- --------------------------------------------------------------------------------
FEDERATED
- --------------------------------------------------------------------------------
EXCHANGE
- --------------------------------------------------------------------------------
FUND, LTD.
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- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 314175100
8020104 (2/96)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the final Annual Report to Shareholders for Federated
Exchange Fund, Ltd. for the twelve-month period ended December 31, 1995. The
report begins with a Management Discussion and Analysis by the fund's portfolio
manager, followed by a complete list of fund holdings and the Financial
Statements.
The fund remained well diversified in high-quality common stocks across 10
different industries, with the largest holdings concentrated in technology and
finance. In addition to stocks, the remainder of the portfolio was invested in a
convertible preferred stock and a repurchase agreement.
Consistent with an extremely favorable stock market environment during 1995,
your fund produced strong performance. During the twelve-month reporting period,
dividends paid to shareholders totaled $1.09 per share, while capital gains
totaled $5.61. The net asset value of fund shares soared from $68.84 on the
first day of the twelve-month reporting period to reach $87.58 at the end of
this period. Through income and gains in share price, Federated Exchange Fund,
Ltd. delivered a total return of 37.17% for the period ended December 31, 1995.*
As you know, this is the final report for Federated Exchange Fund, Ltd.
Shareholders of Federated Exchange Fund, Ltd. approved the reorganization of the
fund into Class A Shares of Federated Capital Appreciation Fund, a new stock
portfolio, effective January 2, 1996.
Thank you for your participation in this fund. We hope you have been pleased
with its performance, and we look forward to continuing to serve your long-term
investment needs through Federated Capital Appreciation Fund.
Sincerely,
JOHN F. DONAHUE
John F. Donahue
President
February 15, 1996
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The year 1995 was one of the best years for U.S. equities in the past 50 years,
with the Standard & Poor's 500 Index* recording a total return of 37.5%.
Federated Exchange Fund, Ltd. also did well with a total return of 37.2%** which
compares with 30.8% for the average fund in the "Growth" category of Lipper
Analytical Services, Inc.*** The strong equity market was fueled, importantly,
by a continuing flow of money into equity mutual funds within a positive
environment of strong corporate profits growth and declining interest rates. The
yield on the 30-year U.S. Treasury bond dropped from roughly 8% to 6%.
Looking into 1996 we are encouraged by a lack of inflationary pressures and
positive, although sluggish, economic growth. Although overall corporate profit
growth is slowing, we still see opportunities for reasonably good earnings gains
in many industries and companies. Obviously, greater selectivity is called for,
given the current environment following the strong market of 1995.
During 1995, we continued to use our disciplined approach and careful
fundamental research to find the best relative values in the equity market.
Primary sector overweights in the portfolio include Finance and Technology.
Underweighted sectors at year-end included Basic Industry, Energy, Retail Trade,
Services, and Utilities. The major themes incorporated in the ending portfolio
can be summarized as follows:
(1) Restructuring--companies taking corporate action to enhance value such
as Eastman Kodak and Travelers.
(2) Industry consolidation--banking (Chemical Bank) and aerospace/defense
(Lockheed-Martin) are examples, but others will follow.
(3) Technology revolution--the suppliers of information technology products
such as Hewlett Packard and Intel and users like General Motors, Class
E (EDS) and American Express, offer excellent potential.
(4) Industry leaders--Bristol-Myers Squibb, Citicorp, and Philip Morris.
(5) Solid medium-size companies with above average growth and strong
quantitative valuation support, such as Millipore, Executive Risk, and
Data General.
The fund's 10 largest holdings as of 12/31/95 were:
1. Philip Morris Cos., Inc.
2. Lockheed Martin Corp.
3. Consolidated Rail Corp.
4. General Motors Corp., Class E
5. Executive Risk, Inc.
6. Bristol-Myers Squibb Co.
7. Becton Dickinson & Co.
8. Leucadia National Corp.
9. Data General Corp.
10. Scherer (R.P.) Corp.
* The Standard & Poor's Daily Stock Price Indices of 500 Common Stocks is a
composite index of common stocks in industry, transportation, and financial
and public utility companies that can be used to compare to the total
returns of funds whose portfolios are invested primarily in common stocks.
This index is unmanaged, and actual investments may not be made in an index.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
*** Lipper Growth Fund's 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 the
Federated Exchange Fund, Ltd. (the "Fund") from December 31, 1985, to December
31, 1995, compared to the Standard and Poor's 500 Index (S&P 500)+ and the
Lipper Growth and Income Funds Average (LGIFA).++
SEE APPENDIX A FOR GRAPHIC MATERIALS
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
1 Year.............................................................. 37.17%
5 Year.............................................................. 16.66%
10 Year............................................................. 12.59%
Start of Performance (1/1/77)....................................... 13.90%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
++ The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
SHAREHOLDER VOTING RESULTS
- --------------------------------------------------------------------------------
A Special Meeting of Fund shareholders was held on
December 21, 1995. On December 21, 1995, the record date
for shareholders voting at the meeting, there were
1,105,333.00 total outstanding shares. The following item
was considered by shareholders and the results of their
voting were as follows:
<TABLE>
<CAPTION>
Agenda
Item FOR AGAINST ABSTAIN
------------------------ ---------- --------- ---------
<S> <C> <C> <C>
To approve or disapprove an agreement and plan or exchange whereby
Federated Capital Appreciation Fund will acquire all of the assets of
Federated Exchange Fund, Ltd., in exchange for shares of Federated
Capital Appreciation Fund.
596,492.00 28,759.00 24,367.00
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--103.0%
- -----------------------------------------------------------------------------------
BASIC INDUSTRY--2.5%
-----------------------------------------------------------------
59,000 Millipore Corp. $ 2,426,375
----------------------------------------------------------------- ------------
CONSUMER DURABLES--5.7%
-----------------------------------------------------------------
34,500 Eastman Kodak Co. 2,311,500
-----------------------------------------------------------------
64,400 Mattel, Inc. 1,980,300
-----------------------------------------------------------------
62,000 Volvo, ADR 1,276,813
----------------------------------------------------------------- ------------
Total 5,568,613
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CONSUMER NON-DURABLES--11.6%
-----------------------------------------------------------------
29,900 Avon Products, Inc. 2,253,712
-----------------------------------------------------------------
36,000 IBP, Inc. 1,818,000
-----------------------------------------------------------------
31,600 International Flavors & Fragrances, Inc. 1,516,800
-----------------------------------------------------------------
35,000 Nike, Inc., Class B 2,436,875
-----------------------------------------------------------------
37,600 Philip Morris Cos., Inc. 3,402,800
----------------------------------------------------------------- ------------
Total 11,428,187
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ENERGY MINERALS--2.5%
-----------------------------------------------------------------
46,900 Chevron Corp. 2,462,250
----------------------------------------------------------------- ------------
FINANCE--25.9%
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173,500 (a) Acceptance Insurance Cos., Inc. 2,580,813
-----------------------------------------------------------------
28,000 Allstate Corp. 1,151,500
-----------------------------------------------------------------
25,000 American Express Co. 1,034,375
-----------------------------------------------------------------
23,600 Chemical Banking Corp. 1,386,500
-----------------------------------------------------------------
10,925 CIGNA Corp. 1,128,006
-----------------------------------------------------------------
31,097 Citicorp 2,091,273
-----------------------------------------------------------------
23,145 Dean Witter, Discover & Co. 1,087,815
-----------------------------------------------------------------
100,000 Executive Risk, Inc. 2,900,000
-----------------------------------------------------------------
110,000 Leucadia National Corp. 2,750,000
-----------------------------------------------------------------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
FINANCE--CONTINUED
-----------------------------------------------------------------
42,500 Mellon Bank Corp. $ 2,284,375
-----------------------------------------------------------------
15,000 NationsBank Corp. 1,044,375
-----------------------------------------------------------------
8,000 The PMI Group, Inc. 362,000
-----------------------------------------------------------------
78,000 Pioneer Group, Inc. 2,125,500
-----------------------------------------------------------------
29,500 Providian Corp. 1,202,125
-----------------------------------------------------------------
36,266 Travelers Group, Inc. 2,280,225
----------------------------------------------------------------- ------------
Total 25,408,882
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HEALTH CARE--8.5%
-----------------------------------------------------------------
37,000 Becton, Dickinson & Co. 2,775,000
-----------------------------------------------------------------
33,400 Bristol-Myers Squibb Co. 2,868,225
-----------------------------------------------------------------
55,000 (a) Scherer (R.P.) Corp. 2,701,875
----------------------------------------------------------------- ------------
Total 8,345,100
----------------------------------------------------------------- ------------
PRODUCER MANUFACTURING--5.0%
-----------------------------------------------------------------
100,000 (a) Oak Industries, Inc. 1,875,000
-----------------------------------------------------------------
50,000 Philips Electronics N.V., ADR 1,793,750
-----------------------------------------------------------------
19,000 Textron, Inc. 1,282,500
----------------------------------------------------------------- ------------
Total 4,951,250
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RETAIL TRADE--1.9%
-----------------------------------------------------------------
48,350 Sears, Roebuck & Co. 1,885,650
----------------------------------------------------------------- ------------
SERVICES--3.2%
-----------------------------------------------------------------
16,000 Gannett Co., Inc. 982,000
-----------------------------------------------------------------
50,000 Interpublic Group Cos., Inc. 2,168,750
----------------------------------------------------------------- ------------
Total 3,150,750
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TECHNOLOGY--26.1%
-----------------------------------------------------------------
60,000 (a) Brooktree Corp. 727,500
-----------------------------------------------------------------
50,000 (a) Ceridian Corp. 2,062,500
-----------------------------------------------------------------
200,000 (a) Data General Corp. 2,750,000
-----------------------------------------------------------------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
-----------------------------------------------------------------
36,775 (a) Digital Equipment Corp. $ 2,358,197
-----------------------------------------------------------------
45,000 (a) DST Systems, Inc. 1,282,500
-----------------------------------------------------------------
50,000 ECI Telecommunications, Ltd. 1,140,625
-----------------------------------------------------------------
50,000 Gandalf Technologies, Inc. 850,000
-----------------------------------------------------------------
58,300 General Motors Corp., Class E 3,031,600
-----------------------------------------------------------------
23,000 Hewlett-Packard Co. 1,926,250
-----------------------------------------------------------------
22,000 Intel Corp. 1,248,500
-----------------------------------------------------------------
120,000 (a) Intervoice, Inc. 2,280,000
-----------------------------------------------------------------
40,200 Lockheed Martin Corp. 3,175,800
-----------------------------------------------------------------
23,000 (a) Microsoft Corp. 2,018,250
-----------------------------------------------------------------
25,000 (a) Sheldahl, Inc. 453,125
-----------------------------------------------------------------
10,000 (a) Wind River Systems, Inc. 291,250
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Total 25,596,097
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TRANSPORTATION--5.5%
-----------------------------------------------------------------
45,000 Consolidated Rail Corp. 3,150,000
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50,000 Kansas City Southern Industries, Inc. 2,287,500
----------------------------------------------------------------- ------------
Total 5,437,500
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UTILITIES--4.6%
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60,000 (a) Columbia Gas Systems, Inc. 2,632,500
-----------------------------------------------------------------
49,000 Enron Corp. 1,868,125
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Total 4,500,625
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TOTAL COMMON STOCKS (IDENTIFIED COST $77,263,265) 101,161,279
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PREFERRED STOCKS--1.2%
- -----------------------------------------------------------------------------------
22,200 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12
(IDENTIFIED COST $1,065,600) 1,148,850
----------------------------------------------------------------- ------------
</TABLE>
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
(B)REPURCHASE AGREEMENT--0.4%
- -----------------------------------------------------------------------------------
$420,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/96
(AT AMORTIZED COST) $ 420,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $78,748,865)(C) $102,730,129
----------------------------------------------------------------- ------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost for federal tax purposes amounts to $78,748,865. The net unrealized
appreciation of investments on a federal tax basis amounts to $23,981,264,
which is comprised of $26,183,471 appreciation and $2,202,207 depreciation
at December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($98,200,258) at December 31, 1995.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
ADR -- American Depository Receipt
STRYPES -- Structured Yield Product Exchangeable for Stock
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $78,748,865) $102,730,129
- -------------------------------------------------------------------------------------
Cash 1,848
- -------------------------------------------------------------------------------------
Income receivable 179,133
- -------------------------------------------------------------------------------------
Receivable for investments sold 2,647
- ------------------------------------------------------------------------------------- ------------
Total assets 102,913,757
- -------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Distribution payable January 5, 1996 on shares requesting payment in
cash--
- -------------------------------------------------------------------------------------
From net investment income ($0.21 per share) $ 183,647
- ------------------------------------------------------------------------
From net realized gain on investment transactions ($5.61 per share) 4,225,863
- ------------------------------------------------------------------------
Payable for investments purchased 241,941
- ------------------------------------------------------------------------
Payable for shares of partnership interest redeemed 18,565
- ------------------------------------------------------------------------
Accrued expenses 43,483
- ------------------------------------------------------------------------ ----------
Total liabilities 4,713,499
- ------------------------------------------------------------------------------------- ------------
NET ASSETS for 1,121,204 shares outstanding $ 98,200,258
- ------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments, less 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) $ 74,213,546
- -------------------------------------------------------------------------------------
Unrealized appreciation of investments 23,981,264
- -------------------------------------------------------------------------------------
Undistributed net investment income 5,448
- ------------------------------------------------------------------------------------- ------------
Total Net Assets $ 98,200,258
- ------------------------------------------------------------------------------------- ------------
NET ASSETS applicable to shares of partnership interest owned by:
- -------------------------------------------------------------------------------------
Limited partners (1,108,460 shares) $ 97,084,078
- -------------------------------------------------------------------------------------
Managing General partners--
- -------------------------------------------------------------------------------------
Managing partners (23 shares) 2,015
- ------------------------------------------------------------------------
Non-managing general partner (12,721 shares) 1,114,165 1,116,180
- ------------------------------------------------------------------------ ---------- ------------
Net Assets (1,121,204 shares) $ 98,200,258
- ------------------------------------------------------------------------------------- ------------
NET ASSET VALUE and redemption price per share of partnership interest:
- -------------------------------------------------------------------------------------
$98,200,258 / 1,121,204 shares outstanding $87.58
- ------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Dividends $ 2,073,258
- ---------------------------------------------------------------------------------
Interest 112,444
- --------------------------------------------------------------------------------- -----------
Total income 2,185,702
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee $ 605,742
- --------------------------------------------------------------------
Administrative personnel and services fee 125,000
- --------------------------------------------------------------------
Custodian fees 40,411
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 24,767
- --------------------------------------------------------------------
Directors'/Trustees' fees 47,748
- --------------------------------------------------------------------
Auditing fees 16,769
- --------------------------------------------------------------------
Legal fees 10,432
- --------------------------------------------------------------------
Portfolio accounting fees 22,222
- --------------------------------------------------------------------
Shareholder services fee 230,627
- --------------------------------------------------------------------
Share registration costs 385
- --------------------------------------------------------------------
Printing and postage 5,353
- --------------------------------------------------------------------
Insurance premiums 5,232
- --------------------------------------------------------------------
Miscellaneous 1,343
- -------------------------------------------------------------------- ----------
Total expenses 1,136,031
- --------------------------------------------------------------------
Deduct--Waiver of shareholder services fee (138,377)
- -------------------------------------------------------------------- ----------
Net expenses 997,654
- --------------------------------------------------------------------------------- -----------
Net investment income 1,188,048
- --------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain on investments 18,575,112
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 9,195,528
- --------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 27,770,640
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $28,958,688
- --------------------------------------------------------------------------------- -----------
</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,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 1,188,048 $ 1,414,866
- -----------------------------------------------------------------
Net realized gain on investments ($16,693,345 net gain and
$3,740,852 net gain, respectively, as computed for federal tax
purposes) 18,575,112 5,307,218
- -----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 9,195,528 (6,996,355)
- ----------------------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 28,958,688 (274,271)
- ----------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO PARTNERS--
- -----------------------------------------------------------------
Distributions from net investment income (1,235,954) (1,361,721)
- -----------------------------------------------------------------
Distributions from net realized gains (6,164,051) (1,407,972)
- ----------------------------------------------------------------- ----------- -----------
Change in net assets resulting from distributions to
partners (7,400,005) (2,769,693)
- ----------------------------------------------------------------- ----------- -----------
TRANSACTIONS IN SHARES OF PARTNERSHIP INTEREST--
- -----------------------------------------------------------------
Cost of shares of partnership interest redeemed (6,944,798) (5,296,494)
- -----------------------------------------------------------------
Net asset value of shares issued or issuable to partners electing
to receive payment of distributions in shares 2,209,356 768,903
- ----------------------------------------------------------------- ----------- -----------
Change in net assets resulting from transactions in shares
of partnership interest (4,735,442) (4,527,591)
- ----------------------------------------------------------------- ----------- -----------
Change in net assets 16,823,241 (7,571,555)
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 81,377,017 88,948,572
- ----------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income of
$5,448 and $53,355, respectively) $98,200,258 $81,377,017
- ----------------------------------------------------------------- ----------- -----------
</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,
--------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $68.84 $71.39 $65.83 $61.65 $50.56
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 1.05 1.18 1.13 1.36 1.16
- -----------------------------------------------
Net realized and unrealized gain (loss) on
investments 24.39 (1.39) 6.30 5.57 12.62
- ----------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations 25.44 (0.21) 7.43 6.93 13.78
- ----------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions to partners from net investment
income (1.09) (1.14) (1.16) (1.38) (1.15)
- -----------------------------------------------
Distributions to partners from net realized
gains on investment transactions (5.61) (1.20) (0.71) (1.37) (1.54)
- ----------------------------------------------- ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (6.70) (2.34) (1.87) (2.75) (2.69)
- ----------------------------------------------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $87.58 $68.84 $71.39 $65.83 $61.65
- ----------------------------------------------- ------ ------ ------ ------ ------
TOTAL RETURN(A) 37.17% (0.30%) 11.31% 11.38% 27.42%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 1.08% 1.15% 1.15% 1.11% 1.12%
- -----------------------------------------------
Net investment income 1.29% 1.63% 1.59% 2.13% 1.97%
- -----------------------------------------------
Expense waiver/reimbursement(b) 0.15% -- -- -- --
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $98,200 $81,377 $88,949 $91,551 $90,503
- -----------------------------------------------
Portfolio turnover 81% 23% 26% 47% 54%
- -----------------------------------------------
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EXCHANGE FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(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, (the "Act"), as a diversified, open-end
management investment company. The Fund's objective is to obtain a long-term
growth of capital and of income by investing in, but not limited to, common
stocks. 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. These
policies are in conformity with generally accepted accounting principles.
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.
INVESTMENT VALUATIONS--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. All other securities are valued at
prices provided by an independent pricing service.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
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 the guidelines and/or
standards reviewed or 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.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal
FEDERATED EXCHANGE FUND, LTD.
- --------------------------------------------------------------------------------
Revenue Code, as amended (the "Code"). Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
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
partnership's net realized capital gains will be distributed.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
(3) SHARES OF PARTNERSHIP INTEREST
Transactions in shares of partnership interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
1995 1994
------- -------
<S> <C> <C>
- ------------------------------------------------------------------------
Shares of partnership interest redeemed (86,324) (74,930)
- ------------------------------------------------------------------------
Shares issued or issuable to partners electing to receive payment of
distributions in shares 25,468 11,082
- ------------------------------------------------------------------------ ------- -------
Net change resulting from partnership transactions (60,856) (63,848)
- ------------------------------------------------------------------------ ------- -------
</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 equal to
(a) a maximum of .55 of 1% of the average daily net assets of the Fund, and (b)
4.50% 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, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This 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.
FEDERATED EXCHANGE FUND, LTD.
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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 daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive a portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Shareholder
Services Company serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's
accounting records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket expenses.
GENERAL--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, 1995, were as follows:
<TABLE>
<S> <C>
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PURCHASES $73,029,669
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SALES $73,373,837
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</TABLE>
(6) SUBSEQUENT EVENT
Pursuant to the terms of a merger agreement dated October 10, 1995, the Fund
merged into Federated Capital Appreciation Fund, a portfolio of Federated Equity
Funds, effective January 2, 1996. As part of the transaction, 1,098,761 Class A
shares of Federated Capital Appreciation Fund were issued in exchange for all
the assets of the Fund, which amounted to $96,234,722.
INDEPENDENT AUDITORS' REPORT
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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, 1995, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended December 31, 1995 and
1994, and financial highlights for each of the periods presented. 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 as of
December 31, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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.
As discussed in Note 6 to the financial statements, effective January 2, 1996,
the Fund was merged into the Class A Shares of Federated Capital Appreciation
Fund.
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, 1995, 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
Pittsburgh, Pennsylvania
February 9, 1996
<TABLE>
<S> <C>
MANAGING OFFICERS
GENERAL PARTNERS
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John F. Donahue John F. Donahue
Thomas G. Bigley President
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland Executive Vice President
James E. Dowd Edward C. Gonzales
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. John W. McGonigle
Peter E. Madden Executive Vice President
Gregor F. Meyer and Secretary
John E. Murray, Jr. Richard B. Fisher
Wesley W. Posvar Vice President
Marjorie P. Smuts David M. Taylor
Treasurer
NON-MANAGING GENERAL PARTNER S. Elliott Cohan
Exchange Fund Research Corp. Assistant Secretary
LIMITED PARTNER:
Federated Research Corp.
</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. The
corresponding components of the line graph are listed underneath. Shares of
Federated Exchange Fund, Ltd. are represented by a solid line. The S&P 500
is represented by a dotted line and the LGIFA is represented by a broken
line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the fund, the S&P 500 and
the LGIFA. The "x" axis reflects computation periods from 12/31/85 to
12/31/95. The "y" axis reflects the cost of the investment. 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 were
$32,742, $39,901, and $32,980, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Average Annual
Total Returns for the period ended 12/31/95; beginning with the one, five
and ten year periods, and since the inception date of the fund (1/1/77);
the Average Annual Total Returns were 37.17%, 16.66%, 12.59% and13.90%,
respectively.
