the Shareholder held them as capital
assets at the Effective Time; and
5.6.7. For purposes of section 381 of the Code, New Fund will be
treated as if there had been no Reorganization. Accordingly, the
Reorganization will not result in the termination of Old Fund's
taxable year, Old Fund's tax attributes enumerated in section 381(c)
of the Code will be taken into account by New Fund as if there had
been no Reorganization, and the part of Old Fund's taxable year before
the Reorganization will be included in New Fund's taxable year after
the Reorganization.
5.7. Prior to the Closing, Trust's trustees shall have authorized the
issuance of, and New Fund shall have issued, one or more New Fund Shares to
Federated or an affiliate thereof to vote on the matters referred to in
paragraph 5.8.
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5.8. Trust (on behalf of and with respect to New Fund) shall have
entered into an investment advisory contract, a distribution plan pursuant to
Rule 12b-1 under the 1940 Act, and other agreements necessary for New Fund's
operation as a series of an open-end investment company (collectively,
"agreements"). The material terms of such agreements, in the aggregate, shall
not be materially less favorable with respect to the New Fund Shares than the
terms thereof approved by Trust's trustees, including such of those trustees who
are not "interested persons" thereof (as defined in the 1940 Act), at their
meeting on October 19, 2000. In addition, each such agreement shall have been
approved, to the extent required by law, by Federated or an affiliate thereof as
New Fund's sole initial shareholder.
At any time before the Closing, either Investment Company may waive any of the
foregoing conditions running in its favor (except that set forth in paragraph
5.1) if, in the judgment of its Board, such waiver will not have a material
adverse effect on its Fund's shareholders' interests.
6. BROKERAGE FEES AND EXPENSES
6.1 Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments from either
Investment Company in connection with the transactions provided for herein.
6.2 Neither Fund will bear any Reorganization Expenses, which will be
borne by the parties to the Acquisition Agreement as provided therein.
7. ENTIRE AGREEMENT; NO SURVIVAL
Neither party has made any representation, warranty, or covenant not
set forth herein, and this Agreement constitutes the entire agreement between
the parties. The representations, warranties, and covenants contained herein or
in any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
8. TERMINATION
This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by Old Fund's shareholders:
8.1 By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Acquisition Agreement is terminated in accordance with
Section 8.1 thereof; or
8.2 By the parties' mutual agreement.
In the event of termination under paragraphs 8.1(c) or (d) or 8.2, there shall
be no liability for damages on the part of either Fund, or the
trustees/directors or officers of either Investment Company, to the other Fund.
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9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Old Fund's shareholders, in any manner
mutually agreed on in writing by the parties; provided that following such
approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
10. MISCELLANEOUS
10.1 This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts; provided that, in
the case of any conflict between such laws and the federal securities laws, the
latter shall govern.
10.2 Nothing expressed or implied herein is intended or shall be
construed to confer on or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
10.3 Old Fund acknowledges that Trust is a Business Trust. This
Agreement is executed by Trust on behalf of New Fund and by its trustees and/or
officers in their capacities as such, and not individually. Trust's obligations
under this Agreement are not binding on or enforceable against any of its
trustees, officers, or shareholders but are only binding on and enforceable
against New Fund's assets and property; and a trustee of Trust shall not be
personally liable hereunder to Old Fund or its directors or shareholders for any
act, omission, or obligation of Trust or any other trustee thereof. Old Fund
agrees that, in asserting any rights or claims under this Agreement, it shall
look only to New Fund's assets and property in settlement of such rights or
claims and not to such trustees, officers, or shareholders.
10.4 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-17
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
THE KAUFMANN FUND, INC.
By:
---------------------------------
Hans P. Utsch
President and Treasurer
FEDERATED EQUITY FUNDS
on behalf of its series,
Federated Kaufmann Fund
By:
---------------------------------
Amanda J. Reed
Assistant Secretary
A-18
<PAGE>
EXHIBIT B
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
FOR THE FEDERATED KAUFMANN FUND
HOW TO PURCHASE SHARES OF FEDERATED KAUFMANN FUND
You may purchase shares through an investment professional or directly from the
Fund or through an exchange from another Federated mutual fund. The Fund
reserves the right to reject any request to purchase or exchange shares.
THROUGH AN INVESTMENT PROFESSIONAL
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 [one]
business day. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
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 Kaufmann Fund or Federated Shareholder Services
Company, the Fund's transfer agent.
An institution may establish an account and place an order by calling the
Kaufmann Fund and the shares will be priced at the next calculated NAV after the
Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
For Credit to BFDS account 99050874
Federated Kaufmann Fund
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:
B-1
<PAGE>
Federated Kaufmann Fund
P.O. Box 8331
Boston, MA 02266-8331
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Boston Financial Data Services
c/o Federated Kaufmann Fund
66 Brooks Drive
Braintree, MA 02184
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).
BY SYSTEMATIC INVESTMENT PROGRAM
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)
You may purchase additional Shares through a depository institution that is an
ACH member. This purchase option can be established by completing the
appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased shares through an
investment professional; or
o directly from the Fund if you purchased shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
B-2
<PAGE>
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem or exchange Shares by simply calling the Fund at 1-800-261-0555.
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 Kaufmann Fund
P.O. Box 8331
Boston, MA 02266-8331
If you send your check by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail to:
Boston Financial Data Services
c/o Federated Kaufmann Fund
66 Brooks Drive
Braintree, MA 02184
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.
B-3
<PAGE>
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o wire payment to your account at a domestic commercial bank that is a
Federal Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund 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
mutual 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.
If you purchased Class K Shares after February 1, 1985, the current 0.20%
redemption fee will continue to apply to redemptions and exchanges into other
funds advised by Federated Investors.
The Federated Kaufman Fund may modify or terminate the exchange privilege at any
time. The Federated Kaufman 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 Federated Kaufman Fund may terminate the
availability of exchanges to that shareholder and may bar that shareholder from
purchasing other Federated mutual funds.
B-4
<PAGE>
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.
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.
B-5
<PAGE>
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.
B-6
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEDERATED KAUFMANN FUND
A Portfolio of Federated Equity Funds
CLASS K SHARES
TO ACQUIRE THE ASSETS OF
THE KAUFMANN FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION (SAI) RELATES SPECIFICALLY TO THE
REORGANIZATION OF THE KAUFMANN FUND, INC. (KAUFMANN FUND) INTO THE FEDERATED
KAUFMANN FUND. PURSUANT TO THIS REORGANIZATION, THE FEDERATED KAUFMANN FUND
WOULD ACQUIRE ALL OF THE ASSETS OF THE KAUFMANN FUND, AND FEDERATED KAUFMANN
FUND CLASS K SHARES WOULD BE DISTRIBUTED PRO RATA BY THE KAUFMANN FUND TO THE
HOLDERS OF ITS SHARES, IN COMPLETE LIQUIDATION OF THE KAUFMANN FUND
(REORGANIZATION). THE FEDERATED KAUFMANN FUND HAS THE SAME INVESTMENT OBJECTIVE
AND STRATEGIES AND SUBSTANTIALLY THE SAME INVESTMENT POLICIES AS THE KAUFMANN
FUND.
THIS SAI IS NOT A PROSPECTUS. READ THIS SAI IN CONJUNCTION WITH THE
PROSPECTUS/PROXY STATEMENT OF THE FEDERATED KAUFMANN FUND (FUND) RELATING TO THE
REORGANIZATION, DATED DECEMBER __, 2000. OBTAIN THE PROSPECTUS/PROXY STATEMENT
WITHOUT CHARGE BY CALLING 1-800-341-7400.
THIS SAI CONSISTS OF THE INFORMATION SET FORTH HEREIN AS WELL AS THE FOLLOWING,
EACH OF WHICH IS INCORPORATED BY REFERENCE HEREIN: 1) THE KAUFMANN FUND'S
AUDITED FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT TO SHAREHOLDERS,
DATED DECEMBER 31, 1999, PREVIOUSLY FILED ON EDGAR, ACCESSION NUMBER
0000950156-00-000216 AND 2) THE KAUFMANN FUND'S UNAUDITED FINANCIAL STATEMENTS
INCLUDED IN THE SEMI-ANNUAL REPORT TO SHAREHOLDERS, DATED JUNE 30, 2000,
PREVIOUSLY FILED ON EDGAR, ACCESSION NUMBER 0000950156-00-000469.
[Date]
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 [Date]. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
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
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.
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.
2
<PAGE>
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
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
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The 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
3
<PAGE>
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.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
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
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.
4
<PAGE>
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
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.
5
<PAGE>
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
exchanges or on the Nasadaq 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
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 the Prospectus/Proxy Statement relating to the
Reorganization, dated _________, 2000. These risks and additional risk factors
are outlined below.
STOCK MARKET RISKS
o The value of equity securities in the Fund's portfolio will rise and
fall. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of
individual portfolio stocks or general changes in stock valuations.
Consequently, the Fund's share price may decline.
6
<PAGE>
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 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 to as great an extent as companies in
the United States. Foreign companies may also receive less coverage
than U.S. companies by market analysts and the financial press. In
addition, foreign countries may lack uniform accounting, auditing
and financial reporting standards or regulatory requirements
comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information
concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the
United States.
o Foreign countries may have restrictions on foreign ownership of
securities or may impose exchange controls, capital flow
restrictions or repatriation restrictions which could adversely
affect the liquidity of the Fund's investments.
CURRENCY RISKS
o Exchange rates for currencies fluctuate daily. 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.
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.
7
<PAGE>
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.
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.
8
<PAGE>
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;
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.
9
<PAGE>
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.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN
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.
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.
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 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.
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.
10
<PAGE>
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
the Fund is obligated to pay Share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of the net assets represented by such
Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.
All Shares of the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
11
<PAGE>
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.
INSTRUCTION: IF THE FUND HAS A LOSS CARRY-FORWARD, ADD THE FOLLOWING SENTENCE.
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.
<TABLE>
<CAPTION>
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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.
12
<PAGE>
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NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND FUND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM FUND COMPLEX
------------------------------------------------------------------------------------------------------------------------------------
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.
Director or Trustee of the Federated Fund Complex; $128,455.37 for the
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JOHN T. CONROY, JR. Chairman of the Board, Investment Properties Corporation; $ Trust and 43 other
Birth Date: June 23, 1937 Partner or Trustee in private real estate ventures in investment companies
Grubb & Ellis/Investment Southwest Florida; formerly: President, Investment in the Fund Complex
Properties Corporation Properties Corporation; Senior Vice President,
3201 Tamiami Trail North John R. Wood and Associates, Inc., Realtors; President,
Naples, FL Naples Property Management, Inc. and Northgate Village
TRUSTEE Development Corporation.
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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.
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JOHN F. CUNNINGHAM Director or Trustee of some of the Federated Fund $ $93,190.48 for the
Birth Date: March 5, 1943 Complex; 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.
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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.
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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.
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CHARLES F. MANSFIELD, JR. Director or Trustee of some of the Federated Fund $ $102,573.91 for the
Birth Date: April 10, 1945 Complex; Executive Vice President, Legal and External Trust and 40 other
80 South Road Affairs, DVC Group, Inc. (formerly, Dugan Valva Contess, investment companies
Westhampton Beach, NY Inc.) (marketing, communications, technology and in the Fund Complex
TRUSTEE consulting); formerly: Management Consultant.
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.
13
<PAGE>
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NAME
BIRTH DATE AGGREGATE TOTAL COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND FUND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM FUND COMPLEX
------------------------------------------------------------------------------------------------------------------------------------
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.
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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
INSTRUCTION: If Chris Donahue Fund Complex; Director or Trustee of some of the Funds in 30 other investment
is NOT a Director/Trustee, the Federated Fund Complex; President, Chief Executive companies in the Fund
delete the asterisk (*) at Officer and Director, Federated Investors, Inc.; Complex
the end of his name. President, Chief Executive Officer and Trustee, Federated
Investment Management Company; Trustee, Federated
Investment Counseling; President, Chief Executive
Birth Date: April 11, 1949 Officer and Director, Federated Global Investment
Federated Investors Tower Management Corp.; President and Chief Executive Officer,
1001 Liberty Avenue Passport Research, Ltd.; Trustee, Federated Shareholder
Pittsburgh, PA Services Company; Director, Federated Services Company;
[TITLE(S)] 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.
------------------------------------------------------------------------------------------------------------------------------------
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
14
<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 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.
------------------------------------------------------------------------------------------------------------------------------------
INSTRUCTION: MESSRS. DAWSON, FRANTZEN AND MADDEN HAVE BEEN ELECTED
INDIVIDUALLY OR IN COMBINATION AS CHIEF INVESTMENT
OFFICERS OF THE FEDERATED FUNDS. PLEASE CONSULT THE
OFFICERS AND DIRECTORS LIST IN THE LEGAL DEPARTMENT SITE ON THE
FEDWEB AND INCLUDE ONLY THE CIO(S) ELECTED TO YOUR REGISTRANT.
------------------------------------------------------------------------------------------------------------------------------------
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 GREFERSTITS, 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.
15
<PAGE>
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.
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.
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.
16
<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 FUND FOR SERVICES
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
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 Fund has not been in existence for a full calendar year and thus has no
performance information of its own. If the Reorganization is approved by
shareholders of the Kaufmann Fund, the Fund will adopt the historical
performance information of the Kaufmann Fund.
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:
17
<PAGE>
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:
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 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.
18
<PAGE>
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:
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 Fund has not yet commenced operations and thus has no financial information
of its own. If the Reorganization is approved by shareholders of the Kaufmann
Fund, the Fund will adopt the Kaufmann Fund's historical financial information.
19
<PAGE>
ADDRESSES
FEDERATED KAUFMANN FUND
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 ACCOUNTANTS/AUDITORS]
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
<PAGE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
Federated Equity Funds
Part C
Other Information
ITEM 15. INDEMNIFICATION; (1)
ITEM 16. EXHIBITS
(1) Conformed copy of Amended and Restated Declaration of Trust dated August
15, 1995;
(2)
(a) Conformed copy of Amendment No. 8 of the Amended and Restated
Declaration of Trust dated August 19, 1999; (3)
(2) Copy of Amended and Restated By-Laws, effective August 16, 1995; (2)
(d) Copy of Amendment No. 5 to By-Laws, effective February 23, 1998; (4)
(e) Copy of Amendment No. 6 to By-Laws, effective February 27, 1998; (4)
(f) Copy of Amendment No. 7 to By-Laws, effective May 12, 1998; (4)
(3) Voting Trust Agreements - none.
(4) A form of the Agreement and Plan of Reorganization is included as Exhibit
A to the Combined Proxy Statement and Prospectus of this Registration
Statement. (filed herewith)
(5) Copy of Specimen Certificate for Shares of Beneficial Interest of the
Registrant for:
(a) Federated Small Cap Strategies Fund; (5)
(b) Federated Growth Strategies Fund; (6)
(c) Federated Capital Appreciation Fund; (7)
(d) Federated Aggressive Growth Fund; (8)
(6) (a) Conformed copy of Investment Advisory Contract on behalf of the
Registrant; (10)
(b) 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)
(c) Conformed copy of Exhibit C to the Investment Advisory Contract for
Federated Aggressive Growth Fund; (11)
(d) Conformed copies of Exhibits D and E for Federated Large Cap Growth
Fund and Federated Communications Technology Fund, respectively; (3)
(7) (a) Conformed copy of Distributor's Contract of the Registrant; (10)
<PAGE>
(b) Conformed copy of Exhibit A to the Distributor's Contract for
Federated Small Cap Strategies Fund, Class A Shares; (10)
(c) Conformed copy of Exhibit B to the Distributor's Contract for
Federated Small Cap Strategies Fund, Class B Shares; (10)
(d) Conformed copy of Exhibit C to the Distributor's Contract for
Federated Small Cap Strategies Fund, Class C Shares; (10)
(e) Conformed copy of Exhibit D to the Distributor's Contract for
Federated Growth Strategies Fund, Class A Shares; (10)
(f) Conformed copy of Exhibit E to the Distributor's Contract for
Federated Growth Strategies Fund, Class B Shares; (10)
(g) Conformed copy of Exhibit F to the Distributor's Contract for
Federated Growth Strategies Fund, Class C Shares; (10)
(h) Conformed copy of Exhibit G to the Distributor's Contract for
Federated Capital Appreciation Fund, Class A Shares; (10)
(i) Conformed copy of Exhibit H to the Distributor's Contract for
Federated Capital Appreciation Fund, Class B Shares; (10)
(j) Conformed copy of Exhibit J to the Distributor's Contract for
Federated Aggressive Growth Fund, Class A Shares; (11)
(k) Conformed copy of Exhibit K to the Distributor's Contract for
Federated Aggressive Growth Fund, Class B Shares;(11)
(l) Conformed copy of Exhibit L to the Distributor's Contract for
Federated Aggressive Growth Fund, Class C Shares; (11)
(m) Conformed copy of Exhibits M and N to the Distributor's Contract for
Federated Large Cap Growth Fund (Class A and C Shares);(3)
(8) Bonus, Profit-Sharing or Pension Plans - none.
(9) (a) Conformed copy of the Custodian Agreement of the Registrant; (9)
(b) Conformed copy of Custodian Fee Schedule; (13)
(c) Conformed copy of Amended and Restated Shareholder Services
Agreement; (13)
(d) Conformed copy of Amended and Restated Agreement for Fund Accounting
Services, Administrative Services, Shareholder Transfer Agency
Services and Custody Services Procurement; (14)
(e) 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).
(10) Conformed Copy of Distribution Plan of the Registrant; (10)
(a) Conformed copy of Exhibit A to the Distribution Plan for Federated
Small Cap Strategies Fund (Class A Shares); (10)
(b) Conformed copy of Exhibit B to the Distribution Plan for Federated
Small Cap Strategies Fund (Class B Shares); (10)
(c) Conformed copy of Exhibit C to the Distribution Plan for Federated
Small Cap Strategies Fund (Class C Shares); (10)
(d) Conformed copy of Exhibit D to the Distribution Plan for Federated
Growth Strategies Fund (Class B Shares); (10)
<PAGE>
(e) Conformed copy of Exhibit E to the Distribution Plan for Federated
Growth Strategies Fund (Class C Shares); (10)
(f) Conformed copy of Exhibit F to the Distribution Plan for Federated
Capital Appreciation Fund (Class A Shares); (10)
(g) Conformed copy of Exhibit I to the Distribution Plan for Federated
Aggressive Growth Fund (Class A Shares); (12)
(h) Conformed copy of Exhibit J to the Distribution Plan for Federated
Aggressive Growth Fund (Class B Shares); (11)
(i) Conformed copy of Exhibit K to the Distribution Plan for Federated
Aggressive Growth Fund (Class C Shares); (11)
(k) Copy of Schedule A to the Distribution Plan; (3)
(l) Conformed copies of Exhibits L, M, N & O to the Distribution Plan; (3)
(11) Conformed copy of the Opinion and Consent of counsel regarding legality of
shares being registered (filed herewith)
(12) Conformed copy of the Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters (to be filed by Amendment)
(13) None.
(14) Conformed copies of Consents of Independent Public Accountants (filed
herewith)
(15) Financial Statements omitted from Part B - none.
(16) Conformed copy of Powers of Attorney; (3)
(a) Conformed copy of Power of Attorney of Chief Investment Officer of
the Registrant; (3)
(b) Conformed copy of Power of Attorney of Trustee John F. Cunningham; (3)
(c) Conformed copy of Power of Attorney of Trustee Charles F. Mansfield;
(3)
(d) Conformed copy of Power of Attorney of Trustee John S. Walsh; (3)
(e) Conformed copy of Limited Power of Attorney; (3)
(17) Form of Proxy (filed herewith)
--------------------------------------------------------------------------------
(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).
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed September 3, 1996. (File Nos. 2-91090
and 811-4017)
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 44 on Form N-1A filed December 27, 1999. (File Nos. 2-91090
and 811-4017)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 41 filed November 2, 1998. (File Nos. 2-91090 and 811-4017)
(5) 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)
(6) 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)
(7) 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)
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A file December 30, 1996. (File Nos. 2-91090
and 811-4017)
<PAGE>
(9) 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)
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed May 30, 1997. (File Nos. 2-91090 and
811-4017)
(12) 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)
(13) 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)
(14) 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>
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, as amended, the reoffering prospectus will contain the information
called for by the applicable registration form for the reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that in determining liability under the Securities Act of
1933, as amended, each post-effective amendment shall be deemed to be a
new Registration Statement for the securities offered therein; and the
offering of the securities at that time shall be deemed to be initial BONA
FIDE offering of them.
(3) Registrant hereby undertakes to file a post-effective amendment to this
registration statement on Form N-14, containing an opinion of counsel
supporting the tax consequences of the reorganization described herein
within a reasonable time after receipt of such opinion.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed on behalf of the registrant,
in the City of Pittsburgh, and State of Pennsylvania on the 27th day of
November, 2000.
FEDERATED EQUITY FUNDS
BY: /s/ Amanda J. Reed
-------------------------------
Amanda J. Reed
Assistant Secretary
Attorney in Fact for John F. Donahue
November 27, 2000
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 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 November 27, 2000
----------------------- For the Persons
Amanda J. Reed Listed Below
ASSISTANT SECRETARY
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* Trustee
Edward C. Gonzales* Executive Vice President
John W. McGonigle* Executive Vice President and Secretary
Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)
J. Thomas Madden* Chief Investment Officer
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
<PAGE>
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
