FEDERATED EQUITY FUNDS

485BPOS 1 fefform.htm FEDERATED EQUITY FUNDS



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

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             X

    Pre-Effective Amendment No.

    Post-Effective Amendment No.  65 .......................        X

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X

    Amendment No.  59 ......................................        X

                             FEDERATED EQUITY FUNDS

               (Exact Name of Registrant as Specified in Charter)

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

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

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

It is proposed that this filing will become effective:

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

If appropriate, check the following box:

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

                                 Copy to:

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

Federated Investors
World-Class Investment Manager

Federated Kaufmann Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

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December 31, 2003

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CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

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

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

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 8

What are the Specific Risks of Investing in the Fund? 10

What Do Shares Cost? 13

How is the Fund Sold? 18

How to Purchase Shares 18

How to Redeem and Exchange Shares 21

Account and Share Information 25

Who Manages the Fund? 27

Legal Proceedings 29

Financial Information 30

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

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WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

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Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
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Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends.
Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base and limited access to capital, they may be more likely to fail than larger companies.
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Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments, which affect those sectors emphasized by the Fund.
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Liquidity Risks. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
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Risks of Foreign Investing. Because the Fund invests in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
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Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.

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

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Risk/Return Bar Chart and Table

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The Fund is the successor to The Kaufmann Fund, Inc. (Kaufmann Fund) pursuant to a reorganization that took place on April 23, 2001. Prior to that date, the Fund had no investment operations. Accordingly, the performance information and financial information provided in this prospectus for periods prior to April 23, 2001, is historical information of The Kaufmann Fund. The Kaufmann Fund was managed by Edgemont Asset Management Corp. and had the same investment objectives and strategies as the Fund and substantially the same investment policies as the Fund. Kaufmann Fund shareholders received Class K Shares of the Fund as a result of the reorganization.

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The Fund's Class A Shares, B Shares and C Shares commenced operation on April 23. 2003. For the period prior to the commencement of operations of Class A, Class B and Class C Shares, the performance information shown in the bar chart below is for the Fund's Class K Shares, adjusted to reflect the expenses of Class A Shares. The performance information will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-by-year basis. The Average Annual Total Return Table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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

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The Fund's Class A Shares total return for the nine-month period from January 1, 2003 to September 30, 2003 was 35.07%.

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Within the periods shown in the bar chart, the Fund's Class A Shares highest quarterly return was 35.47% (quarter ended December 31, 1999). Its lowest quarterly return was (18.76)% (quarter ended September 30, 1998).

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Average Annual Total Return Table

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

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(For the periods ended December 31, 2002)

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	1 Year	5 Years	10 Years
Class A Shares:¹
Return Before Taxes	(25.73)%	2.23%	10.21%
Return After Taxes on Distributions²	(25.73)%	(0.94)%	8.20%
Return After Taxes on Distributions and Sale of Fund Shares²	(15.80)%	1.60%	8.51%
Class B Shares:¹	(26.00)%	2.75%	10.39%
Class C Shares:¹	(22.47)%	2.94%	10.31%
RMGI	(27.41)%	(1.82)%	6.71%
LMCGI	(28.47)%	(1.49)%	6.41%

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1 The Fund's Class A, Class B and Class C Shares total returns for such periods are those of the Kaufmann Fund's Class K Shares, but adjusted to reflect the sales charge or contingent sales charge (CDSC) and expenses applicable to that Class.

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

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What are the Fund's Fees and Expenses?

FEDERATED KAUFMANN FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers and Reimbursement)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	1.425%	1.425%	1.425%
Distribution (12b-1) Fee	0.250%³	0.750%	0.750%³
Shareholder Services Fee	0.250%	0.250%⁴	0.250%
Other Expenses	0.263%	0.263%	0.263%
Total Annual Fund Operating Expenses	2.188%	2.688%⁵	2.688%

1 Although not contractually obligated to do so, the adviser, distributor and shareholder services provider waived and/or reimbursed certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 2003.
Total Waivers and Reimbursement of Fund Expenses	0.238%	0.188%	0.188%
Total Actual Annual Fund Operating Expenses (after waivers and reimbursement)	1.950%	2.500%	2.500%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 1.275% for the fiscal year ended October 31, 2003.
3 A portion of the distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund's Class A and C Shares (after the voluntary waiver) was 0.162% and 0.712%, respectively, for the fiscal year ended October 31, 2003.
4 The shareholder services provider reimbursed a portion of the shareholder services fee. The shareholder services provider can terminate this voluntary reimbursement at any time. The shareholder services fee paid by the Fund's Class B Shares (after the voluntary reimbursement) was 0.212% for the fiscal year ended October 31, 2003.
5 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on the 15^th of the following month. Class A Shares pay lower expenses than Class B Shares.

EXAMPLE

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

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

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Share Class	1 Year	3 Years	5 Years	10 Years
<R>Class A Shares:</R>
Expenses assuming redemption	<R>$760</R>	<R>$1,197</R>	<R>$1,659</R>	<R>$2,933</R>

Expenses assuming no redemption	<R>$760</R>	<R>$1,197</R>	<R>$1,659</R>	<R>$2,933</R>

<R>Class B Shares:</R>
Expenses assuming redemption	<R>$822</R>	<R>$1,235</R>	<R>$1,624</R>	<R>$2,900</R>

Expenses assuming no redemption	<R>$272</R>	<R>$ 835</R>	<R>$1,424</R>	<R>$2,900</R>

<R>Class C Shares:</R>
Expenses assuming redemption	<R>$469</R>	<R>$ 926</R>	<R>$1,510</R>	<R>$3,090</R>

Expenses assuming no redemption	<R>$369</R>	<R>$ 926</R>	<R>$1,510</R>	<R>$3,090</R>

What are the Fund's Investment Strategies?

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

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

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

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

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

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

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

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

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

Foreign Securities

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

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

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

ILLIQUID SECURITIES

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

FIXED INCOME SECURITIES

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

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

Treasury Securities

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

Special Transactions

SECURITIES LENDING

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

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

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

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What are the Specific Risks of Investing in the Fund?

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STOCK MARKET RISKS

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

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

RISKS RELATED TO INVESTING FOR GROWTH

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

RISKS RELATED TO COMPANY SIZE

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

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

SECTOR RISKS

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

LIQUIDITY RISKS

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

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.

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

RISKS OF FOREIGN INVESTING

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

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

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

CURRENCY RISKS

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

The 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.

CREDIT RISKS

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

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

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

What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). If the Fund purchases foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). The Fund generally values 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. Securities that are not traded, such as certain illiquid securities, may be valued at fair value as determined by the Fund's Board of Trustees (Board). These values are based upon regular evaluation of all available information. They are changed only when new information is determined to have a material affect on the security's value.

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

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

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

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

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

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

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

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

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

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

The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or greater amount;
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by exchanging shares from the same share class of another Federated fund (other than a money market fund);
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through wrap accounts or other investment programs where you pay the investment professional directly for services;
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through investment professionals that receive no portion of the sales charge;
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as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV; or
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as a Federated Life Member (Class A Shares only) and their immediate family members; or
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as a Trustee or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.
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SALES CHARGE WHEN YOU REDEEM

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

Class A Shares (Purchase amount of $1 million or greater):

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

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

You will not be charged a CDSC when redeeming Shares:

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

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

Shares that are not subject to a CDSC; and
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Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).
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The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

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How is the Fund Sold?

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The Fund offers four Share classes: Class A Shares, Class B Shares, Class C Shares and Class K Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class A Shares, Class B Shares and Class C Shares. All Share classes have different sales charges and other expenses which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.

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

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

RULE 12B-1 PLAN

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

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How to Purchase Shares

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

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

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THROUGH AN INVESTMENT PROFESSIONAL

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

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

DIRECTLY FROM THE FUND

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

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

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

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

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

By Check

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

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

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

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

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

THROUGH AN EXCHANGE

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

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BY SYSTEMATIC INVESTMENT PROGRAM

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Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP section of the New Account Form or by contacting the Fund or your investment professional.

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BY AUTOMATED CLEARING HOUSE (ACH)

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

RETIREMENT INVESTMENTS

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

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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

THROUGH AN INVESTMENT PROFESSIONAL

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

DIRECTLY FROM THE FUND

By Telephone

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

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

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

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

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

Signature Guarantees

Signatures must be guaranteed if:

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

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

EXCHANGE PRIVILEGE

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

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

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

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

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

Systematic Withdrawal Program (SWP) on Class B Shares

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

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

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

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund 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.

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

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ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

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

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

Who Manages the Fund?

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

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The Adviser has delegated daily management of the Fund to the Sub-Adviser, Federated Global Investment Management Corp., who is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. Correspondence regarding the Sub-Adviser should be sent in care of the same address.

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The Adviser receives an annual investment advisory fee of 1.425% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

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Legal Proceedings

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

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

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

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Shortly after the press release was issued, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Federated funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. Federated and the Federated funds are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. Although we do not believe that these lawsuits will have a material adverse effect on the Federated funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated fund redemptions, reduced sales of Federated fund shares, or other adverse consequences for the Federated funds.

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Financial Information

FINANCIAL HIGHLIGHTS

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

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

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Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

						Period Ended
Year Ended October 31	2003		2002			10/31/2001	¹
Net Asset Value, Beginning of Period	$3.54		$4.23			$4.33
Income From Investment Operations:
Net operating loss	(0.06	)²	(0.05	)^2,3		(0.02	)²
Net realized and unrealized gain (loss) on investments, options and foreign currency transactions	1.42		(0.28	)³		(0.08	)

TOTAL FROM INVESTMENT OPERATIONS	1.36		(0.33	)		(0.10	)

Less Distributions:
Distributions from net realized gain on investments, options and foreign currency transactions	--		(0.36	)		--

Net Asset Value, End of Period	$4.90		$3.54			$4.23

Total Return⁴	38.42	%	(8.90	)%		(2.31	)%


Ratios to Average Net Assets:

Expenses	1.95	%	1.95	%		1.95	%⁵

Net operating loss	(1.45	)%	(1.25	)%³		(0.93	)%⁵

Expense waiver/reimbursement⁶	0.24	%	0.18	%		0.17	%⁵

Supplemental Data:

Net assets, end of period (000 omitted)	$1,191,117		$435,500		$85,169

Portfolio turnover	72	%	65	%		74	%

1 Reflects operations for the period from April 23, 2001 (date of initial public investment) to October 31, 2001.

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

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

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

5 Computed on an annualized basis.

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

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

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

						Period Ended
Year Ended October 31	2003		2002			10/31/2001	¹
Net Asset Value, Beginning of Period	$3.52		$4.22			$4.33
Income From Investment Operations:
Net operating loss	(0.08	)²	(0.07	)^2,3		(0.03	)²
Net realized and unrealized gain (loss) on investments, options and foreign currency transactions	1.40		(0.27	)³		(0.08	)

TOTAL FROM INVESTMENT OPERATIONS	1.32		(0.34	)		(0.11	)

Less Distributions:
Distributions from net realized gain on investments, options and foreign currency transactions	--		(0.36	)		--

Net Asset Value, End of Period	$4.84		$3.52			$4.22

Total Return⁴	37.50	%	(9.20	)%		(2.54	)%


Ratios to Average Net Assets:

Expenses	2.50	%	2.47	%		2.47	%⁵

Net operating loss	(2.01	)%	(1.77	)%³		(1.45	)%⁵

Expense waiver/reimbursement⁶	0.19	%	0.16	%		0.15	%⁵

Supplemental Data:

Net assets, end of period (000 omitted)	$782,171		$427,175		$68,902

Portfolio turnover	72	%	65	%		74	%

1 Reflects operations for the period from April 23, 2001 (date of initial public investment) to October 31, 2001.

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

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

5 Computed on an annualized basis.

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

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

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

					Period Ended
Year Ended October 31	2003		2002		10/31/2001	¹
Net Asset Value, Beginning of Period	$3.52		$4.22		$4.33
Income From Investment Operations:
Net operating loss	(0.08	)²	(0.07	)^2,3	(0.03	)²
Net realized and unrealized gain (loss) on investments, options and foreign currency transactions	1.40		(0.27	)³	(0.08	)

TOTAL FROM INVESTMENT OPERATIONS	1.32		(0.34	)	(0.11	)

Less Distributions:
Distributions from net realized gain on investments, options and foreign currency transactions	--		(0.36	)	--

Net Asset Value, End of Period	$4.84		$3.52		$4.22

Total Return⁴	37.50	%	(9.20)	%	(2.54	)%


Ratios to Average Net Assets:

Expenses	2.50	%	2.47	%	2.47	%⁵

Net operating loss	(2.00	)%	(1.77	)%²	(1.45	)%⁵

Expense waiver/reimbursement⁶	0.19	%	0.16	%	0.15	%⁵

Supplemental Data:

Net assets, end of period (000 omitted)	$337,765		$127,714		$16,234

Portfolio turnover	72	%	65	%	74	%

1 Reflects operations for the period from April 23, 2001 (date of initial public investment) to October 31, 2001.

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

5 Computed on an annualized basis.

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

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

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A Statement of Additional Information (SAI) dated December 31, 2003, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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

Federated Investors
World-Class Investment Manager

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

Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Investment Company Act File No. 811-4017

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

Cusip 314172677
Cusip 314172669
Cusip 314172651

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26103 (12/03)

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Federated Investors
World-Class Investment Manager

Federated Kaufmann Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

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December 31, 2003

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CLASS K SHARES

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

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NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 5

What are the Fund's Investment Strategies? 6

What are the Principal Securities in Which the Fund Invests? 7

What are the Specific Risks of Investing in the Fund? 10

What Do Shares Cost? 12

How is the Fund Sold? 13

How to Purchase Shares 14

How to Redeem and Exchange Shares 16

Account and Share Information 19

Who Manages the Fund? 20

Legal Proceedings 22

Financial Information 23

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

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Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
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Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends.
Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base and limited access to capital, they may be more likely to fail than larger companies.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Liquidity Risks. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
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Risks of Foreign Investing. Because the Fund invests in securities issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
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Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the Shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.

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Risk/Return Bar Chart and Table

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The Fund is the successor to The Kaufmann Fund, Inc. (Kaufmann Fund) pursuant to a reorganization that took place effective on April 23, 2001. Prior to that date, the Fund had no investment operations. Accordingly, the performance information and financial information provided in this prospectus for periods prior to April 23, 2001, is historical information of the Kaufmann Fund. The Kaufmann Fund was managed by Edgemont Asset Management Corp. and had the same investment objectives and strategies as the Fund and substantially the same investment policies as the Fund. Kaufmann Fund shareholders received Class K Shares of the Fund as a result of the reorganization.

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

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

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The Fund's Class K Shares total return for the nine-month period from January 1, 2003 to September 30, 2003 was 35.07%.

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Within the periods shown in the bar chart, the Fund's Class K Shares highest quarterly return was 20.67% (quarter ended March 31, 2000). Its lowest quarterly return was (14.04)% (quarter ended September 30, 2002).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class K Shares are reduced to reflect applicable sales charges. Returns Before Taxes is shown. In addition, Return After Taxes is shown for Class K Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Russell Mid-Cap Growth Index (RMGI) and the Lipper Mid-Cap Growth Index (LMCGI), which are broad-based market indexes. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2002)

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	1 Year	5 Years		10 Years
Class K Shares:
Return Before Taxes	<R>(21.57)%</R>	<R> 3.54%</R>		<R>11.06%</R>
Return After Taxes on Distributions¹	<R>(21.57)%</R>	<R> 0.33%</R>		<R> 9.04%</R>
Return After Taxes on Distributions and Sale of Fund Shares¹	<R>(13.24)%</R>	<R> 2.68%</R>	<R> </R>	<R> 9.29%</R>
RMGI	<R>(27.41)%</R>	<R>(1.82)%</R>		<R> 6.71%</R>
LMCGI	<R>(28.47)%</R>	<R>(1.49)%</R>		<R> 6.41%</R>

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

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What are the Fund's Fees and Expenses?

FEDERATED KAUFMANN FUND

FEES AND EXPENSES

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

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)		None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)		None
Redemption Fee (as a percentage of amount redeemed, if applicable)		0.20%

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		1.425%
Distribution (12b-1) Fee³		0.500%
Shareholder Services Fee		0.250%
Other Expenses		0.297%
Total Annual Fund Operating Expenses		2.472%

1 Although not contractually obligated to do so, the adviser and distributor waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended October 31, 2003.
Total Waivers of Fund Expenses		0.522%
Total Actual Annual Fund Operating Expenses (after waivers)		1.950%
2 The adviser voluntarily waived a portion of the management fee. The adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 1.275% for the fiscal year ended October 31, 2003.
3 A portion of the distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund's Class K Shares (after the voluntary waiver) was 0.128% for the fiscal year ended October 31, 2003.

EXAMPLE

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

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

<R>Class K Shares</R>	1 Year	3 Years	5 Years	10 Years
Expenses assuming redemption	<R>$270</R>	<R>$790</R>	<R>$1,337</R>	<R>$2,828</R>

Expenses assuming no redemption	<R>$250</R>	<R>$770</R>	<R>$1,317</R>	<R>$2,808</R>

What are the Fund's Investment Strategies?

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the growth prospects of existing products and new product development;
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the economic outlook of the industry;
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the price of the security and its estimated fundamental value; and
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relevant market, economic and political environments.
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The Fund's Adviser and Sub-Adviser (collectively, "Adviser") use a bottom-up approach to portfolio management. There is an emphasis on individual stock selection rather than trying to time the highs and lows of the market or concentrating in certain industries or sectors. This hands-on approach means that in addition to sophisticated computer analysis, the Adviser may conduct in-depth meetings with management, industry analysts and consultants. Through this interaction with companies the Adviser seeks to develop a thorough knowledge of the dynamics of the businesses in which the Fund invests.

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

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

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TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

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Common Stocks

Foreign Securities

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

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

ILLIQUID SECURITIES

FIXED INCOME SECURITIES

Treasury Securities

Special Transactions

SECURITIES LENDING

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.

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What are the Specific Risks of Investing in the Fund?

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STOCK MARKET RISKS

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RISKS RELATED TO INVESTING FOR GROWTH

RISKS RELATED TO COMPANY SIZE

SECTOR RISKS

LIQUIDITY RISKS

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

RISKS OF FOREIGN INVESTING

CURRENCY RISKS

CREDIT RISKS

LEVERAGE RISKS

INTEREST RATE RISKS

What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV). If the Fund purchases foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. The Fund does not charge a front-end sales charge on Class K Shares. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). The Fund generally values 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. Securities that are not traded, such as certain illiquid securities, may be valued at fair value as determined by the Fund's Board of Trustees (Board). These values are based upon regular evaluation of all available information. They are changed only when new information is determined to have a material affect on the security's value.

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

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

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge	Contingent Deferred Sales Charge	Redemption/ Exchange Fee
Class K	$1,500/$100	None	None	0.20%

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

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

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

By Check

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

Federated 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:

Federated Kaufmann Fund
66 Brooks Drive

Braintree, MA 02184

THROUGH A FINANCIAL INTERMEDIARY

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

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

THROUGH AN EXCHANGE

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

BY SYSTEMATIC INVESTMENT PROGRAM

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BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-245-4770.

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

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By Mail

You may redeem or exchange Shares by 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

Send requests by private courier or overnight delivery service to:

Federated Kaufmann Fund
66 Brooks Drive

Braintree, MA 02184

All requests must include:

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

THROUGH A FINANCIAL INTERMEDIARY

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

Call the Fund or your financial intermediary if you need special instructions.

Signature Guarantees

Signatures must be guaranteed if:

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

PAYMENT METHODS FOR REDEMPTIONS

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

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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

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

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REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGE

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You may exchange Shares of Class K Shares into Class A Shares of another Federated fund ( subject to the redemption/exchange fee). To do this, you must:

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

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

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

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

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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

Who Manages the Fund?

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Legal Proceedings

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Financial Information

FINANCIAL HIGHLIGHTS

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

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

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Financial Highlights

(For a Share Outstanding Throughout Each Period)

	Year Ended October 31,
	2003		2002
Net Asset Value, Beginning of Period	$3.54		$4.23
Income From Investment Operations:
Net operating loss	(0.06	)³	(0.05	)^3,4
Net realized and unrealized gain (loss) on investments, options and foreign currency transactions	1.42		(0.28	)⁴

TOTAL FROM INVESTMENT OPERATIONS	1.36		(0.33	)

Less Distributions:
Distributions from net realized gain on investments, options and foreign currency transactions	--		(0.36	)

Net Asset Value, End of Period	$4.90		$3.54

Total Return⁵	38.42	%	(8.92	)%


Ratios to Average Net Assets:

Expenses	1.95	%	1.95	%

Net operating loss	(1.46	)%	(1.25	)%⁴

Expense waiver/reimbursement⁷	0.52	%	0.45	%

Supplemental Data:

Net assets, end of period (000 omitted)	$3,494,765		$2,603,263

Portfolio turnover	72	%	65	%

Redemption fees consisted of the following per share amounts⁸	$0.00	⁹	$0.00	⁹

1 The Fund changed its fiscal year end from December 31 to October 31. Effective April 23, 2001, Federated Investment Management Company became the Fund's investment adviser. Prior to April 23, 2001, Edgemont Asset Management Corporation served as the Fund's investment adviser.

2 Beginning with the period ended October 31, 2001, the Fund was audited by Ernst & Young LLP. Each of the previous years was audited by other auditors.

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

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

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

6 Computed on an annualized basis.

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

8 Effective November 1, 2001, the Fund adopted the provisions of the revised AICPA Audit and Accounting Guide for Investment Companies which requires the disclosure of the per share effect of redemption fees. Periods prior to October 31, 2001 have not been restated to reflect this change.

9 Represents less than $0.01.

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

Period Ended		Year Ended December 31,
10/31/2001	^1,2	2000		1999		1998
$4.43		$5.95		$5.68		$6.37

(0.03	)³	(0.05	)	(0.06	)	(0.04	)
(0.17	)	0.76		1.32		0.02

(0.20	)	0.71		1.26		(0.02	)


--		(2.23	)	(0.99	)	(0.67	)

$4.23		$4.43		$5.95		$5.68

(4.51	)%	10.86	%	26.01	%	0.72	%




1.95	%⁶	1.89	%	1.95	%	1.96	%

(0.48	)%⁶	(0.80	)%	(1.19	)%	(0.66	)%

0.30	%⁶	0.12	%	0.15	%	0.11	%



$3,018,540		$3,367,994		$3,475,875		$4,621,018

74	%	78	%	78	%	59	%

$0.00	⁹	--		--		--

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Investment Company Act File No. 811-4017

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

Cusip 314172644

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26104 (12/03)

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FEDERATED KAUFMANN FUND

A Portfolio of Federated Equity Funds

STATEMENT OF ADDITIONAL INFORMATION
<R>

DECEMBER 31, 2003

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CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

CLASS K SHARES
<R>

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

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
26105 (12/03)

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HOW IS THE FUND ORGANIZED?

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

The Fund is the successor to the Kaufmann Fund, Inc. (Kaufmann Fund) pursuant to
a reorganization that took place on or about April 20, 2001. Prior to that date,
the Fund had no investment operations. Accordingly, the performance information
and financial information provided in the prospectus and this SAI for periods
prior to April 20, 2001, is historical information of the Kaufmann Fund. The
Kaufmann Fund was managed by Edgemont Asset Management Corp. (Edgemont) and had
the same investment objectives and strategies as the Fund and substantially the
same investment policies as the Fund. Kaufmann Fund shareholders received Class
K Shares of the Fund as a result of the reorganization.

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

</R>

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.

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.

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. 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.

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.

Corporate Debt Securities

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

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

Commercial Paper

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

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:

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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.

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

DEPOSITARY RECEIPTS

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

FOREIGN EXCHANGE CONTRACTS

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

Derivative Contracts

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

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

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

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

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

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

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Futures Contracts

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. The Fund has claimed an exclusion from
the definition of the term "commodity pool operator" under the Commodity
Exchange Act and, therefore, is not subject to registration or regulation as a
commodity pool operator under that Act. Futures contracts traded OTC are
frequently referred to as forward contracts. The Fund can buy or sell financial
futures, index futures and foreign currency forward contracts.

Options

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

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

Call Options

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

o Buy call options on indices, individual securities, index futures,
currencies (both foreign and U.S. dollar) and financial futures in
anticipation of an increase in the value of the underlying asset or
instrument; and

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

Put Options

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

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

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

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

Swaps

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

Interest Rate Swaps

Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities, in return for payments equal to a different
fixed or floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which fluctuates) on
$10 million principal amount in exchange for the right to receive the equivalent
of a stated fixed rate of interest on $10 million principal amount.

Total Rate of Return Swaps

Total rate of return swaps are contracts in which one party agrees to make
payments of the total return from the underlying asset during the specified
period, in return for payments equal to a fixed or floating rate of interest or
the total return from another underlying asset.

Credit Default Swaps

Credit default swaps are agreements between two parties whereby one party (the
"protection buyer") agrees to make regular payments over the term of the
agreement to another party (the "protection seller"), provided that no
designated event of default on an underlying obligation has occurred. If an
event of default occurs, the protection seller must pay the protection buyer the
full notional value, or "par value," of the reference obligation in exchange for
the reference obligation. The fund may be either the protection buyer or the
protection seller in a credit default swap. If the fund is a protection buyer
and no event of default occurs, the fund will lose its entire investment in the
swap agreement (i.e., An amount equal to the payments made to the protection
seller). However, if an event of default occurs, the fund (as protection buyer)
will deliver the underlying obligation and receive a payment equal to the full
notional value of the underlying asset, even though the underlying asset may
have little or no value. If the fund is the protection seller and no default
occurs, then the fund will receive a fixed rate of income throughout the term of
the agreement. However, if an event of default occurs, the fund (as protection
seller) will pay the protection buyer the full notional value of the reference
obligation and receive the underlying obligation. Credit default swaps involve
greater risks than if the fund invested directly in the underlying obligation.

Currency Swaps

Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.

Caps And Floors

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

Hybrid Instruments

Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.

The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, options, futures and currencies, and depend upon the
terms of the instrument. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional fixed income
or convertible securities. Hybrid instruments are also potentially more volatile
and carry greater interest rate risks than traditional instruments. Moreover,
depending on the structure of the particular hybrid, it may expose the Fund to
leverage risks or carry liquidity risks.

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SPECIAL TRANSACTIONS

Repurchase Agreements

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

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

Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements

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

Delayed Delivery Transactions

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

Securities Lending

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

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

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

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

Inter-Fund Borrowing and Lending Arrangements

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

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

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.

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.

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 NASDAQ stock market. A short sale means selling a security
the Fund does not own to take advantage of an anticipated decline in the stock's
price. Once the Fund sells the security short, it has an obligation to replace
the borrowed security. If it can buy the security back at a lower price, a
profit results. In no event will the Fund engage in short sales transactions if
it would cause the market value of all of 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 is recognized immediately upon entering into a short
sale against the box with respect to an appreciated security. Short sales are
speculative in nature, and may reduce returns or increase volatility.

INVESTMENT RISKS

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

Stock Market Risks

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

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

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.

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.

Risks of Investing in Derivatives Contracts and Hybrid Instruments

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

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FUNDAMENTAL INVESTMENT OBJECTIVE

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

INVESTMENT LIMITATIONS

Diversification

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

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, as amended (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.

Investing in Other Investment Companies

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

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

Purchases on Margin

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

Pledging Assets

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

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

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

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

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

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

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

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

TRADING IN FOREIGN SECURITIES

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

WHAT DO SHARES COST?

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

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE (CLASS A SHARES)

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

<R>

Quantity Discounts (Class A Shares)

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

Accumulated Purchases (Class A Shares)

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

Concurrent Purchases (Class A Shares)

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

Letter of Intent (Class A Shares)

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

Reinvestment Privilege

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

Purchases by Affiliates of the Fund

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

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

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

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

Reorganizations (Class A Shares)

Class A Shares may be purchased without an initial sales charge by any
shareholder that originally became a shareholder of the Fund pursuant to the
terms of an agreement and plan of reorganization which permits shareholders to
acquire Shares at NAV.

Purchases Through Omnibus Accounts (Class C Shares Only)

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

</R>

Federated Life Members

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

<R>

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

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

</R>

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE (CLASSES B AND C)

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

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

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

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

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

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

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

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

Class B Shares Only

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

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

o Shares that are not subject to a CDSC; and

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

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

</R>

SPECIAL REDEMPTION AND EXCHANGE INFORMATION (CLASS K SHARES)

Class K Shares are redeemable at a price equal to 99.8% of the then current NAV
per share. This 0.2% reduction, referred to in the prospectus and this SAI as a
redemption/exchange fee, directly affects the amount a shareholder who is
subject to the reduction receives upon exchange or redemption. It is intended to
encourage long-term investment in the Fund, to offset transaction and other
expenses caused by redemptions, and to facilitate portfolio management. The fee
will be applied to offset expenses incurred or amounts expended in connection
with a redemption or exchange of Class K Shares, with any balance paid over to
the Fund; the fee is not a deferred sales charge, nor is it paid to the Adviser
or its affiliates. The Fund reserves the right to modify the terms of or
terminate this fee at any time.

The redemption/exchange fee will be waived for shares purchased through
employer-sponsored retirement plans, such as 401(k) plans. However, if shares
are purchased for a retirement plan account through a broker, financial
institution, or other intermediary maintaining an omnibus account for the
shares, the waiver may not apply. (Before purchasing shares, please check with
your account representative concerning the availability of the fee waiver.) In
addition, this waiver does not apply to individual retirement accounts, such as
Traditional, Roth and SEP-IRAs.

HOW IS THE FUND SOLD?

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

FRONT-END SALES CHARGE REALLOWANCES

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

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

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

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

Dealer Reallowance
as a Percentage of
Class C Shares Public Offering Price

All Purchase Amounts 1.00%

ADVANCE COMMISSIONS

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

Class A Shares (for purchases over $1 million)
Advance Commission
as a Percentage of
Purchase Amount Public Offering Price
First $1 million - $5 million 0.75%
Next $5 million - $20 million 0.50%
Over $20 million 0.25%

Advance commissions are calculated on a year by year basis based on amounts
invested during that year. Accordingly, with respect to additional purchase
amounts, the advance commission breakpoint resets annually to the first
breakpoint on the anniversary of the first purchase.

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

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

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

RULE 12B-1 PLAN

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor for activities principally intended to result in the sale of Shares
such as advertising and marketing of Shares (including printing and distributing
prospectuses and sales literature to prospective shareholders and financial
institutions) and providing incentives to investment professionals to sell
Shares. The Rule 12b-1 Plan allows the Distributor to contract with investment
professionals to perform activities covered by the Plan. The Rule 12b-1 Plan is
expected to benefit the Fund in a number of ways. For example, it is anticipated
that the Plan will help the Fund attract and retain assets, thus providing cash
for orderly portfolio management and Share redemptions and possibly helping to
stabilize or reduce other operating expenses. In addition, the Plan is integral
to the multiple class structure of the Fund, which promotes the sale of Shares
by providing a range of options to investors. The Fund's service providers that
receive asset-based fees also benefit from stable or increasing Fund assets.

</R>

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

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

<R>

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

SERVICE FEES

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

SUPPLEMENTAL PAYMENTS

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

These supplemental payments may be based upon such factors as the number or
value of Shares the investment professional sells or may sell; the value of
client assets invested; and/or the type and nature of services, sales support or
marketing support furnished by the investment professional.

In addition to these supplemental payments, an investment professional may also
receive payments under the Rule 12b-1 Plan and/or Service Fees.

</R>

EXCHANGING SECURITIES FOR SHARES

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

SUBACCOUNTING SERVICES

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

REDEMPTION IN KIND

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

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

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

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

MASSACHUSETTS PARTNERSHIP LAW

<R>

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

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

</R>

ACCOUNT AND SHARE INFORMATION

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.

<R>

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

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Edward Jones
& Co., Maryland Heights, MO, owned approximately 35,435,680 Shares (13.94%).

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class B Shares: Citigroup
Global Markets Inc., New York, NY, owned approximately 12,521,351 Shares
(7.53%).

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: MLPF&S,
Jacksonville, FL., owed approximately 17,005,193 Shares (22.76%) and Citigroup
Global Markets Inc., New York, NY, owned approximately 11,670,526 Shares
(15.62%).

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class K Shares: Charles Schwab
& Co Inc., San Francisco, CA, owned approximately 91,397,154 Shares (12.81%)
and National Financial Services, New York, NY owned approximately 54,147,137
Shares (7.59%).

</R>

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will be subject to federal
corporate income tax. The Fund will be treated as a single, separate entity for
federal income tax purposes so that income earned and capital gains and losses
realized by the Trust's other portfolios will be separate from those realized by
the Fund.

FOREIGN INVESTMENTS

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

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

<R>

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

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

</R>

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES

<R>

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The following tables give information about each Board member and the senior
officers of the Funds. Where required, the tables separately list Board members
who are "interested persons" of the Fund (i.e., "Interested" Board members) and
those who are not (i.e., "Independent" Board members). Unless otherwise noted,
the address of each person listed is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA. The Trust comprises seven portfolios and the Federated
Fund Complex consists of 44 investment companies (comprising 138 portfolios).
Unless otherwise noted, each Officer is elected annually. Unless otherwise
noted, each Board member oversees all portfolios in the Federated Fund Complex;
serves for an indefinite term; and also serves as a Board member of the
following investment company complexes: Banknorth Funds -four portfolios; Golden
Oak(R) Family of Funds - seven portfolios and WesMark Funds-five portfolios.

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

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION

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

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

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

Principal Occupations: Director or $ 2,368.67
Lawrence D. Ellis, M.D.* Trustee of the Federated Fund $148,500
Birth Date: October 11, Complex; Professor of Medicine,
1932 University of Pittsburgh; Medical
3471 Fifth Avenue Director, University of Pittsburgh
Suite 1111 Medical Center Downtown;
Pittsburgh, PA Hematologist, Oncologist and
TRUSTEE Internist, University of Pittsburgh
Began serving: August Medical Center.
1987
Other Directorships Held: Member,
National Board of Trustees, Leukemia
Society of America.

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

* Family relationships and reasons for "interested" status: John F. Donahue is
the father of J. Christopher Donahue; both are "interested" due to the positions
they hold with Federated and its subsidiaries. Lawrence D. Ellis, M.D. is
"interested" because his son-in-law is employed by the Fund's principal
underwriter, Federated Securities Corp.

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation: Director or $ 2,605.56 $163,350
Thomas G. Bigley Trustee of the Federated Fund
Birth Date: February 3, Complex.
1934
15 Old Timber Trail Other Directorships Held: Director,
Pittsburgh, PA Member of Executive Committee,
TRUSTEE Children's Hospital of Pittsburgh;
Began serving: October Director, University of Pittsburgh.
1995
Previous Position: Senior Partner,
Ernst & Young LLP.

Principal Occupations: Director or $ 2,605.56 $163,350
John T. Conroy, Jr. Trustee of the Federated Fund
Birth Date: June 23, Complex; Chairman of the Board,
1937 Investment Properties Corporation;
Grubb & Partner or Trustee in private real
Ellis/Investment estate ventures in Southwest
Properties Corporation Florida.
3838 North Tamiami Trail
Suite 402 Previous Positions: President,
Naples, FL Investment Properties Corporation;
TRUSTEE Senior Vice President, John R. Wood
Began serving: November and Associates, Inc., Realtors;
1991 President, Naples Property
Management, Inc. and Northgate
Village Development Corporation.

Principal Occupation: Director or $ 2,605.56 $163,350
Nicholas P. Constantakis Trustee of the Federated Fund Complex
Birth Date: September 3,
1939 Other Directorships Held: Director
175 Woodshire Drive and Member of the Audit Committee,
Pittsburgh, PA Michael Baker Corporation
TRUSTEE (engineering and energy services
Began serving: February worldwide).
1998
Previous Position: Partner, Anderson
Worldwide SC.

Principal Occupation: Director or $2,368.67 $148,500
John F. Cunningham Trustee of the Federated Fund
Birth Date: March 5, Complex.
1943
353 El Brillo Way Other Directorships Held: Chairman,
Palm Beach, FL President and Chief Executive
TRUSTEE Officer, Cunningham & Co., Inc.
Began serving: January (strategic business consulting);
1999 Trustee Associate, Boston College.

Previous Positions: Director,
Redgate Communications and EMC
Corporation (computer storage
systems); Chairman of the Board and
Chief Executive Officer, Computer
Consoles, Inc.; President and Chief
Operating Officer, Wang
Laboratories; Director, First
National Bank of Boston; Director,
Apollo Computer, Inc.

Principal Occupation: Director or $ 2,368.67 $148,500
Peter E. Madden Trustee of the Federated Fund
Birth Date: March 16, Complex; Management Consultant.
1942
One Royal Palm Way Other Directorships Held: Board of
100 Royal Palm Way Overseers, Babson College.
Palm Beach, FL
TRUSTEE Previous Positions: Representative,
Began serving: November Commonwealth of Massachusetts
1991 General Court; President, State
Street Bank and Trust Company and
State Street Corporation (retired);
Director, VISA USA and VISA
International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.

Principal Occupations: Director or $2,605.56 $163,350
Charles F. Mansfield, Trustee of the Federated Fund
Jr. Complex; Management Consultant;
Birth Date: April 10, Executive Vice President, DVC Group,
1945 Inc. (marketing, communications and
80 South Road technology) (prior to 9/1/00).
Westhampton Beach, NY
TRUSTEE Previous Positions: Chief Executive
Began serving: January Officer, PBTC International Bank;
1999 Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, HSBC Bank USA
(formerly, Marine Midland Bank);
Vice President, Citibank; Assistant
Professor of Banking and Finance,
Frank G. Zarb School of Business,
Hofstra University.

John E. Murray, Jr., Principal Occupations: Director or $ 2,605.56 $178,200
J.D., S.J.D. Trustee of the Federated Fund
Birth Date: December 20, Complex; Chancellor and Law
1932 Professor, Duquesne University;
Chancellor, Duquesne Consulting Partner, Mollica &
University Murray.
Pittsburgh, PA
TRUSTEE Other Directorships Held: Director,
Began serving: February Michael Baker Corp. (engineering,
1995 construction, operations and
technical services).

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

Principal Occupations: Director or $ 2,368.67 $148,500
Marjorie P. Smuts Trustee of the Federated Fund
Birth Date: June 21, Complex; Public Relations/ Marketing
1935 Consultant/Conference Coordinator.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National
TRUSTEE Spokesperson, Aluminum Company of
Began serving: April 1984 America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director or $ 2,368.67 $148,500
John S. Walsh Trustee of the Federated Fund
Birth Date: November 28, Complex; President and Director,
1957 Heat Wagon, Inc. (manufacturer of
2604 William Drive construction temporary heaters);
Valparaiso, IN President and Director,
TRUSTEE Manufacturers Products, Inc.
Began serving: January (distributor of portable
1999 construction heaters); President,
Portable Heater Parts, a division of
Manufacturers Products, Inc.

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

OFFICERS**

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

Principal Occupations: Executive Vice President and Secretary
John W. McGonigle of the Federated Fund Complex; Executive Vice President,
Birth Date: October 26, 1938 Secretary and Director, Federated Investors, Inc.
EXECUTIVE VICE PRESIDENT AND SECRETARY
Began serving: April 1984 Previous Positions: Trustee, Federated Investment Management
Company and Federated Investment Counseling; Director,
Federated Global Investment Management Corp., Federated
Services Company and Federated Securities Corp.

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

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

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

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

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

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

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

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

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

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

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

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF INVESTMENT
COMPANIES AS OF DECEMBER 31, 2002
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue Over $100,000 Over $100,000
J. Christopher Donahue Over $100,000 Over $100,000
Lawrence D. Ellis, M.D. $1-$10,000 Over $100,000

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

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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.

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

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

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

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

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

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

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Services Agreement

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

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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.

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VOTING PROXIES ON FUND PORTFOLIO SECURITIES

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

Proxy Voting Policies

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

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

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

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

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

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

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

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

Proxy Voting Procedures

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

Conflicts of Interest

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

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

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

</R>

BROKERAGE TRANSACTIONS

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

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. All of the Fund's trading in initial public
offerings ("IPO") will be done independently from any other accounts. Although
the Fund also expects to engage in non-IPO trading independently from any other
accounts, when the Fund and one or more of those accounts do invest in, or
dispose of, the same security, available investments or opportunities for sales
may 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. Conversely, it is possible that independent trading
activity by the Fund could adversely impact the prices paid or received and/or
positions obtained or disposed of by the Fund.

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.

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In all brokerage orders, the Fund's managers seek the most favorable prices and
executions. Determining what may constitute the most favorable price and
execution in a brokerage order involves a number of factors, including the
overall direct net economic result to the Fund (involving both price paid or
received and any commissions or other costs paid) and the efficiency with which
the transaction is effected. The managers also consider the ongoing brokerage
and research services provided to the Fund. The Fund will pay broker-dealers a
commission for executing a particular transaction for the Fund that may be in
excess of the amount of commission those or other broker-dealers may normally
charge other institutional investors if the managers determine, in good faith,
that such commission is reasonable in relation to the value of the brokerage and
research services provided by such broker-dealer, viewed in terms of the
particular transaction or of the overall benefits to the Fund.

For the fiscal year ended, October 31, 2003, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $4,763,608,874 for which
the Fund paid $14,629,249 in brokerage commissions.

</R>

Kaufmann Fund Affiliated Brokerage

As permitted by Section 17(e) of the 1940 Act and Rule 17e-1 there under,
Bowling Green Securities ("Bowling Green") acted as a broker to the Kaufmann
Fund (prior to its reorganization into the Fund) in connection with the sale of
various securities traded on an exchange. Bowling Green was an affiliate of
Messrs. Utsch and Auriana; Hans P. Utsch was the sole shareholder of Bowling
Green and Lawrence Auriana was a registered representative thereof. Pursuant to
conditions and procedures adopted by the Board of Directors of the Kaufmann
Fund, in accordance with Rule 17e-1, the Kaufmann Fund's investment adviser was
required to ascertain that any commissions, fees or other remuneration paid to
Bowling Green were reasonable and fair compared to those of other brokers in
connection with transactions involving similar securities purchased or sold on a
securities exchange during a comparable period of time. Bowling Green does not
act as a broker to the Fund.

Bowling Green was required to provide regular brokerage services to the Kaufmann
Fund at competitive rates that are in accordance with Section 11(a) of the
Securities Exchange Act of 1934. The SEC is authorized to regulate or prohibit
broker/dealers such as Bowling Green from effecting transactions in securities
owned by an account such as the Kaufmann Fund, over which the principals of
Bowling Green have investment discretion. Bowling Green could not buy or sell
portfolio securities as a principal from or to the Kaufmann Fund. The Kaufmann
Fund was also permitted to purchase underwritten securities during the existence
of an underwriting syndicate of which Bowling Green was a member, subject to
restrictions of applicable law and the Kaufmann Fund's policies.

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</R>

The Board of the Kaufmann Fund received quarterly reports, prepared by the
Kaufmann Fund's independent public accountants, to review the exchange trades
executed by Bowling Green at the end of each quarter, and reviewed the
appropriateness of the conditions and procedures on an annual basis.

The affiliations of Hans P. Utsch and Lawrence E. Auriana as: (1) a Director and
Officer of the Kaufmann Fund; (2) a 50% Shareholder and Officer of Edgemont; and
(3) a sole shareholder (Mr. Utsch) and affiliate (Mr. Auriana) of Bowling Green;
created, for each of them, an inherent potential conflict of interest. The
Kaufmann Fund's Directors, who are not interested persons, were aware of these
potential conflicts and did not perceive them as detrimental to the Kaufmann
Fund.

ADMINISTRATOR

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

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

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

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

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CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

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INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young LLP, conducts its audits
in accordance with auditing standards generally accepted in the United States of
America, which require it to plan and perform its audits to provide reasonable
assurance about whether the Fund's financial statements and financial highlights
are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES

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Year Ended Year Ended Period Ended
10/31/2003 10/31/2002 10/31/2001
Advisory Fee Earned $59,532,296 $51,846,168 $40,104,743
Advisory Fee Reduction 6,180,168 5,420,829 3,959,878
Advisory Fee Reimbursement 86,397 81,479 18,160
Sub-Advisory Fee 43,597,007 37,863,240 18,651,888
Sub-Advisory Fee Waiver 0 0 0
Brokerage Commissions 14,853,758 10,408,687 6,563,337
Administrative Fee 3,141,520 2,736,022 1,341,673
12b-1 Fee:
Class A Shares 1,081,902 -- --
Class B Shares 3,991,593 -- --
Class C Shares 1,347,529 -- --
Class K Shares 3,750,728 -- --
Shareholder Services Fee:
Class A Shares 1,649,916 -- --
Class B Shares 1,152,011 -- --
Class C Shares 472,309 -- --
Class K Shares 6,991,129 -- --

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.

</R>

How Does the Fund Measure Performance?

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

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

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

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

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The total returns shown for the Fund's Class K Shares are those of the Fund's
predecessor, the Kaufmann Fund. The Fund's Class A Shares, Class B Shares and
Class C Shares are also those of the Kaufmann Fund, but have been adjusted to
reflect the sales charges or CDSC and expenses applicable to that Class. Total
returns are given for the one-year, five-year and ten-year periods ended October
31, 2003.

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

30-Day Period 1 Year 5 Years 10 Years
Class A:
Total Return:
Before Taxes NA 30.81% 12.58% 12.63%
After Taxes on Distributions NA 30.81% 9.09% 10.57%
After Taxes on Distributions NA 2 0.02% 9.38% 10.33%
and Sale of Shares
Yield 0.00% NA NA NA
30-Day Period 1 Year 5 Years 10 Years
Class B:
Total Return:
Before Taxes NA 32.00% 13.10% 12.85%
After Taxes on Distributions NA 32.00% 9.55% 10.79%
After Taxes on Distributions NA 20.80% 9.84% 10.53%
and Sale of Shares
Yield 0.00% NA NA NA
30-Day Period 1 Year 5 Years 10 Years
Class C:
Total Return:
Before Taxes NA 35.13% 13.08% 12.59%
After Taxes on Distributions NA 35.13% 9.57% 10.54%
After Taxes on Distributions NA 22.84% 9.84% 10.31%
and Sale of Shares
Yield 0.00% NA NA NA
30-Day Period 1 Year 5 Years 10 Years
Class K:
Total Return:
Before Taxes NA 38.14% 13.97% 13.48%
After Taxes on Distributions NA 38.14% 10.44% 11.40%
After Taxes on Distributions NA 24.79% 10.60% 11.11%
and Sale of Shares
Yield 0.00% NA NA NA

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TOTAL RETURN

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

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $10,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $10,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions. Total returns after taxes are calculated in a
similar manner, but reflect additional standard assumptions required by the SEC.

YIELD

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

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

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

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

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

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

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

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

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

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

Russell 2000 Index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index, which represents approximately 8% of the total market
capitalization of the Russell 3000 Index. As of the latest reconstitution, the
average market capitalization was approximately $580 million; the median market
capitalization was approximately $466 million. The largest company in the index
had an approximate market capitalization of $1.5 billion.

Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values, which rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

Consumer Price Index is a measure of change in consumer prices, as determined by
a monthly survey of the U.S. Bureau of Labor Statistics.

Gross National Product is a measure, based on current market prices, of the
total of all goods and services produced in the United States over a particular
period of time, usually one year, with the amount expressed in dollars.

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

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

Equity Funds

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

Corporate Bond Funds

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

Government Funds

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

Money Market Funds

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

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

MUTUAL FUND MARKET

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

FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

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

Bank Marketing

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

Broker/Dealers and Bank Broker/Dealer Subsidiaries

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

FINANCIAL INFORMATION

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

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

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

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

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

MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

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

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

FITCH RATINGS COMMERCIAL PAPER RATING DEFINITIONS

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

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

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Addresses

FEDERATED KAUFMANN FUND

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

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

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

Investment Adviser

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Federated Equity Management Company of Pennsylvania

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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

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

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

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

[Logo of Federated Investors]

Federated Kaufmann Small Cap Fund

A Portfolio of Federated Equity Funds

PROSPECTUS

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December 31, 2003

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CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

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

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Not FDIC Insured * May Lose Value * No Bank Guarantee

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Risk/Return Summary		1
What are the Fund's Fees and Expenses?		3
What are the Fund's Investment Strategies?		4
What are the Principal Securities in Which the Fund Invests?		6
What are the Specific Risks of Investing in the Fund?		8
What Do Shares Cost?		10
How is the Fund Sold?		14
How to Purchase Shares		15
How to Redeem and Exchange Shares		17
Account and Share Information		20
Who Manages the Fund?		21
Legal Proceedings		23
Financial Information		24

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Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund pursues its investment objective by investing primarily in the stocks of small companies that are traded on national security exchanges, NASDAQ stock market and on the over-the-counter market. Small companies will be defined as companies with market capitalizations similar to companies in the Russell 2000 Index (which had a market capitalization range of $27.57 million to $2.11 billion as of November 28, 2003) or the Standard & Poor's Small Cap 600 Index (which had a market capitalization range of $35.94 million to $4.43 billion as of November 28, 2003). Up to 25% of the Fund's net assets may be invested in foreign securities. The Adviser's and Sub-Adviser (collectively, "Adviser") process for selecting investments is bottom-up and growth-oriented.

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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

Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
Risks Related to Investing for Growth. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends.
Risks Related to Company Size. Because the smaller companies in which the Fund may invest may have unproven track records, a limited product or service base and limited access to capital, they may be more likely to fail than larger companies.
Sector Risks. Because the Fund may allocate relatively more assets to certain industry sectors than others, the Fund's performance may be more susceptible to any developments which affect those sectors emphasized by the Fund.
Liquidity Risks. The equity securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.
Risks of Foreign Investing. Because the Fund invests in securities issued by foreign companies, the Fund's share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than could otherwise be the case.
Currency Risks. Exchange rates for currencies fluctuate daily. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the Fund's foreign investments and the value of the shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar.

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Risk/Return Bar Chart and Table

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

What are the Fund's Fees and Expenses?

FEDERATED KAUFMANN SMALL CAP FUND

FEES AND EXPENSES

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

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

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	1.425%	1.425%	1.425%
Distribution (12b-1) Fee	0.250%³	0.750%	0.750%
Shareholder Services Fee	0.250%	0.250%	0.250%
Other Expenses	0.320%	0.320%	0.320%
Total Annual Fund Operating Expenses	2.245%	2.745%⁴	2.745%


1 Although not contractually obligated to do so, the adviser and distributor will waive certain amounts. These are shown below along with the net expenses the Fund expects to pay for the fiscal year ended October 31, 2004.
Total Waivers of Fund Expenses	0.295%	0.245%	0.245%
Total Actual Annual Fund Operating Expenses (after waivers)⁵	1.950%	2.500%	2.500%
2 The adviser expects to voluntarily waive a portion of the management fee. The adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) is expected to be 1.180% for the fiscal year ending October 31, 2004.
3 A portion of the distribution (12b-1) fee is expected to be voluntarily waived. This anticipated voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund's Class A Shares (after the anticipated voluntary waiver) is expected to be 0.20% for the fiscal year ending October 31, 2004.
4 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. Class A Shares pay lower operating expenses than Class B Shares.
5 The Actual Annual Fund Operating Expenses (after waivers) for the Fund's Class A, Class B and Class C Shares were 1.950%, 2.500% and 2.500%, respectively, for the fiscal year ended October 31, 2003.

EXAMPLE

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

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

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	$765	$1,213	$1,686	$2,988
Expenses assuming no redemption	$765	$1,213	$1,686	$2,988
Class B:
Expenses assuming redemption	$828	$1,252	$1,652	$2,956
Expenses assuming no redemption	$278	$ 852	$1,452	$2,956
Class C:
Expenses assuming redemption	$475	$ 943	$1,537	$3,145
Expenses assuming no redemption	$375	$ 943	$1,537	$3,145

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What are the Fund's Investment Strategies?

In seeking to meet its investment objective, the Fund invests primarily in the stocks of small companies that are traded on national security exchanges, NASDAQ stock market and on the over-the-counter market. Up to 25% of the Fund's net assets may be invested in foreign securities. The Adviser's process for selecting investments is bottom-up and growth-oriented. When deciding which securities to buy the Fund considers:

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

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

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The Fund assesses individual companies from the perspective of a long-term investor. The Adviser seeks to purchase stocks of companies that it believes:

are profitable and leaders in the industry;
have distinct products and services which address substantial markets;
can rapidly grow annual earnings over the next three to five years; or
have superior proven management and solid balance sheets.

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

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Because the Fund refers to small capitalization investments in its name, the Fund will notify shareholders at least 60 days in advance of any change in its investment policies that would permit the fund to normally invest less than 80% of its assets in investments in small companies. For purposes of this limitation, small companies will be defined as companies with market capitalizations similar to companies in the Russell 2000 Index (which had a market capitalization range of $27.57 million to $2.11 billion as of November 28, 2003) or the Standard & Poor's Small Cap 600 Index (which had a market capitalization range of $35.94 million to $4.43 billion as of November 28, 2003). Such definition will be applied at the time of investment and the Fund will not be required to sell a stock because a company has grown outside the market capitalization range of small capitalization stocks.

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PORTFOLIO TURNOVER

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

TEMPORARY DEFENSIVE INVESTMENTS

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

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

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

Common Stocks

Foreign Securities

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

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

ILLIQUID SECURITIES

FIXED INCOME SECURITIES

Treasury Securities

SPECIAL TRANSACTIONS

Securities Lending

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.

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

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

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

RISKS RELATED TO INVESTING FOR GROWTH

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

RISKS RELATED TO COMPANY SIZE

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

SECTOR RISKS

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

LIQUIDITY RISKS

Trading opportunities are more limited for equity securities that are not widely held. This may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity, any of which could have a negative effect on the Fund's performance. Infrequent trading of securities may also lead to an increase in their price volatility.
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. Over-the-counter (OTC) derivative contracts generally carry greater liquidity risk than exchange-traded contracts.

RISKS OF FOREIGN INVESTING

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

CURRENCY RISKS

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

CREDIT RISKS

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

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

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

What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). If the Fund purchases foreign securities that trade in foreign markets on days the NYSE is closed, the value of the Fund's assets may change on days you cannot purchase or redeem Shares. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). The Fund generally values 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. Securities that are not traded, such as certain illiquid securities, may be valued at fair value as determined by the Fund's Board of Trustees (Board). These values are based upon regular evaluation of all available information. They are changed only when new information is determined to have a material affect on the security's value.

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

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

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

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

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Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%
Class C Shares:
All Purchases	1.00%	1.01%

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

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

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purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
by you, your spouse, and your children under age 21; or
of the same share class of two or more Federated funds (other than money market funds);
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.) The sales charge will be eliminated when you purchase Shares: <R>
within 120 days of redeeming Shares of an equal or greater amount;

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

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as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV, or
as a Federated Life Member (Class A Shares only) and their immediate family members; or

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

SALES CHARGE WHEN YOU REDEEM

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

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

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You will not be charged a CDSC when redeeming Shares:

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

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

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

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

How is the Fund Sold?

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

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

RULE 12B-1 PLAN

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How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

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

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

DIRECTLY FROM THE FUND

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

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

By Wire

Send your wire to:

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

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

By Check

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

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

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

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

THROUGH AN EXCHANGE

BY SYSTEMATIC INVESTMENT PROGRAM

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BY AUTOMATED CLEARING HOUSE (ACH)

RETIREMENT INVESTMENTS

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400. If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you will receive a redemption amount based on that day's NAV.

By Mail

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

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

Send requests by mail to:

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

Send requests by private courier or overnight delivery service to:

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

All requests must include:

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

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

Signature Guarantees

Signatures must be guaranteed if:

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

PAYMENT METHODS FOR REDEMPTIONS

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

Redemption in Kind

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

LIMITATIONS ON REDEMPTION PROCEEDS

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

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

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

REDEMPTIONS FROM RETIREMENT ACCOUNTS

EXCHANGE PRIVILEGE

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

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

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

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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

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Systematic Withdrawal Program (SWP) On Class B Shares

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

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

ADDITIONAL CONDITIONS

Telephone Transactions

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

Share Certificates

The Fund does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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

Who Manages the Fund?

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

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THE FUND'S PORTFOLIO MANAGERS ARE:

Lawrence Auriana

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Lawrence Auriana has been the Fund's Portfolio Manager since December 2002. He is Vice President of the Trust. Mr. Auriana joined Federated in April 2001 as Co-Head of Investments/Federated Kaufmann. From August 1984 to April 2001, Mr. Auriana was President and Treasurer of Edgemont Asset Management Corp., and Chairman of the Board and Portfolio Manager to The Kaufmann Fund, Inc. (predecessor to the Federated Kaufmann Fund). Mr. Auriana earned a B.S. in Economics from Fordham University and has been engaged in the securities business since 1965.

Hans P. Utsch

Hans P. Utsch has been the Fund's Portfolio Manager since December 2002. He is Vice President of the Trust. Mr. Utsch joined Federated in April 2001 as
Co-Head of Investments/Federated Kaufmann. From August 1984 to April 2001, Mr. Utsch was Chairman of the Board and Secretary of Edgemont Asset Management Corp., and President and Portfolio Manager to The Kaufmann Fund, Inc. (predecessor to the Federated Kaufmann Fund). Mr. Utsch graduated from Amherst College and holds an M.B.A. from Columbia University. He has been engaged in the securities business since 1962.

Aash M. Shah

Aash M. Shah has been the Fund's Portfolio Manager since December 2002. Mr. Shah joined Federated in 1993 and has been a Portfolio Manager and a Vice President of the Fund's Adviser since January 1997. Mr. Shah was a Portfolio Manager and served as an Assistant Vice President of the Adviser from 1995 through 1996, and as an Investment Analyst from 1993 to 1995. Mr. Shah received his Masters in Industrial Administration from Carnegie Mellon University with a concentration in Finance and Accounting. Mr. Shah is a Chartered Financial Analyst.

John Ettinger

John Ettinger was named a portfolio manager of the Fund in October 2003. Mr. Ettinger has been an investment analyst with the Fund's Adviser since April 2001. He served as an investment analyst with Edgemont Asset Management Corp. from 1996 to 2001. Mr. Ettinger is a Chartered Financial Analyst. He earned a B.A. in Economics from Duke University.

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ADVISORY FEES

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Legal Proceedings

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Financial Information

FINANCIAL HIGHLIGHTS

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

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout the Period)

	Period Ended 10/31/2003	¹
Net Asset Value, Beginning of Period	$10.00
Income From Investment Operations:
Net operating loss	(0.21	)²
Net realized and unrealized gain on investments and foreign currency transactions	7.28
TOTAL FROM INVESTMENT OPERATIONS	7.07
Net Asset Value, End of Period	$17.07

Total Return³	70.70	%


Ratios to Average Net Assets:

Expenses	1.95	%⁴

Net operating loss	(1.67	)%⁴

Expense waiver/reimbursement⁵	0.85	%⁴

Supplemental Data:

Net assets, end of period (000 omitted)	$121,125

Portfolio turnover	70	%

1 Reflects operations for the period from December 18, 2002 (date of initial public investment) to October 31, 2003.

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

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

4 Computed on an annualized basis.

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

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

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout the Period)

	Period Ended 10/31/2003	¹
	Period Ended 10/31/2003	¹	Net Asset Value, Beginning of Period	$10.00
Income From Investment Operations:
Net operating loss	(0.29	)²
Net realized and unrealized gain on investments and foreign currency transactions	7.33
TOTAL FROM INVESTMENT OPERATIONS	7.04
Net Asset Value, End of Period	$17.04

Total Return³	70.40	%


Ratios to Average Net Assets:

Expenses	2.50	%⁴

Net operating loss	(2.22	)%⁴

Expense waiver/reimbursement⁵	0.80	%⁴

Supplemental Data:

Net assets, end of period (000 omitted)	$43,390

Portfolio turnover	70	%

1 Reflects operations for the period from December 18, 2002 (date of initial public investment) to October 31, 2003.

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

4 Computed on an annualized basis.

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

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

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout the Period)

	Period Ended 10/31/2003	¹
	Period Ended 10/31/2003	¹	Net Asset Value, Beginning of Period	$10.00
Income From Investment Operations:
Net operating loss	(0.29	)²
Net realized and unrealized gain on investments and foreign currency transactions	7.33
TOTAL FROM INVESTMENT OPERATIONS	7.04
Net Asset Value, End of Period	$17.04

Total Return³	70.40	%


Ratios to Average Net Assets:

Expenses	2.50	%⁴

Net operating loss	(2.22	)%⁴

Expense waiver/reimbursement⁵	0.80	%⁴

Supplemental Data:

Net assets, end of period (000 omitted)	$47,696

Portfolio turnover	70	%

1 Reflects operations for the period from December 18, 2002 (date of initial public investment) to October 31, 2003.

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

4 Computed on an annualized basis.

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

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

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[Logo of Federated Investors]

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

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Federated Securities Corp., Distributor

Investment Company Act File No. 811-4017

Cusip 314172636
Cusip 314172628
Cusip 314172610

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28057 (12/03)

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FEDERATED KAUFMANN SMALL CAP FUND

A Portfolio of Federated Equity Funds

STATEMENT OF ADDITIONAL INFORMATION

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DECEMBER 31, 2003

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CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

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

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HOW IS THE FUND ORGANIZED?

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

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Securities in Which the Fund Invests

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

SECURITIES DESCRIPTIONS AND TECHNIQUES

Equity Securities

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

COMMON STOCKS

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

PREFERRED STOCKS

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)

WARRANTS

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

Fixed Income Securities

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

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

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

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

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 market and prepayment risks of these mortgage backed securities.

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

BANK INSTRUMENTS

DEMAND INSTRUMENTS

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

CONVERTIBLE SECURITIES

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

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FOREIGN SECURITIES

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

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

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

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.

Derivative Contracts

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

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Futures Contracts

Options

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

Call Options

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

Put Options

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

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

Swaps

Interest Rate Swaps

Total Rate of Return Swaps

Credit Default Swaps

Currency Swaps

Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.

Caps And Floors

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

Hybrid Instruments

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DEPOSITARY RECEIPTS

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

FOREIGN EXCHANGE CONTRACTS

FOREIGN GOVERNMENT SECURITIES

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

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

SPECIAL TRANSACTIONS

Repurchase Agreements

Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements

Delayed Delivery Transactions

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

Securities Lending

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

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

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

Inter-Fund Borrowing and Lending Arrangements

Asset Coverage

Investing in Securities of Other Investment Companies

Illiquid Securities

<R>

</R>

Borrowing for Leverage

Short Sales

The Fund may make short sales of securities listed on one or more national
exchanges or on the Nasdaq Stock Market. A short sale means selling a security
the Fund does not own to take advantage of an anticipated decline in the stock's
price. Once the Fund sells the security short, it has an obligation to replace
the borrowed security. If it can buy the security back at a lower price, a
profit results. In no event will the Fund engage in short sales transactions if
it would cause the market value of all of 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 is recognized immediately upon entering into a short
sale against the box with respect to an appreciated security. Short sales are
speculative in nature, and may reduce returns or increase volatility.

Investment Ratings for Investment Grade Securities

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

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

INVESTMENT RISKS

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

Stock Market Risks

<R>

Liquidity Risks

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

Risks of Foreign Investing

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

Credit Risks

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

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

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

Call Risks

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

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

Risks Associated with Noninvestment Grade Securities

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

Currency Risks

Risks of Investing in Derivatives Contracts and Hybrid Instruments

</R>

FUNDAMENTAL INVESTMENT OBJECTIVE

<R>

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

</R>

INVESTMENT LIMITATIONS

Diversification

Borrowing Money and Issuing Senior Securities

The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the Investment Company Act of 1940 ("1940
Act").

Investing in Real Estate

Investing in Commodities

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

Underwriting

Lending

Concentration

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

Investing in Commodities

For purposes of the commodities limitation, 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.

Pledging Assets

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

Purchases on Margin

Illiquid Securities

For purposes of its policies and limitations the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan 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
restriction.

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

In applying the concentration restriction: (1) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (2) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (3) asset- backed securities will be
classified according to the underlying assets securing such securities.

DETERMINING MARKET VALUE OF SECURITIES

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

<R>

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

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

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

o for 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

WHAT DO SHARES COST?

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

</R>

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE

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

Quantity Discounts (Class A Shares)

<R>

Accumulated Purchases (Class A Shares)

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

Concurrent Purchases (Class A Shares)

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

Letter of Intent (Class A Shares)

</R>

Reinvestment Privilege

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

Purchases by Affiliates of the Fund

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

<R>

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

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

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

Reorganizations (Class A Shares)

Purchases Through Omnibus Accounts (Class C Shares Only)

</R>

Federated Life Members

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

<R>

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

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

</R>

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

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

<R>

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

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

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

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

Class B Shares Only

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

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

o Shares that are not subject to a CDSC; and

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

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

</R>

HOW IS THE FUND SOLD?

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

FRONT-END SALES CHARGE REALLOWANCES

<R>

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

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

Dealer Reallowance
as a Percentage of
Public Offering Price

All Purchase Amounts 1.00%

ADVANCE COMMISSIONS

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

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

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

RULE 12B-1 PLAN (CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES)

As a compensationt-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor for activities principally intended to result in the sale of Shares
such as advertising, and marketing of Shares (including printing and
distributing prospectuses and sales literature to prospective shareholders and
financial institutions) and providing incentives to investment professionals to
sell Shares. The Rule 12b-1 Plan allows the Distributor to contract with
investment professionals to perform activities covered by the Plan. The Rule
12b-1 Plan is expected to benefit the Fund in a number of ways. For example, it
is anticipated that the Plan will help the Fund attract and retain assets, thus
providing cash for orderly portfolio management and Share redemptions and
possibly helping to stabilize or reduce other operating expenses. In addition,
the Plan is integral to the multiple class structure of the Fund, which promotes
the sale of Shares by providing a range of options to investors.The Fund's
service providers that receive asset-based fees also benefit from stable or
increasing Fund assets.

</R>

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.

<R>

SERVICE FEES

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

SUPPLEMENTAL PAYMENTS

In addition to these supplemental payments, an investment professional may also
receive payments under the Rule 12b-1 Plan and/or Service Fees.

</R>

EXCHANGING SECURITIES FOR SHARES

SUBACCOUNTING SERVICES

REDEMPTION IN KIND

MASSACHUSETTS PARTNERSHIP LAW

<R>

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

</R>

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

<R>

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 Fund's outstanding Shares of
all series entitled to vote.

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Carey & Co,
Columbus, OH, owned approximately, 860,026 Shares (11.52%), FTC Co., Denver, CO,
owned approximately 591,350 Shares (7.92%) and Trukan & Co, Wichita, KS,
owned approximately 385,129 Shares (5.16%).

As of December 1, 2003, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Citigroup
Global Markets Inc., New York, NY, owned approximately 635,953 Shares (18.80%)
and MLPF&S, Jacksonville, FL, owned approximately 337,737 Shares (9.98%).

TAX INFORMATION

FEDERAL INCOME TAX

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

FOREIGN INVESTMENTS

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The following tables give information about each Board member and the senior
officers of the Fund. Where required, the tables separately list Board members
who are "interested persons" of the Fund (i.e., "Interested" Board members) and
those who are not (i.e., "Independent" Board members). Unless otherwise noted,
the address of each person listed is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA. The Trust comprises seven portfolios and the Federated
Fund Complex consists of 44 investment companies (comprising 138 portfolios).
Unless otherwise noted, each Officer is elected annually. Unless otherwise
noted, each Board member oversees all portfolios in the Federated Fund Complex;
serves for an indefinite term; and also serves as a Board member of the
following investment company complexes: Banknorth Funds -four portfolios; Golden
Oak(R) Family of Funds seven portfolios and WesMark Funds-five portfolios.

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

INTERESTED TRUSTEES/ BACKGROUND AND COMPENSATION

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

Previous Positions: Trustee,
Federated Investment Management
Company and Chairman and Director,
Federated Investment Counseling.

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

Principal Occupations: Director or $0 $148,500
Lawrence D. Ellis, M.D.* Trustee of the Federated Fund
Birth Date: October 11, 1932 Complex; Professor of Medicine,
3471 Fifth Avenue University of Pittsburgh; Medical
Suite 1111 Director, University of Pittsburgh
Pittsburgh, PA Medical Center Downtown;
TRUSTEE Hematologist, Oncologist and
Began serving: August 1987 Internist, University of Pittsburgh
Medical Center.

Other Directorships Held: Member,
National Board of Trustees, Leukemia
Society of America.

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

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION

Principal Occupation: Director or $0 $163,350
Thomas G. Bigley Trustee of the Federated Fund Complex.
Birth Date: February 3, 1934
15 Old Timber Trail Other Directorships Held: Director,
Pittsburgh, PA Member of Executive Committee,
TRUSTEE Children's Hospital of Pittsburgh;
Began serving: October 1995 Director, University of Pittsburgh.

Previous Position: Senior Partner,
Ernst & Young LLP.

Principal Occupations: Director or $0 $163,350
John T. Conroy, Jr. Trustee of the Federated Fund Complex;
Birth Date: June 23, 1937 Chairman of the Board, Investment
Grubb & Ellis/Investment Properties Corporation; Partner or
Properties Corporation Trustee in private real estate
3838 North Tamiami Trail ventures in Southwest Florida.
Suite 402
Naples, FL Previous Positions: President,
TRUSTEE Investment Properties Corporation;
Began serving: November 1991 Senior Vice President, John R. Wood
and Associates, Inc., Realtors;
President, Naples Property Management,
Inc. and Northgate Village Development
Corporation.

Principal Occupation: Director or $0 $163,350
Nicholas P. Constantakis Trustee of the Federated Fund Complex.
Birth Date: September 3, 1939
175 Woodshire Drive Other Directorships Held: Director and
Pittsburgh, PA Member of the Audit Committee, Michael
TRUSTEE Baker Corporation (engineering and
Began serving: February 1998 energy services worldwide).

Previous Position: Partner, Anderson
Worldwide SC.

Principal Occupation: Director or $0 $148,500
John F. Cunningham Trustee of the Federated Fund Complex.
Birth Date: March 5, 1943
353 El Brillo Way Other Directorships Held: Chairman,
Palm Beach, FL President and Chief Executive Officer,
TRUSTEE Cunningham & Co., Inc. (strategic
Began serving: January 1999 business consulting); Trustee
Associate, Boston College.

Previous Positions: Director, Redgate
Communications and EMC Corporation
(computer storage systems); Chairman
of the Board and Chief Executive
Officer, Computer Consoles, Inc.;
President and Chief Operating Officer,
Wang Laboratories; Director, First
National Bank of Boston; Director,
Apollo Computer, Inc.

Principal Occupation: Director or $0 $148,500
Peter E. Madden Trustee of the Federated Fund Complex;
Birth Date: March 16, 1942 Management Consultant.
One Royal Palm Way
100 Royal Palm Way Other Directorships Held: Board of
Palm Beach, FL Overseers, Babson College.
TRUSTEE
Began serving: November 1991 Previous Positions: Representative,
Commonwealth of Massachusetts General
Court; President, State Street Bank
and Trust Company and State Street
Corporation (retired); Director, VISA
USA and VISA International; Chairman
and Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.

Principal Occupations: Director or $0 $163,350
Charles F. Mansfield, Jr. Trustee of the Federated Fund Complex;
Birth Date: April 10, 1945 Management Consultant; Executive Vice
80 South Road President, DVC Group, Inc. (marketing,
Westhampton Beach, NY communications and technology) (prior
TRUSTEE to 9/1/00).
Began serving: January 1999
Previous Positions: Chief Executive
Officer, PBTC International Bank;
Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, HSBC Bank USA
(formerly, Marine Midland Bank); Vice
President, Citibank; Assistant
Professor of Banking and Finance,
Frank G. Zarb School of Business,
Hofstra University.

John E. Murray, Jr., J.D., Principal Occupations: Director or $0 $178,200
S.J.D. Trustee of the Federated Fund Complex;
Birth Date: December 20, 1932 Chancellor and Law Professor, Duquesne
Chancellor, Duquesne University; Consulting Partner,
University Mollica & Murray.
Pittsburgh, PA
TRUSTEE Other Directorships Held: Director,
Began serving: February 1995 Michael Baker Corp. (engineering,
construction, operations and technical
services).

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

Principal Occupations: Director or $0 $148,500
Marjorie P. Smuts Trustee of the Federated Fund Complex;
Birth Date: June 21, 1935 Public Relations/Marketing
4905 Bayard Street Consultant/Conference Coordinator.
Pittsburgh, PA
TRUSTEE Previous Positions: National
Began serving: April 1984 Spokesperson, Aluminum Company of
America; television producer;
President, Marj Palmer Assoc.; Owner,
Scandia Bord.

Principal Occupations: Director or $0 $148,500
John S. Walsh Trustee of the Federated Fund Complex;
Birth Date: November 28, 1957 President and Director, Heat Wagon,
2604 William Drive Inc. (manufacturer of construction
Valparaiso, IN temporary heaters); President and
TRUSTEE Director, Manufacturers Products, Inc.
Began serving: January 1999 (distributor of portable construction
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.

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

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

OFFICERS**

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

Date Service Began

Principal Occupations: Executive Vice President and Secretary of
John W. McGonigle the Federated Fund Complex; Executive Vice President, Secretary
Birth Date: October 26, 1938 and Director, Federated Investors, Inc.
EXECUTIVE VICE PRESIDENT AND SECRETARY
Began serving: April 1984 Previous Positions: Trustee, Federated Investment Management
Company and Federated Investment Counseling; Director, Federated
Global Investment Management Corp., Federated Services Company
and Federated Securities Corp.

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

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

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

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

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

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

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

</R>

** Officers do not receive any compensation from the Fund. Thomas R. Donahue,
Chief Financial Officer, Vice President, Treasurer and Assistant Secretary
of Federated and an officer of its various advisory and underwriting
subsidiaries, has served as a Term Member on the Board of Directors of
Duquesne University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John
E. Murray, Jr., an Independent Trustee of the Fund, served as President of
Duquesne from 1988 until his retirement from that position in 2001, and
became Chancellor of Duquesne on August 15, 2001. It should be noted that
Mr. Donahue abstains on any matter that comes before Duquesne''s Board that
affects Mr. Murray personally.

COMMITTEES OF THE BOARD

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

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

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF INVESTMENT
COMPANIES AS OF DECEMBER 31, 2002
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund Investment Companies
John F. Donahue None Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. None Over $100,000

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

</R>

INVESTMENT ADVISER

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

The Adviser is a wholly owned subsidiary of Federated.

<R>

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

</R>

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

<R>

Services Agreement

</R>

Other Related Services

<R>

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

Proxy Voting Policies

Proxy Voting Procedures

Conflicts of Interest

BROKERAGE TRANSACTIONS

</R>

Research Services

<R>

For the fiscal year ended, October 31, 2003, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $157,902,633 for which the
Fund paid $698,956 in brokerage commissions.

ADMINISTRATOR

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

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

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

</R>

CUSTODIAN

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

<R>

INDEPENDENT AUDITORS

FEES PAID BY THE FUND FOR SERVICES
For the Period Ended October 31 2003
Advisory Fee Earned $684,620
Advisory Fee Reduction $317,694
Advisory Fee Reimbursement $407
Sub-Advisory Fee $315,608
Sub-Advisory Fee Waiver 0
Brokerage Commissions $715,999
Administrative Fee $92,753
12b-1 Fee:
Class A Shares $55,171
Class B Shares $73,029
Class C Shares $80,406
Shareholder Services Fee:
Class A Shares $68,964
Class B Shares $24,343
Class C Shares $26,802

HOW DOES THE FUND MEASURE PERFORMANCE?

</R>

<R>

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns are given for the Start of Performance period ended October 31,
2003.

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

30-Day Period Start of
Performance on
December 18, 2002
Class A Shares
Total Return
Before Taxes NA 61.34%
After Taxes on NA 61.34%
Distributions
After Taxes on NA 39.87%
Distributions and Sale
of Shares
Yield NA NA

30-Day Period Start of
Performance on
December 18, 2002
Class B Shares
Total Return
Before Taxes NA 64.90%
After Taxes on Distributions NA 64.90%
After Taxes on Distributions NA 42.19%
and Sale of Shares
Yield NA NA

30-Day Period Start of
Performance on
December 18, 2002
Class C Shares
Total Return
Before Taxes NA 67.72%
After Taxes on Distributions NA 67.72%
After Taxes on Distributions NA 44.02%
and Sale of Shares
Yield NA NA

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.

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

</R>

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

<R>

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

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.

</R>

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

Russell 2000 Index measures the performance of the 2,000 smallest companies in
the Russell 3000 Index, which represents approximately 8% of the market
capitalization of the Russell 3000 Index. As of the latest reconstitution, the
average market capitalization was approximately $490 million; the median market
capitalization was approximately $395 million. The index had a market
capitalization range of approximately $10 million to $1.94 billion.

Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.

Standard & Poor's 600 Small Capitalization Index (S&P Small Cap 600) is
an unmanaged index of 600 small capitalization common stocks with a market
capitalization generally ranging between $34 million and $3.0 billion. The
index, monitored by Standard & Poor's Corporation, is cited as an indicator
of small capitalization stock performance.

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

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

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

Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.

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

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

Morningstar, Inc. An independent rating service, is the publisher of the
bi-weekly Mutual Fund Values, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.

Wilshire 5000 Equity Index consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available, and can be
used to compare to the total returns of funds whose portfolios are invested
primarily in common stocks.

Wilshire Small Cap Index contains 250 companies screened out of the Wilshire
1750 for their size, sector and trading characteristics. The Index rebalances on
a calendar quarter basis and companies are replaced regularly.

Strategic Insight Small Company Growth Funds Index consists of mutual funds that
invest primarily in companies below $750 million in total market capitalization.

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

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

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

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

WHO IS FEDERATED INVESTORS, INC.?

FEDERATED FUNDS OVERVIEW

Municipal Funds

<R>

Equity Funds

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

Corporate Bond Funds

Government Funds

Money Market Funds

MUTUAL FUND MARKET

</R>

FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

<R>

Bank Marketing

Broker/Dealers and Bank Broker/Dealer Subsidiaries

FINANCIAL INFORMATION

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

INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

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

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

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

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

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

MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

FITCH RATINGS COMMERCIAL PAPER RATING DEFINITIONS

</R>

Addresses

FEDERATED KAUFMANN SMALL CAP FUND

Class A Shares
Class B Shares
Class C Shares

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

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

Investment Adviser

<R>
Federated Equity Management Company of Pennsylvania

</R>
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

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

Independent Auditors

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

</R>







PART C.    OTHER INFORMATION.

Item 23.    Exhibits
            (a)   (i)      Conformed copy of Amended and Restated Declaration
                           of Trust of the Registrant; (12)
                  (ii)     Conformed copy of Amendment No. 8 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (19)
                  (iii)    Conformed copy of Amendment No. 9 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (21)
                  (iv)     Conformed copy of Amendment No. 10 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (21)
                  (v)      Conformed copy of Amendment No. 11 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (21)
                  (vi)     Conformed copy of Amendment No. 12 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (23)
                  (vii)    Conformed copy of Amendment No. 13 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (23)
                  (viii)   Conformed copy of Amendment No. 14 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (24)
                  (ix)     Conformed copy of Amendment No. 15 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (24)
                  (x)      Conformed copy of Amendment No. 16 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (24)
                  (xi)     Conformed copy of Amendment No. 17 of the Amended
                           and Restated Declaration of the Trust of the
                           Registrant; (24)
                  (xii)    Conformed copy of Amendment No. 18 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (25)
                  (xiii)   Conformed copy of Amendment No. 19 of the Amended
                           and Restated Declaration of Trust of the
                           Registrant; (29)
            (b)   (i)      Copy of Amended and Restated By-Laws of the
                           Registrant; (12)
                  (ii)     Copy of Amendment No. 5 to Amended and Restated
                           By-Laws of the Registrant; (18)
                  (iii)    Copy of Amendment No. 6 to Amended and Restated
                           By-Laws of the Registrant; (18)
                  (iv)     Copy of Amendment No. 7 to Amended and Restated
                           By-Laws of the Registrant; (18)
                  (v)      Copy of Amendment No. 8 to Amended and Restated
                           By-Laws of the Registrant; (24)
                  (vi)     Copy of Amendment No. 9 to Amended and Restated
                           By-Laws of the Registrant; (29)
            (c)   (i)      Copy of Specimen Certificate for Shares of
                           Beneficial Interest of the Registrant (Federated
                           Small Cap Strategies Fund); (7)
                  (ii)     Copy of Specimen Certificate for Shares of
                           Beneficial Interest of the Registrant (Federated
                           Growth Strategies Fund); (8)
                  (iii)    Copy of Specimen Certificate for Shares of
                           Beneficial Interest of the Registrant (Federated
                           Capital Appreciation Fund); (9)
            (d)   (i)      Conformed copy of Investment Advisory Contract of
                           the Registrant (Federated Growth Strategies Fund);
                           (5)
                  (ii)     Conformed copy of Investment Advisory Contract on
                           behalf of the Registrant, which includes Exhibits A
                           and B for Federated Small Cap Strategies Fund and
                           Federated Capital Appreciation Fund, respectively;
                           (10)
                  (iii)    Conformed copies of Exhibits D & E for Federated
                           Large Cap Growth Fund and Federated Communications
                           Technology Fund, respectively; (19)
                  (iv)     Conformed copy of Exhibit G to the Investment
                           Advisory Contract for Federated Kaufmann Fund; (23)
                  (v)      Conformed copy of Exhibit I to the Investment Advisory Contract for Federated
                           Market Opportunity Fund; (23)
                  (vi)     Conformed copy of Amendment to Investment Advisory
                           Contract of the Registrant; (23)
                  (vii)    Conformed copy of Sub-Advisory Agreement for
                           Federated Kaufmann Fund, which includes Exhibit A,
                           dated December 1, 2001; (23)
                  (viii)   Conformed copy of Sub-Advisory Agreement for
                           Federated Kaufmann Small Cap Fund, which includes
                           Exhibit A, dated December 1, 2002; (24)
                  (ix)     Conformed copy of Exhibit J to the Investment
                           Advisory Contract for Federated Kaufmann Small Cap
                           Fund; (24)
                  (x)      Conformed copy of Exhibit A to the Sub-Advisory
                           Contract for Federated Large-Cap Growth Fund; (28)
            (e)   (i)      Conformed copy of Distributor's Contract of the
                           Registrant; (10)
                  (ii)     Conformed copies of Exhibits D and F to the
                           Distributor's Contract for Federated Growth
                           Strategies Fund, (Class A and C Shares); (10)
                  (iii)    Conformed copies of Exhibits G and I to the
                           Distributor's Contract for Federated Capital
                           Appreciation Fund, (Class A and C Shares); (10)
                  (iv)     Conformed copy of Distributor's Contract (Class B
                           Shares); (16)
                  (v)      Conformed copies of Exhibits M and N to the
                           Distributor's Contract for Federated Large Cap
                           Growth Fund, (Class A and C Shares); (19)
                  (vi)     Conformed copies of Exhibits O and P to the
                           Distributor's Contract for Federated Communications
                           Technology Fund, (Class A and C Shares); (19)
                  (vii)    Conformed copy of Exhibits S & T to the
                           Distributor's Contract for for Federated Market
                           Opportunity Fund (Class A and Class C Shares); (22)
                  (viii)   Conformed copy of Exhibit U to the Distributor's
                           Contract for Federated Kaufmann Fund (Class K
                           Shares); (23)
                  (ix)     Conformed copy of Exhibits V & W to the
                           Distributor's Contract for Federated Kaufmann Fund
                           and Federated Large Cap Tech Fund (Class A and
                           Class C Shares); (22)
                  (x)      Conformed copy of Amendment to the Distributor's
                           Contract of the Registrant; (23)
                  (xi)     Conformed copy of Exhibit X to the Distributor's
                           Contract for Federated Kaufmann Small Cap Fund
                           (Class A Shares); (24)
                  (xii)    Conformed copy of Exhibit Y to the Distributor's
                           Contract for  Federated Kaufmann Small Cap Fund
                           (Class C Shares); (24)
                  (xiii)   Conformed copy of Exhibit Z to the Distributor's
                           Contract for Federated Capital Appreciation Fund
                           Class K Shares; (28)
                  (xiv)    The Registrant hereby incorporates the conformed
                           copy of the specimen Mutual Funds Sales and Service
                           Agreement; Mutual Funds Service Agreement; and Plan
                           Trustee/Mutual Funds Service Agreement from Item
                           24(b)(6) of the Cash Trust Series II Registration
                           Statement on Form N-1A, filed with the Commission
                           on July 24, 1995. (File No. 33-38550 and 811-6269)
            (f)            Not applicable;
            (g)   (i)      Conformed Copy of the Custodian Agreement of the
                           Registrant; (6)
                  (ii)     Conformed copy of Custodian Fee Schedule; (15)
            (h)   (i)      Conformed copy of Amended and Restated Agreement
                           for Fund Accounting Services, Administrative
                           Services, Shareholder Transfer Agency Services and
                           Custody Services Procurement; (17)
                  (ii)     Conformed copy of Amendment to Agreement for Fund
                           Accounting Services, Administrative Services,
                           Shareholder Transfer Agency Services and Custody
                           Services Procurement; (23)
                  (iii)    Conformed copy of Principal Shareholder Service's
                           Agreement (Class B Shares); (16)
                  (iv)     Conformed copy of Exhibit 1 to the Principal
                           Shareholder Service's Agreement (Class B Shares);
                           (23)
                  (v)      Conformed copy of Shareholder Services Agreement
                           (Class B Shares); (16)
                  (vi)     Conformed copy of Exhibit 1 to the Shareholder
                           Services Agreement (Class B Shares); (23)
                  (vii)    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).
                  (viii)   The Registrant hereby incorporates the conformed
                           copy of the Second Amended and Restated Services
                           Agreement from Item (h)(v) of the Investment Series
                           Funds, Inc. Registration Statement on Form N-1A
                           filed with the Commission on January 23, 2002,
                           (File Nos. 33-48847 and 811-07021).
                  (ix)     The responses described in Item 23(e)(xiii) are
                           hereby incorporated  by reference.
            (i)            Conformed copy of the Opinion and Consent of
                           Counsel regarding legality of shares being
                           registered; (6)
            (j)            Conformed copy of Consent of Independent Auditors;
                           (+)
            (k)            Not Applicable;
            (l)            Conformed copy of Initial Capital Understanding; (2)
            (m)   (i)      Conformed Copy of Distribution Plan of the
                           Registrant; (10)
                  (ii)     Conformed copy of Exhibit E to the Distribution
                           Plan for Federated Growth Strategies Fund, (Class C
                           Shares); (10)
                  (iii)    Conformed copies of Exhibit F and H to the
                           Distribution Plan for Federated Capital
                           Appreciation Fund, (Class A and C Shares); (10)
                  (iv)     The responses described in Item 23(e)(xiii) are
                           hereby incorporated by reference;
                  (v)      Conformed copy of Amendment to the Distribution
                           Contract (Class B Shares); (23)
                  (vi)     Conformed copies of Exhibit L for Federated Large
                           Cap Growth Fund (Class A and Class C), Exhibit M,
                           Exhibit N & O for Federated Communications
                           Technology Fund (Class A and Class C) to the
                           Distribution Plan; (19)
                  (vii)    Conformed copy of Exhibit D to Registrant's
                           Distribution Plan for Class B Shares of Federated
                           Growth Strategies Fund; (22)
                  (viii)   Conformed copy of Exhibit G to Registrant's
                           Distribution Plan for Class B Shares of Federated
                           Capital Appreciation Fund; (22)
                  (ix)     Conformed copy of Exhibits R & S to the
                           Distribution Plan for Federated Market Opportunity
                           Fund (Class A and Class C Shares); (22)
                  (x)      Conformed copy of Exhibit T to the Distribution
                           Plan for Federated Kaufmann Fund (Class K Shares);
                           (22)
                  (xi)     Conformed copy of Exhibits U & V to the
                           Distribution Plan for Federated Kaufmann Fund and
                           Federated Large Cap Tech Fund (Class A and Class C
                           Shares); (22)
                  (xii)    Conformed copy of Exhibits W & X to the
                           Distribution Plan for Federated Kaufmann Small Cap
                           Fund (Class A and Class C Shares); (24)
                  (xiii)   Conformed copy of Exhibit Y to the Distribution
                           Plan for Federated Capital Appreciation Fund Class
                           K Shares; (28)
            (n)            The Registrant hereby incorporates the
                           conformed copy of the Multiple Class
                           Plan from Item (n) of the Federated Income
                           Securities Trust Registration Statement on Form
                           N-1A, filed with the Commission on June 30, 2003.
                           (File Nos. 33-3164 and 811-4577).
                  (i)      Conformed copy of Class K Shares Exhibit to
                           Multiple Class Plan; (28)
            (o)   (i)      Conformed copy of Power of Attorney of the
                           Registrant;(19)
                  (ii)     Conformed copy of Power of Attorney of Chief
                           Investment Officer of the Registrant; (24)
                  (iii)    Conformed copy of Power of Attorney of Trustee of
                           the Registrant; (19)
                  (iv)     Conformed copy of Limited Power of Attorney; (27)
            (p)            The Registrant hereby incorporates the conformed
                           copy of the Code of Ethics for Access Persons from
                           Item 23(p) of the Federated Institutional Trust
                           Registration Statement on Form N-1A filed with the
                           Commission on September 30, 2003. (File Nos.
                           33-54445 and 811-7193).
_______________________________________________
2.    Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 1 on Form N-1A filed February 28, 1985.  (File Nos.
      2-91090 and 811-4017)
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. 20 on Form N-1A filed December 29, 1994.  (File Nos.
      2-91090 and 811-4017)
7.    Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 21 on Form N-1A filed June 30, 1995.  (File Nos. 2-91090
      and 811-4017)
8.    Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 22 on Form N-1A filed July 17, 1995.  (File Nos. 2-91090
      and 811-4017)
9.    Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 25 on Form N-1A filed August 31, 1995.  (File Nos. 2-91090
      and 811-4017)
10.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 26 on Form N-1A filed September 12, 1995.  (File Nos.
      2-91090 and 811-4017)
12.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 31 on Form N-1A filed June 11, 1996.  (File Nos. 2-91090
      and 811-4017)
14.   Response is incorporated by reference to Registrant's Post Effective
      Amendment No. 29 on Form N-1A filed May 29, 1997.  (File Nos. 2-910090
      and 811-4017)
15.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 31 on Form N-1A filed October 30, 1997.  (File Nos.
      2-91090 and 811-4017)
16.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 35 on Form N-1A filed December 30, 1997. (File Nos.
      2-91090 and 811-4017)
17.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 40 on Form N-1A filed October 9, 1998. (File Nos. 2-91090
      and 811-4017)
18.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 41 on Form N-1A filed November 2, 1998. (File Nos. 2-91090
      and 811-4017)
19.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 44 on Form N-1A filed December 28, 1999. (File Nos.
      2-91090 and 811-4017)
20.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 46 on Form N-1A filed September 15, 2000. (File Nos.
      2-91090 and 811-4017)
21.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 50 on Form N-1A filed December 29, 2000.  (File Nos.
      2-91090 and 811-4017)
22.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 52 on Form N-1A filed March 20, 2001.  (File Nos. 2-91090
      and 811-4017)
23.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 51 on Form N-1A filed December 27, 2001.  (File Nos.
      2-91090 and 811-4017)
24.   Response is incorporated by reference to Registrant's Post-Effective
      Amendment No. 57 on Form N-1A filed December 26, 2002. (File Nos.
      2-91090 and 811-4017)
25.   Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 59 on Form N-1A filed February 7, 2003. (File Nos. 2-91090 and
      811-4017)
26.   Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 60 on Form N-1A filed February 27, 2003. (File Nos. 2-91090 and
      811-4017)
27.   Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 61 on Form N-1A filed March 31, 2003. (File Nos. 2-91090 and
      811-4017)
28.   Response is incorporated by reference to Registrant's Amendment No. 55 on Form
      N-1A filed September 22, 2003. (File No. 811-4017)
29.   Response is incorporated by reference to Registrant's Post-Effective Amendment
      No. 62 on Form N-1A filed October 30, 2003. (File Nos. 2-91090 and
      811-4017)




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

            None.

Item 25.    Indemnification:  (1)


Item 26.    Business and Other Connections of Investment Adviser:
            For a description of the other business of the investment adviser, see
            the section entitled "Who Manages the Fund?" in Part A. The affiliations
            with the Registrant of four of the Trustees and one of the Officers of
            the investment adviser are included in Part B of this Registration
            Statement under "Who Manages and Provides Services to the Fund?"  The
            remaining Trustees of the investment adviser and, in parentheses, their
            principal occupations are:  Thomas R. Donahue, (Chief Financial Officer,
            Federated Investors, Inc.), 1001 Liberty Avenue, Pittsburgh, PA,
            15222-3779 and Mark D. Olson (a principal of the firm, Mark D. Olson &
            Company, L.L.C. and Partner, Wilson, Halbrook & Bayard, P.A.), 800
            Delaware Avenue, P.O. Box 2305, Wilmington, DE  19899-2305.

The remaining Officers of the investment adviser are:

Vice Chairman:                                  J. Thomas Madden

President/ Chief Executive Officer
and Trustee:                                    Keith M. Schappert

Executive Vice Presidents:                      Stephen F. Auth
                                                William D. Dawson, III

Senior Vice Presidents:                         Joseph M. Balestrino
                                                David A. Briggs
                                                Jonathan C. Conley
                                                Christopher F. Corapi
                                                Deborah A. Cunningham
                                                Linda A. Duessel
                                                Mark E. Durbiano
                                                James E. Grefenstette
                                                Robert M. Kowit
                                                Jeffrey A. Kozemchak
                                                Susan M. Nason
                                                Mary Jo Ochson
                                                Robert J. Ostrowski
                                                Frank Semack
                                                Richard Tito
                                                Peter Vutz

Vice Presidents:                                Todd A. Abraham
                                                J. Scott Albrecht
                                                Randall S. Bauer
                                                Nancy J.Belz
                                                G. Andrew Bonnewell
                                                David M. Bruns
                                                Regina Chi
                                                Ross M. Cohen
                                                David W. Cook
                                                Fred B. Crutchfield
                                                Lee R. Cunningham, II
                                                Alexandre de Bethmann
Vice Presidents:                                Anthony Delserone, Jr.
                                                Donald T. Ellenberger
                                                Eamonn G. Folan
                                                John T. Gentry
                                                David P. Gilmore
                                                James P. Gordon, Jr.
                                                Curtis R. Gross
                                                Marc Halperin
                                                John W. Harris
                                                Patricia L. Heagy
                                                Susan R. Hill
                                                Nikola A. Ivanov
                                                William R. Jamison
                                                Constantine J. Kartsonas
                                                Nathan H. Kehm
                                                John C. Kerber
                                                J. Andrew Kirschler
                                                Steven Lehman
                                                Marian R. Marinack
                                                Natalie F. Metz
                                                Thomas J. Mitchell
                                                Joseph M. Natoli
                                                John L. Nichol
                                                Mary Kay Pavuk
                                                Jeffrey A. Petro
                                                David R. Powers
                                                Ihab L. Salib
                                                Roberto Sanchez-Dahl, Sr.
                                                Aash M. Shah
                                                John Sidawi
                                                Michael W. Sirianni, Jr.
                                                Christopher Smith
                                                Diane R. Startari
                                                Timothy G. Trebilcock
                                                Leonardo A. Vila
                                                Stephen J. Wagner
                                                Paige M. Wilhelm
                                                Richard M. Winkowski, Jr.
                                                Lori A. Wolff
                                                George B. Wright

Assistant Vice Presidents:                      Lori Andrews
                                                Catherine A. Arendas
                                                Nicholas P. Besh
                                                Hanan Callas
                                                James R. Crea, Jr.
                                                Karol M. Crummie
                                                David Dao
                                                Richard J. Gallo
                                                Kathyrn P. Glass
                                                Igor Golalic
                                                James Grant
                                                Anthony Han
                                                Carol B. Kayworth
                                                Angela A. Kohler
                                                Robert P. Kozlowski
                                                Ted T. Lietz, Sr.
                                                Monica Lugani
                                                Tracey L. Lusk
                                                Ann Manley
                                                Dana Meissner
                                                Theresa K. Miller
                                                Karl Mocharko
                                                Bob Nolte
                                                Daniel Peris
Assistant Vice Presidents:                      Rae Ann Rice
                                                Jennifer G. Setzenfand
                                                Kyle D. Stewart
                                                Mary Ellen Tesla
                                                Nichlas S. Tripodes
                                                Michael R. Tucker
                                                Mark Weiss

Secretary:                                      G. Andrew Bonnewell

Treasurer:                                      Thomas R. Donahue

Assistant Secretaries:                          Jay S. Neuman


Assistant Treasurer:                            Denis McAuley, III

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


Item 27.    Principal Underwriters:

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

                  Cash Trust Series, Inc.; Cash Trust Series II; Edward Jones
                  Money Market Fund; Federated Adjustable Rate Securities Fund;
                  Federated American Leaders Fund, Inc.; Federated Core Trust;
                  Federated Core Trust II, L.P.; Federated Equity Funds;
                  Federated Equity Income Fund, Inc.; Federated Fixed Income
                  Securities, Inc.; Federated GNMA Trust; Federated Government
                  Income Securities, Inc.; Federated High Income Bond Fund,
                  Inc.; Federated High Yield Trust; Federated Income Securities
                  Trust; Federated Income Trust; Federated Index Trust;
                  Federated Institutional Trust; Federated Insurance Series;
                  Federated International Series, Inc.; Federated Investment
                  Series Funds, Inc.; Federated Limited Duration Government
                  Fund, Inc.; Federated Managed Allocation Portfolios;
                  Federated Municipal Opportunities Fund, Inc.; Federated
                  Municipal Securities Fund, Inc.; Federated Municipal
                  Securities Income Trust; Federated Premier Intermediate
                  Municipal Income Fund; Federated Premier Municipal Income
                  Fund; Federated Short-Term Municipal Trust; Federated Stock
                  and Bond Fund, Inc.; Federated Stock Trust; Federated Total
                  Return Government Bond Fund; Federated Total Return Series,
                  Inc.; Federated U.S. Government Bond Fund; Federated U.S.
                  Government Securities Fund: 1-3 Years; Federated U.S.
                  Government Securities Fund: 2-5 Years; Federated World
                  Investment Series, Inc.; Intermediate Municipal Trust; Money
                  Market Obligations Trust; MTB Group of Funds; Regions Morgan
                  Keegan Select Funds and SouthTrust Funds.
         (b)

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

Chairman:                     Richard B. Fisher       Vice President

Director:                     Arthur L. Cherry

President-Institutional
Sales and Director:           John B. Fisher

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

President-Broker/Dealer
And Director:                 James F. Getz

Senior Vice Presidents:       Mark W. Bloss
                              Richard W. Boyd
                              Laura M. Deger
                              Peter W. Eisenbrandt
                              Theodore Fadool, Jr.
                              Christopher Fives
                              James S. Hamilton
                              James M. Heaton
                              H. Joseph Kennedy
                              Amy Michaliszyn
                              Keith Nixon
                              Solon A. Person, IV
                              Ronald M. Petnuch
                              Timothy C. Pillion
                              Thomas E. Territ
                              Robert F. Tousignant

Vice Presidents:              Irving Anderson
                              John B. Bohnet
                              Edward R. Bozek
                              Jane E. Broeren-Lambesis
                              Craig Burness
                              David J. Callahan
                              Mark Carroll
                              Dan Casey
                              Scott Charlton
                              Steven R. Cohen
                              Mary J. Combs
                              R. Edmond Connell, Jr.
                              Kevin J. Crenny
                              Daniel T. Culbertson
                              G. Michael Cullen
                              Marc C. Danile
                              Rick A. DiBernardo
                              Robert J. Deuberry
                              Ron Dorman
                              William C. Doyle
                              Donald C. Edwards
                              Lee England
                              Timothy Franklin
                              Peter J. Germain
                              Joseph D. Gibbons
Vice Presidents:              G. Tad Gullickson
                              Scott Gundersen
                              Dayna C. Haferkamp
                              Raymond J. Hanley
                              Vincent L. Harper, Jr.
                              Bruce E. Hastings
                              Teresa M. Johnson
                              Christopher L. Johnston
                              Stephen Kittel
                              Michael W. Koenig
                              Ed Koontz
                              Christopher A. Layton
                              Michael H. Liss
                              Michael R. Manning
                              Martin J. McCaffrey
                              Mary A. McCaffrey
                              Mark J. Miehl
                              Richard C. Mihm
                              Vincent T. Morrow
                              Alec H. Neilly
                              Rebecca Nelson
                              James E. Ostrowski
                              Thomas A. Peter III
                              Raleigh Peters
                              Robert F. Phillips
                              Richard A. Recker
                              Christopher Renwick
                              Brian S. Ronayne
                              Thomas S. Schinabeck
                              Edward J. Segura
                              Peter Siconolfi
                              Edward L. Smith
                              David W. Spears
                              John A. Staley
                              Colin B. Starks
                              Jeffrey A. Stewart
                              Kevin Stutz
                              Timothy A. Rosewicz
                              Greg Spralding
                              William C. Tustin
                              Paul A. Uhlman
                              G. Walter Whalen
                              Stephen White
                              Patrick M. Wiethorn
                              Edward J. Wojnarowski
                              Michael P. Wolff


Assistant Vice Presidents:    Lisa A. Toma
                              Robert W. Bauman
                              Charles L. Davis, Jr.
                              Beth C. Dell
                              Jennifer Fetteroff
                              John T. Glickson
                              William Rose
                              Lynn Sherwood-Long

Treasurer:                    Denis McAuley, III

Secretary:                    Stephen A. Keen

Assistant Secretaries:        Thomas R. Donahue
                              Peter J. Germain

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

         (c)     Not applicable

Item 28.    Location of Accounts and Records:

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

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

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

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

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

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

Federated Global
Investment Management Corp.          c/o Federated Investors Tower
("Sub-Adviser to Federated Kaufmann  1001 Liberty Avenue
Small Cap Fund and FKAUF and          Pittsburgh, PA  15222-3779
Federated Large Cap Growth Fund")

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


Item 29.    Management Services:  Not applicable.


 Item 30.   Undertakings:

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


                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, FEDERATED EQUITY FUNDS,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in
the City of Pittsburgh and Commonwealth of Pennsylvania, on the 5th day of
January 2004.

                  FEDERATED EQUITY FUNDS

                  BY: /s/ Todd P. Zerega
                  Todd P. Zerega, Assistant Secretary
                  January 5, 2004

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

         NAME                               TITLE                   DATE

By: /s/ Todd P. Zerega                  Attorney In Fact      January 5, 2004
    Todd P. Zerega                      For the Persons
    ASSISTANT SECRETARY                 Listed Below

John F. Donahue*                        Chairman and Trustee

Christopher Donahue*                    President and Trustee
                                        (Principal Executive Officer)

Richard J. Thomas*                      Treasurer
                                        1(Principal Financial Officer)

Stephen F. Auth*                        Chief Investment Officer

Thomas G. Bigley*                       Trustee

John T. Conroy, Jr.*                    Trustee

Nicholas P. Constantakis*               Trustee

John F. Cunningham*                     Trustee

Lawrence D. Ellis, M.D.*                Trustee

Peter E. Madden*                        Trustee

Charles F. Mansfield, Jr.*              Trustee

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

Marjorie P. Smuts*                      Trustee

John S. Walsh*                          Trustee

*By Power of Attorney