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FEDERATED
- --------------------------------------------------------------------------------
EXCHANGE
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FUND, LTD.
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- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314175100
8020104 (2/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Federated Exchange
Fund, Ltd. (the "Fund") for the twelve-month period ended December 31, 1994. The
report begins with an Investment Review by the portfolio manager, and is
followed by a complete listing of the Fund's Financial Statements.
The Fund remained highly diversified in common stocks across 11 different
industries. Many of these stocks are issued by companies that are household
names, such as Chrysler, Ford, General Motors, Mattel, Reebok, Sears, Chevron,
Citicorp, Bristol-Meyers, and IBM. In addition to stocks, the Fund was invested
in convertible securities and a repurchase agreement.
During the twelve-month reporting period, the Fund paid dividends of $1.14 per
share, and capital gain distributions of $1.20 per share, for a total
distribution to you of $2.34 per share. Reflecting the rising interest rate
environment, which tended to impact all financial markets, the net asset value
of your shares decreased from $71.39 on the first day of the period to $68.84 on
the last day of the period. Total Fund assets stood at $81.4 million at the end
of the period.
Thank you for your confidence in Federated Exchange Fund, Ltd. We will continue
to keep you informed about your investment. As always, we welcome your
questions, comments, or suggestions. Simply call Federated Investors Services
Department at 1-800-245-2423 and ask to speak with one of the Fund's
representatives.
Sincerely,
John F. Donahue
President
February 15, 1995
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The fourth quarter of 1994 proved to be difficult for U.S. equity fund managers.
While the Standard & Poors' 500 Index* ("S&P 500") showed little change, with a
total
return of (0.02%)* for the quarter, the average stock fund recorded a (1.28%)
total return, reflecting continuing unfavorable breadth, as there were more
stocks declining than advancing. Breadth began to erode in the first quarter of
1994, and for the year the average stock fund's total return was (1.69%) vs.
1.31% for the S&P 500. After showing positive relative performance in the first
nine months of 1994, the Fund underperformed in the fourth quarter. For the
year, the Fund recorded a total return of (0.30%).** The average "Growth and
Income" fund's 1994 total return was (0.94%).***
The U.S. economy continued to show strong growth in the fourth quarter of 1994
with real Gross Domestic Product ("GDP") up an estimated 4% plus (annual rate),
lead by capital spending and exports. Consumer spending continues to be strong
supported by employment gains, although spending on consumer durables such as
autos and housing, may be plateauing, as higher interest rates have begun to
impact these areas. Many commodity prices have risen sharply, although overall
inflation does not yet appear to be a problem, remaining in the area of 3% per
year. The Federal Reserve Board, (the "Fed") obviously, is less confident, about
inflation in 1995, and would like to see real GDP growth slow to a more
sustainable 2.5% rate. Thus, one of the big events of the fourth quarter was the
further tightening of monetary policy by the Fed in November, boosting the Fed
funds rate by 3/4% to 5.5% compared to 3% a year ago. A further boost in short
rates in 1995 cannot be ruled out. We believe that U.S. economic growth will
slow eventually in 1995, and that a "soft landing" is possible. In this
environment, we believe that earnings may rise 10 to 12% in 1995.
By any historic measure such as absolute dividend yields, price to book ratios
or trailing P/Es the market is by no means inexpensive. However, if the economy
slows without going into recession, these levels of valuation are sustainable.
We believe that this scenario is intact, but given the fact that the markets
will be "fighting the Fed" investors should be prepared for higher levels of
volatility in 1995 than they saw in 1994. The Fund's management believes that
this environment offers opportunities, but also calls for increased selectivity.
Current areas of emphasis in the Fund's portfolio include the consumer durables
and technology. In consumer durables, the auto stocks appear extremely
attractive due to low valuations and continued strong earnings gains. The Fund
currently holds both Chrysler and Ford. In technology, defense related companies
appear cheap and continue to cut cost and improve margins. The Fund currently
holds Martin Marietta, Raytheon, and Rockwell International. The Fund continues
to be underweighted in the utility and consumer services sectors.
* This index is unmanaged.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investors shares, when redeemed,
may be worth more or less than their original cost.
*** Lipper Growth and Income Funds Average.
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FEDERATED EXCHANGE FUND, LTD.
The graph below illustrates the hypothetical investment of $10,000 in
Federated Exchange Fund, Ltd. (the "Fund") from December 31, 1984, to December
31, 1994 compared to the Standard and Poors' 500 Index (S&P 500)+ and the Lipper
Growth and Income Funds Average (LGIFA)++.
Graphic representation omitted see Appendix A.
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1994
1 Year......................................................... (.30%)
5 Year......................................................... 8.52%
10 Year........................................................ 12.45%
Start of Performance (January 1, 1977)......................... 12.73%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT WHEN SHARES ARE REDEEMED THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
SEPTEMBER 2, 1976, AND, TOGETHER WITH THE FINANCIAL STATEMENTS CONTAINED
THEREIN, CONSTITUTES THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and LGIFA are adjusted to reflect reinvestment of
dividends on securities in the index and average. The index and average are
unmanaged.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the Securities and Exchange Commission ("SEC") requires to be reflected
in the funds performance.
++ The LGIFA is a compilation of mutual fund total returns reported to Lipper
Analytical Services, Inc. Each fund is reported net of sales loads, expenses
or other fees that the SEC requires to be reflected in the Fund's
performance.
FEDERATED EXCHANGE FUND, LTD.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
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<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--93.7%
- -------------------------------------------------------------------------------------
BASIC INDUSTRY--8.1%
-------------------------------------------------------------------
19,700 Eastman Chemical Co. $ 994,850
-------------------------------------------------------------------
32,800 FMC Corp. 1,894,200
-------------------------------------------------------------------
700 Lubrizol Corp. 23,712
-------------------------------------------------------------------
35,100 Phelps Dodge Corp. 2,171,812
-------------------------------------------------------------------
74,000 Praxair, Inc. 1,517,000
------------------------------------------------------------------- -----------
Total 6,601,574
------------------------------------------------------------------- -----------
CONSUMER DURABLES--12.2%
-------------------------------------------------------------------
38,000 Chrysler Corp. 1,862,000
-------------------------------------------------------------------
39,000 Eastman Kodak Co. 1,862,250
-------------------------------------------------------------------
59,000 Ford Motor Co. 1,652,000
-------------------------------------------------------------------
64,300 General Motors Corp. 2,475,550
-------------------------------------------------------------------
82,150 Mattel, Inc. 2,064,019
------------------------------------------------------------------- -----------
Total 9,915,819
------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--7.4%
-------------------------------------------------------------------
29,900 Avon Products, Inc. 1,786,525
-------------------------------------------------------------------
39,000 Philip Morris Cos., Inc. 2,242,500
-------------------------------------------------------------------
51,000 Reebok International, Ltd. 2,014,500
------------------------------------------------------------------- -----------
Total 6,043,525
------------------------------------------------------------------- -----------
CONSUMER SERVICES--5.7%
-------------------------------------------------------------------
75,600 American Stores Co. 2,031,750
-------------------------------------------------------------------
56,800 Sears Roebuck and Co. 2,612,800
------------------------------------------------------------------- -----------
Total 4,644,550
------------------------------------------------------------------- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
ENERGY--11.3%
-------------------------------------------------------------------
62,700 Baker Hughes $ 1,144,275
-------------------------------------------------------------------
47,000 Chevron Corp. 2,097,375
-------------------------------------------------------------------
27,300 Mapco, Inc. 1,399,125
-------------------------------------------------------------------
35,700 Texaco Inc. 2,137,537
-------------------------------------------------------------------
100,000 USX-Marathon Group 1,637,500
-------------------------------------------------------------------
20,061 Western Atlas, Inc. 754,795
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Total 9,170,607
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FINANCE--9.6%
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40,500 Bank of Boston Corp. 1,047,938
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25,900 Citicorp 1,071,613
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23,145 Dean Witter, Discover & Co. 784,037
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13,400 First Interstate Bancorp 906,175
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33,000 Mellon Bank Corp. 1,010,625
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19,200 Nationsbank Corp. 866,400
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29,500 Providian Corp. 910,812
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36,266 Travelers, Inc. 1,178,645
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Total 7,776,245
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HEALTH CARE--9.9%
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38,800 American Home Products Corp. 2,434,700
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37,000 Becton, Dickinson & Co. 1,776,000
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34,600 Bristol-Myers Squibb Co. 2,002,475
-------------------------------------------------------------------
43,725 U.S. Healthcare, Inc. 1,803,656
------------------------------------------------------------------- -----------
Total 8,016,831
------------------------------------------------------------------- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
INDUSTRIAL/MANUFACTURING--11.2%
-------------------------------------------------------------------
18,500 Caterpillar, Inc. $ 1,019,813
-------------------------------------------------------------------
11,700 Deere & Co. 775,125
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26,100 General Electric Co. 1,331,100
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22,161 Litton Industries, Inc. 819,957
-------------------------------------------------------------------
19,300 Loews Corp. 1,676,688
-------------------------------------------------------------------
31,752 Mine Safety Appliances Co. 1,428,840
-------------------------------------------------------------------
41,700 Textron, Inc. 2,100,638
------------------------------------------------------------------- -----------
Total 9,152,161
------------------------------------------------------------------- -----------
TECHNOLOGY--11.6%
-------------------------------------------------------------------
18,700 Hewlett Packard Co. 1,867,662
-------------------------------------------------------------------
14,000 International Business Machines 1,029,000
-------------------------------------------------------------------
44,000 Martin Marietta Corp. 1,952,500
-------------------------------------------------------------------
38,300 Raytheon Co. 2,446,413
-------------------------------------------------------------------
60,700 Rockwell International Corp. 2,170,025
------------------------------------------------------------------- -----------
Total 9,465,600
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TRANSPORTATION--1.6%
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58,900 Ryder Systems, Inc. 1,295,800
------------------------------------------------------------------- -----------
UTILITIES--5.1%
-------------------------------------------------------------------
40,000 AT & T Corp. 2,010,000
-------------------------------------------------------------------
33,600 Enron Corp. 1,024,800
-------------------------------------------------------------------
60,800 MCI Communications Corp. 1,117,200
------------------------------------------------------------------- -----------
Total 4,152,000
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $61,593,976) 76,234,712
------------------------------------------------------------------- -----------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
CONVERTIBLE SECURITIES--2.4%
- -------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.2%
-------------------------------------------------------------------
165,000 RJR Nabisco Holdings, Pfd., Series C $ 990,000
------------------------------------------------------------------- -----------
FINANCE--1.2%
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52,000 Citicorp, Conv. Pfd., Series P, 8.25% 994,500
------------------------------------------------------------------- -----------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST, $1,839,500) 1,984,500
------------------------------------------------------------------- -----------
*REPURCHASE AGREEMENT--5.2%
- -------------------------------------------------------------------------------------
$4,210,000 J.P. Morgan Securities, Inc., 6.05%, dated 12/30/94, due 1/3/95
(at amortized cost) 4,210,000
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $67,643,476) $82,429,212+
------------------------------------------------------------------- -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
+ The cost for federal tax purposes amounts to $67,643,476. The net unrealized
appreciation of investments on a federal tax basis amounts to $14,785,736,
which is comprised of $17,720,847 appreciation and $2,935,111 depreciation at
December 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($81,377,017) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------
Investments, at value (identified cost and tax cost $67,643,476) $82,429,212
- --------------------------------------------------------------------------------------
Cash 4,220
- --------------------------------------------------------------------------------------
Dividends and interest receivable 212,253
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Total assets 82,645,685
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LIABILITIES:
- --------------------------------------------------------------------------------------
Distribution payable January 6, 1995 on shares requesting payment in cash--
- --------------------------------------------------------------------------------------
From net investment income ($0.32 per share) $ 292,726
- -------------------------------------------------------------------------
From net realized gain on investment transactions ($1.20 per share) 939,120
- -------------------------------------------------------------------------
Payable for shares of partnership interest redeemed 16,914
- -------------------------------------------------------------------------
Accrued expenses 19,908
- ------------------------------------------------------------------------- ----------
Total liabilities 1,268,668
- -------------------------------------------------------------------------------------- -----------
NET ASSETS for 1,182,060 shares of partnership interest $81,377,017
- -------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments, less the excess of cost
of partnership interest redeemed over proceeds from sales of partnership interest
(including shares issued to partners electing to receive payment of distributions
in shares) $66,537,926
- --------------------------------------------------------------------------------------
Unrealized appreciation of investments 14,785,736
- --------------------------------------------------------------------------------------
Undistributed net investment income 53,355
- -------------------------------------------------------------------------------------- -----------
Total $81,377,017
- -------------------------------------------------------------------------------------- -----------
NET ASSETS applicable to shares of partnership interest owned by:
- --------------------------------------------------------------------------------------
Limited partners (1,164,457 shares) $80,165,167
- --------------------------------------------------------------------------------------
Managing General partners--
- --------------------------------------------------------------------------------------
Managing partners (22 shares) 1,514
- -------------------------------------------------------------------------
Non-managing general partner (17,581 shares) 1,210,336 1,211,850
- ------------------------------------------------------------------------- ---------- -----------
Net Assets (1,182,060 shares) $81,377,017
- -------------------------------------------------------------------------------------- -----------
NET ASSET VALUE and redemption price per share of partnership interest $68.84
- -------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Dividends $ 2,283,896
- --------------------------------------------------------------------------------
Interest 123,403
- -------------------------------------------------------------------------------- -----------
Total investment income 2,407,299
- -------------------------------------------------------------------------------- -----------
EXPENSES--
- --------------------------------------------------------------------------------
Investment advisory fee $585,292
- ---------------------------------------------------------------------
Fees of managing general partners not affiliated with the investment
adviser 43,002
- ---------------------------------------------------------------------
Administrative personnel and service fee 145,638
- ---------------------------------------------------------------------
Custodian and portfolio accounting fees 65,124
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 22,472
- ---------------------------------------------------------------------
Auditing fees 19,568
- ---------------------------------------------------------------------
Legal fees 8,497
- ---------------------------------------------------------------------
Printing and postage 7,470
- ---------------------------------------------------------------------
Local taxes 16,708
- ---------------------------------------------------------------------
Insurance 5,266
- ---------------------------------------------------------------------
Registration fees 208
- ---------------------------------------------------------------------
Shareholder services fee 71,901
- ---------------------------------------------------------------------
Miscellaneous 1,287
- --------------------------------------------------------------------- --------
Total expenses 992,433
- -------------------------------------------------------------------------------- -----------
Net investment income 1,414,866
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis)-- 5,307,218
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (6,996,355)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (1,689,137)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (274,271)
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1994 1993
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 1,414,866 $ 1,437,832
- ----------------------------------------------------------------
Net realized gain on investment transactions ($3,740,852 and
$2,726,450, respectively, as computed for federal income tax
purposes) 5,307,218 5,865,570
- ----------------------------------------------------------------
Change in unrealized appreciation of investments (6,996,355) 2,529,035
- ---------------------------------------------------------------- ----------- ------------
Change in net assets resulting from operations (274,271) 9,832,437
- ---------------------------------------------------------------- ----------- ------------
DISTRIBUTIONS TO PARTNERS
- ----------------------------------------------------------------
Distributions to partners from net investment income (1,361,721) (1,472,885)
- ----------------------------------------------------------------
Distributions to partners from net realized gain on investment
transactions (1,407,972) (874,647)
- ---------------------------------------------------------------- ----------- ------------
Change in net assets from distributions to partners (2,769,693) (2,347,532)
- ---------------------------------------------------------------- ----------- ------------
TRANSACTIONS IN SHARES OF PARTNERSHIP INTEREST
- ----------------------------------------------------------------
Cost of shares of partnership interest redeemed (5,296,494) (10,731,004)
- ----------------------------------------------------------------
Net asset value of shares issued or issuable to partners
electing to receive payment of distributions in shares 768,903 644,148
- ---------------------------------------------------------------- ----------- ------------
Change in net assets from transactions in shares of
partnership interest (4,527,591) (10,086,856)
- ---------------------------------------------------------------- ----------- ------------
Change in net assets (7,571,555) (2,601,951)
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 88,948,572 91,550,523
- ---------------------------------------------------------------- ----------- ------------
End of period (including undistributed net investment income
of $53,355 and $210, respectively) $81,377,017 $ 88,948,572
- ---------------------------------------------------------------- ----------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $71.39 $65.83 $61.65 $50.56 $54.93
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 1.18 1.13 1.36 1.16 1.46
- -----------------------------------------------
Net realized and unrealized gain (loss) on
investments (1.39) 6.30 5.57 12.62 (3.86)
- ----------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations (0.21) 7.43 6.93 13.78 (2.40)
- ----------------------------------------------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
- -----------------------------------------------
Dividends to partners from net investment
income (1.14) (1.16) (1.38) (1.15) (1.51)
- -----------------------------------------------
Distributions to partners from net realized
gain on investment transactions (1.20) (0.71) (1.37) (1.54) (0.46)
- ----------------------------------------------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS (2.34) (1.87) (2.75) (2.69) (1.97)
- ----------------------------------------------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $68.84 $71.39 $65.83 $61.65 $50.56
- ----------------------------------------------- ------- ------- ------- ------- -------
TOTAL RETURN* (.30%) 11.31% 11.38% 27.42% (4.43%)
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 1.15% 1.15% 1.11% 1.12% 1.07%
- -----------------------------------------------
Net investment income 1.63% 1.59% 2.13% 1.97% 2.76%
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $81,377 $88,949 $91,551 $90,503 $79,114
- -----------------------------------------------
Portfolio turnover rate 23% 26% 47% 54% 61%
- -----------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Exchange Fund, Ltd. (the "Fund") is a limited partnership formed under
The Uniform Limited Partnership Act of California and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. Pursuant to the Fund's Partnership Agreement, all
partnership interests, whether of a limited partner or a general partner, are
represented by shares of the same class.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT COSTS--The Fund's initial portfolio was acquired on January 1, 1977, in an
exchange of Fund shares of partnership interest for securities deposited by investors.
The federal income tax cost of the securities is based on the individual investor's tax
cost basis immediately prior to the exchange, or if acquired subsequently the Fund's
purchase cost.
B. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale price
reported on national securities exchanges. Unlisted securities and short-term securities
are generally valued at the prices provided by an independent pricing service.
Short-term securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
C. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to
take possession, to have legally segregated in the Federal Reserve Book Entry System, or
to have segregated within the custodian bank's vault, all securities held as collateral
in support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's underlying collateral to ensure that the value of collateral at
least equals the principal amount of the repurchase agreement, including accrued
interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's adviser
to be creditworthy pursuant to guidelines established by the Managing General Partners.
Risks may arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the repurchase price
on the sale of collateral securities.
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. INVESTMENT INCOME AND EXPENSES--Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income and expenses are accrued daily. Bond
premium and discount, if applicable, are amortized as required by the Internal Revenue
Code, as amended (the "Code").
E. INCOME TAXES AND DISTRIBUTIONS TO PARTNERS--No provision is made by the Fund for federal
or state taxes on the taxable income of the partnership because each partner is
individually responsible for the payment of any taxes on his share of such taxable
income. The Managing General Partners may distribute net investment income, exclusive of
capital gains, to the holders of shares annually or at more frequent intervals. The
Managing General Partners will determine annually what portion, if any, of the Fund's
net realized capital gains will be distributed.
</TABLE>
(3) SHARES OF PARTNERSHIP INTEREST
Transactions in shares of partnership interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1993
------- --------
<S> <C> <C>
- ------------------------------------------------------------------------
Shares of partnership interest redeemed (74,930) (153,755)
- ------------------------------------------------------------------------
Shares issued or issuable to partners electing to receive payment of
distributions in shares 11,082 9,050
- ------------------------------------------------------------------------ ------- --------
Net change resulting from partnership transactions (63,848) (144,705)
- ------------------------------------------------------------------------ ------- --------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee. Such
fee is paid daily based on annual rates of: (a) 0.55% of the average daily net
assets of the Fund, and (b) 4.5% of the gross income of the Fund, excluding
capital gains or losses. The Adviser may voluntarily choose to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average net assets of the Fund
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
for the period. This fee is to obtain certain personal services for shareholders
and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions by
shareholders.
Certain of the Managing General Partners of the Fund are Officers and Directors
or Trustees of the above corporations.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $18,937,688
- ----------------------------------------------------------------- -----------
SALES $25,552,948
- ----------------------------------------------------------------- -----------
</TABLE>
In addition, investments having an aggregate market value of $4,875,875 at dates
of distribution were distributed in payment for shares of partnership interest
redeemed.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Partners of
FEDERATED EXCHANGE FUND, LTD.
(a Limited Partnership):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Exchange Fund, Ltd. as of December
31, 1994, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended December 31, 1994 and
1993, and the financial highlights for each of the years in the five-year period
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1994 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Exchange
Fund, Ltd. as of December 31, 1994, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Boston, Massachusetts
February 10, 1995
<TABLE>
<S> <C>
MANAGING OFFICERS
GENERAL PARTNERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley President
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland Vice President
James E. Dowd Richard B. Fisher
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
NON-MANAGING GENERAL PARTNER Robert C. Rosselot
Exchange Fund Research Corp. Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not 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. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
APPENDIX A
The graphic presentation here displayed consists of a line graph
titled "Growth of $10,000 Invested in Federated Exchange Fund, Ltd."
The corresponding components of the line graph are listed underneath.
The Federated Exchange Fund, Ltd (the "Fund") is represented by a solid
line. The Standard & Poor's 500 Index ("S&P 500") is represented by a
dotted line. The Lipper Growth and Income Funds Average ("LGIFA") is
represented by a broken line. The line graph is a visual representation
of a comparison of change in value of a hypothetical $10,000 investment
in the Fund and the ML1-3TR. The "x" axis reflects computation periods
from December 31, 1984 through December 31, 1994. The "y" axis reflects
the cost of the investment, ranging from $10,000 to $40,000. The right
margin reflects the ending value of the hypothetical investment in the
Fund as compared to the S&P 500 and the LGIFA; the ending values are
$32,313, $38,156 and $32,258, respectively.
