FEDERATED STOCK TRUST
PROSPECTUS
Federated Stock Trust (the "Trust") is a no-load, open-end, diversified
management investment company (a mutual fund) investing in common stocks of
high quality companies to achieve growth of income and capital.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated
December 31, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information, which is in paper form only, or a
paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or to make inquiries about the Trust, contact the Trust at the
address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Trust is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December 31, 1996
TABLE OF CONTENTS
SUMMARY OF TRUST EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Investment Limitations 5
TRUST INFORMATION 5
Management of the Trust 5
Distribution of Trust Shares 7
Administration of the Trust 7
Brokerage Transactions 8
NET ASSET VALUE 8
INVESTING IN THE TRUST 8
Share Purchases 8
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Trust Shares 9
Subaccounting Services 9
Certificates and Confirmations 9
Dividends 10
Capital Gains 10
Retirement Plans 10
REDEEMING SHARES 10
Telephone Redemption 10
Written Requests 11
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
Voting Rights 11
TAX INFORMATION 12
Federal Income Tax 12
Pennsylvania Corporate and Personal
Property Taxes 12
PERFORMANCE INFORMATION 12
FINANCIAL STATEMENTS 13
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 24
ADDRESSES Inside Back Cover
SUMMARY OF TRUST EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee(1) 0.73%
12b-1 Fee None
Total Other Expenses 0.26%
Shareholder Services Fee (after waiver)(2) 0.10%
Total Operating Expenses(3) 0.99%
</TABLE>
(1) The maximum management fee is 0.75% of the first $500 million in average
daily net assets, 0.675% of the second $500 million in average daily net
assets, 0.60% of the third $500 million in average daily net assets, 0.525%
of the fourth $500 million in average daily net assets, and 0.40% of
average daily net assets in excess of $2 billion.
(2) The shareholder services fee has been reduced to reflect the waiver of a
portion of the shareholder services fee. The shareholder service provider
can terminate this waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.14% absent the waiver of
a portion of the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Trust will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Trust Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $10 $32 $55 $121
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED STOCK TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors,
on page 24.
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988(A) 1988 1987
NET ASSET
VALUE,
BEGINNING OF
PERIOD $30.66 $26.33 $26.40 $24.18 $23.99 $18.55 $25.19 $22.87 $22.10 $24.00 $20.43
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.53 0.47 0.46 0.48 0.56 0.51 0.70 0.70 0.52 0.68 0.66
Net realized
and unrealized
gain (loss) on
investments 5.84 5.04 0.68 4.27 1.79 6.23 (4.42) 2.34 1.03 (1.50) 4.99
Total from
investment
operations 6.37 5.51 1.14 4.75 2.35 6.74 (3.72) 3.04 1.55 (0.82) 5.65
LESS
DISTRIBUTIONS
Distributions
from net
invest-
ment income (0.51) (0.49) (0.43) (0.49) (0.55) (0.56) (0.78) (0.65) (0.52) (0.64) (0.64)
Distributions
in excess of net
investment
income -- -- -- (0.02)(d) -- -- -- -- -- -- --
Total
distributions
from net
investment
income (0.51) (0.49) (0.43) (0.51) (0.55) (0.56) (0.78) (0.65) (0.52) (0.64) (0.64)
Distributions
from net
realized gain
on investments (2.14) (0.69) (0.78) (2.02) (1.61) (0.74) (2.14) (0.07) (0.26) (0.44) (1.44)
Total
distributions (2.65) (1.18) (1.21) (2.53) (2.16) (1.30) (2.92) (0.72) (0.78) (1.08) (2.08)
NET ASSET
VALUE,
END OF PERIOD $34.38 $30.66 $26.33 $26.40 $24.18 $23.99 $18.55 $25.19 $22.87 $22.10 $24.00
TOTAL 22.08% 21.98% 4.55% 20.88% 10.78% 37.50% (16.36)% 13.48% 7.14% (3.64)% 29.02%
RETURN(B)
RATIOS TO
AVERAGE
NET ASSETS
Expenses 0.99% 1.01% 0.97% 0.97% 0.99% 1.00% 0.98% 0.95% 0.94%* 0.89% 0.93%
Net investment
income 1.64% 1.71% 1.81% 1.83% 2.33% 2.25% 3.03% 2.75% 3.08%* 2.82% 3.04%
Expense
waiver/
reimbursement 0.15%(c) 0.15%(c) -- -- -- -- -- -- -- -- --
SUPPLEMENTAL
DATA
Net assets,
end of period
(000 omitted) $830,545 $632,069 $600,664 $554,062 $386,490 $369,505 $332,241 $573,047 $636,426 $675,110 $611,856
Average
commission
rate paid $0.0273 -- -- -- -- -- -- -- -- -- --
Portfolio
turnover 55% 42% 28% 26% 54% 49% 53% 35% 31% 51% 19%
</TABLE>
* Computed on an annualized basis.
(a) For the nine months ended October 31, 1988.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease for the shareholder services fee is
reflected in both the expense and net investment income ratios shown
above.
(d) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated
December 30, 1981. The Declaration of Trust permits the Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Trustees
have not established separate series or classes of shares.
Trust shares are sold and redeemed at net asset value without a sales charge
imposed by the Trust.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Trust is to provide growth of income and
capital by investing principally in a professionally-managed and diversified
portfolio of common stock of high-quality companies. These companies
generally are leaders in their industries and are characterized by sound
management and the ability to finance expected growth. While there is no
assurance that the Trust will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus.
Unless otherwise stated, the investment objective and the policies and
limitations described below cannot be changed without the approval of
shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Trust's investment approach is based on the
conviction that over the long term the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of major corporations.
COMMON STOCKS. The Trust invests primarily in common stocks of companies
selected by the Trust's investment adviser on the basis of traditional
research techniques, including assessment of earnings and dividend growth
prospects and of the risk and volatility of the company's industry.
Ordinarily, these companies will be in the top 25% of their industries with
regard to revenues. However, other factors, such as product position or
market share, will be considered by the Trust's investment adviser and may
outweigh revenues.
OTHER CORPORATE SECURITIES. The Trust may invest in preferred stocks,
corporate bonds, notes, and warrants of these companies. The prices of fixed
income securities generally fluctuate inversely to the direction of interest
rates.
U.S. GOVERNMENT SECURITIES. The Trust may invest in U.S. government
securities.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Trust
invests may be purchased pursuant to repurchase agreements. Repurchase
agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities to the
Trust and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. The Trust or its custodian will take possession of the
securities subject to repurchase agreements, and these securities will be
marked to market daily. To the extent that the original seller does not
repurchase the securities from the Trust, the Trust could receive less than
the repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent, disposition of
such securities by the Trust might be delayed pending court action. The
Trust believes that under the regular procedures normally in effect for
custody of the Trust's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Trust and allow retention or disposition of such securities. The Trust will
only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are found by the Trust's
adviser to be creditworthy pursuant to guidelines established by the
Trustees.
MONEY MARKET INSTRUMENTS. The Trust may also invest in money market
instruments.
SECURITIES OF FOREIGN ISSUERS. The Trust may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of ADRs. Securities
of a foreign issuer may present greater risks in the form of
nationalization, confiscation, domestic marketability, or other national or
international restrictions. As a matter of investment policy, which may be
changed without shareholder approval, the Trust will not invest more than
15% of its assets in American Depositary Receipts ("ADRs").
As a matter of practice, the Trust will not invest in the securities of a
foreign issuer if any such risk appears to the investment adviser to be
substantial.
At least 80% of the Trust's portfolio will be invested in common stocks,
unless it is in a defensive position.
RESTRICTED AND ILLIQUID SECURITIES. The Trust intends to invest in
restricted securities up to specific limitations. These limitations are not
applicable to commercial paper issued under Section 4(2) of the Securities
Act of 1933. Restricted securities are any securities in which the Trust may
otherwise invest pursuant to the investment objective and policies but which
are subject to restriction on resale under federal securities law. As a
matter of investment practice, which may be changed without shareholder
approval, the Trust will limit investments in illiquid securities, including
certain restricted securities not determined by the Trustees to be liquid,
and repurchase agreements providing for settlement in more than seven days
after notice, to 10% of net assets.
The Trust may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Trust, who agree that it is purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold
to other institutional investors like the Trust through or with the
assistance of the issuer or the investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Trust believes
that Section 4(2) commercial paper and possibly certain other restricted
securities which meet the criteria for liquidity established by the Board of
Trustees of the Trust are quite liquid. The Trust intends, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) commercial paper, as
determined by the investment adviser of the Trust, as liquid and not subject
to the investment limitation applicable to illiquid securities and
restricted securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Trust purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete these
transactions may cause the Trust to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices.
The Trust may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Trust may enter in
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Trust may realize short-term profits
or losses upon the sale of such commitments.
PORTFOLIO TURNOVER. Although the Trust does not intend to invest for the
purpose of seeking short-term profits, securities in its portfolio will be
sold whenever the Trust's investment adviser believes it is appropriate to
do so in light of the Trust's investment objective, without regard to the
length of time a particular security may have been held.
INVESTMENT LIMITATIONS
The Trust will not:
* borrow money or pledge securities except, under certain circumstances, the
Trust may borrow up to one-third of the value of its total assets and pledge
up to 10% of the value of those assets to secure such borrowings;
* invest more than 5% of its total assets in the securities of one issuer
(except cash and cash items and U.S. government securities);
* invest more than 5% of total assets in securities of issuers that have
records of less than three years of continuous operations;
* invest more than 10% of its total assets in securities subject to
restrictions on resale; or
* acquire more than 10% of the voting securities of any one issuer.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, (the "Adviser"), subject to
direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Trust and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Trust.
Both the Trust and the Adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Trust and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Trust's shareholders and must place the interests of shareholders ahead
of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Trust; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Board of Trustees, and could result in severe
penalties.
ADVISORY FEES. The annual investment advisory fee is based on the Trust's
average daily net assets as shown on the chart below.
ADVISORY FEE AS
AVERAGE DAILY PERCENTAGE OF AVERAGE
NET ASSETS DAILY NET ASSETS
First $500 million .75%
Second $500 .675%
Third $500 million .600%
Fourth $500 million .525%
Over $2 billion .40%
Under the investment advisory contract, the Adviser will reimburse the Trust
the amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including its investment advisory fee
but excluding interest, taxes, brokerage commissions, expenses of
registering and qualifying the Trust and its shares under federal and state
laws, expenses of withholding taxes, and extraordinary expenses exceed 1% of
its average daily net assets. This does not include reimbursement to the
Trust of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser has also undertaken to reimburse the
Trust for operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) Shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $72 billion invested across more
than 260 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,750
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Peter R. Anderson has been the Trust's senior portfolio manager since 1982.
Mr. Anderson joined Federated Investors in 1972 as, and is presently, a
Senior Vice President of the Trust's investment adviser. Mr. Anderson is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Wisconsin.
Scott B. Schermerhorn has been the Trust's portfolio manager since June
1996. Mr. Schermerhorn joined Federated Investors in 1996 as a Vice
President of the Trust's investment adviser. From 1990 through 1996, Mr.
Schermerhorn was a Senior Vice President and Senior Investment Officer at J
W Seligman & Co., Inc. Mr. Schermerhorn received his M.B.A. in Finance and
International Business from Seton Hall University.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. is the principal distributor for shares of the
Trust. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a wholly-owned subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to 0.25% of the
average daily net asset value of its shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions may receive fees
based upon shares owned by their clients or customers. The schedules of such
fees and the basis upon which such fees will be paid will be determined from
time to time by the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder
services. The support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and engineering
computer software programs that emphasize the attributes of the Trust. Such
assistance may be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Trust's investment adviser or
its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Trust. Federated Administrative Services provides these at an
annual rate which relates to the average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors ("Federated Funds") as
specified below:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS OF THE TRUST
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion
of its fee.
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. In working with dealers, the adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. 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 Trust and other funds distributed by Federated Securities
Corp. The adviser makes decisions on portfolio transactions and selects
brokers and dealers subject to review by the Board of Trustees.
NET ASSET VALUE
The Trust's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and other assets,
less liabilities, by the number of shares outstanding.
INVESTING IN THE TRUST
SHARE PURCHASES
Trust shares are sold on days on which the New York Stock Exchange is open.
Shares may be purchased either by wire or mail.
To purchase shares of the Trust, open an account by calling Federated
Securities Corp. Information needed to establish the account will be taken
over the telephone. The Trust reserves the right to reject any purchase
request.
BY WIRE. To purchase shares of the Trust by Federal Reserve wire, call the
Trust before 4:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) on the next business day following the
order. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: Federated Stock Trust;
Fund Number (this number can be found on the account statement or by
contacting the Trust); Group Number or Order Number; Nominee or Institution
Name; ABA Number 011000028. Shares cannot be purchased by wire on holidays
when wire transfers are restricted. Questions on wire purchases should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
BY MAIL. To purchase shares of the Trust by mail, send a check made payable
to Federated Stock Trust to: Federated Shareholder Services Company, P.O.
Box 8600, Boston, Massachusetts 02266-8600. Orders by mail are considered
received after payment by check is converted by the transfer agent's bank,
State Street Bank, into federal funds. This is generally the next business
day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Trust is $25,000 plus any
non-affiliated bank or broker's fee, if applicable. However, an account may
be opened with a smaller amount as long as the $25,000 minimum is reached
within 90 days. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with the Trust. Accounts
established through a non-affiliated bank or broker may be subject to a
smaller minimum investment.
WHAT SHARES COST
Trust shares are sold at their net asset value, next determined after an
order is received. There is no sales charge imposed by the Trust. Investors
who purchase Trust shares through a financial intermediary may be charged a
service fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the
following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain securities or a combination of securities and
cash for Trust shares. The securities and any cash must have a market value
of at least $25,000. The Trust reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the
Trust are valued in the same manner as the Trust values its assets.
Investors wishing to exchange securities should first contact Federated
Securities Corp. Shares purchased by exchange of U.S. government securities
cannot be redeemed by telephone for fifteen business days to allow time for
the transfer to settle.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent
charges a fee based on the level of subaccounting services rendered.
Institutions holding Trust 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 provided which may be related to the ownership of
Trust shares. This prospectus should, therefore, be read together with any
agreement between the customer and the institution with regard to the
services provided, the fees charged for those services, and any restrictions
and limitations imposed. State securities laws may require certain financial
institutions such as depository institutions to register as dealers.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust. Detailed confirmations of
each purchase or redemption are sent to each shareholder. Quarterly
confirmations are sent to report dividends paid during that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in
the Trust on the record date. Unless shareholders request cash payments by
writing to the Trust, dividends are automatically reinvested in additional
shares of the Trust on payment dates at the ex-dividend date net asset value
without a sales charge.
CAPITAL GAINS
Capital gains realized by the Trust, if any, will be distributed at least
once every 12 months.
RETIREMENT PLANS
Shares of the Trust can be purchased as an investment for retirement plans
or for IRA accounts. For further details contact Federated Securities Corp.
and consult a tax adviser.
REDEEMING SHARES
The Trust redeems shares at their net asset value next determined after the
Trust receives the redemption request. Investors who redeem shares through a
financial intermediary may be charged a service fee by that financial
intermediary. Redemptions will be made on days on which the Trust computes
its net asset value. Redemption requests must be received in proper form and
can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Trust before 4:00
p.m. (Eastern time). The proceeds will normally be wired the following
business day, but in no event more than seven days, to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System. If at any time, the Trust shall determine it necessary to
terminate or modify this method of redemption, shareholders would be
promptly notified. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Trust, it
may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Written Requests" should be
considered.
WRITTEN REQUESTS
Trust shares may also be redeemed by sending a written request to the Trust.
Call the Trust for specific instructions before redeeming by letter. The
shareholder will be asked to provide in the request his name, the Trust
name, his account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be
sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to
an address other than that on record with the Trust, or a redemption payable
other than to the shareholder of record must have their signatures
guaranteed by:
* a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
* a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund, which is administered by the FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Trust may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Trust and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust
may redeem shares in any account and pay the proceeds to the shareholder if
the account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000
because of changes in the Trust's net asset value.
Before shares are redeemed to close an account, the shareholder is notified
in writing and allowed 30 days to purchase additional shares to meet the
minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. As a Massachusetts
business trust, the Trust is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in
the Trust's operation and for the election of Trustees under certain
circumstances. Trustees may be removed by the Trustees or by shareholders at
a special meeting. A special meeting of the Trust shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares.
TAX INFORMATION
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies. Unless otherwise exempt, shareholders are required to pay federal
income tax on any dividends and other distributions received. This applies
whether dividends and distributions are received in cash or as additional
shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
* the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
* Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the extent
that the portfolio securities in the Trust would be subject to such taxes if
owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
Total return represents the change, over a specific period of time, in the
value of an investment in the Trust after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Trust is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Trust over a thirty-day period by the offering price per share of the
Trust on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income
actually earned by the Trust and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The Trust is sold without any sales charge or other similar non-recurring
charges.
From time to time, advertisements for the Trust may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Trust's performance to certain indices.
FEDERATED STOCK TRUST
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
EQUITIES -- 92.6%
<C> <S> <C>
BASIC INDUSTRY -- 6.7%
531,600 (a)Allegheny Teledyne, Inc. $ 11,362,950
118,400 Aluminum Co. of America 6,941,200
175,000 Betz Laboratories, Inc. 9,187,500
95,200 Du Pont (E.I.) de Nemours & Co. 8,829,800
186,000 International Paper Co. 7,951,500
297,100 Morton International, Inc. 11,698,312
Total 55,971,262
CONSUMER DURABLES -- 2.1%
128,000 General Motors Corp. 6,896,000
79,135 Martin Marietta Materials 1,879,470
360,000 Rubbermaid, Inc. 8,370,000
Total 17,145,470
CONSUMER NON-DURABLES -- 13.3%
275,600 Avon Products, Inc. 14,951,300
105,700 CPC International, Inc. 8,337,087
151,300 Heinz (H.J.) Co. 5,371,150
570,200 IBP, Inc. 14,255,000
104,500 Kimberly-Clark Corp. 9,744,625
224,900 Philip Morris Cos., Inc. 20,831,363
194,100 Tambrands, Inc. 8,273,513
133,100 Unilever N.V., ADR 20,347,663
131,200 V.F. Corp. 8,577,200
Total 110,688,901
ENERGY MINERALS -- 11.9%
260,500 Baker Hughes, Inc. 9,280,312
212,400 Chevron Corp. 13,965,300
133,500 Exxon Corp. 11,831,437
FEDERATED STOCK TRUST
SHARES VALUE
EQUITIES -- CONTINUED
ENERGY MINERALS -- CONTINUED
387,200 Occidental Petroleum Corp. $ 9,486,400
48,500 Royal Dutch Petroleum Co., ADR 8,020,688
148,900 Texaco, Inc. 15,131,963
535,300 USX Corp. 11,709,688
386,820 Union Pacific Resources Group, Inc. 10,637,554
129,610 (a)Western Atlas, Inc. 8,991,694
Total 99,055,036
FINANCE -- 14.3%
240,100 Allstate Corp. 13,475,612
143,600 CIGNA Corp. 18,739,800
146,700 Chase Manhattan Corp. 12,579,525
95,000 Citicorp 9,405,000
125,000 Dean Witter, Discover & Co. 7,359,375
367,500 Federal National Mortgage Association 14,378,437
165,100 Marsh & McLennan Cos., Inc. 17,191,037
198,500 National City Corp. 8,609,937
174,900 Providian Corp. 8,220,300
160,051 Travelers Group, Inc. 8,682,767
Total 118,641,790
HEALTH CARE -- 10.3%
233,000 Abbott Laboratories 11,795,625
205,200 American Home Products Corp. 12,568,500
430,000 Biomet, Inc. 6,933,750
141,800 Bristol-Myers Squibb Co. 14,995,350
203,250 Columbia/HCA Healthcare Corp. 7,266,187
531,200 (a)Healthsource, Inc. 6,507,200
119,800 Merck & Co., Inc. 8,880,175
124,900 Smithkline Beecham Corp., ADR 7,821,863
FEDERATED STOCK TRUST
SHARES VALUE
EQUITIES -- CONTINUED
HEALTH CARE -- CONTINUED
227,500 United Healthcare Corp. $ 8,616,563
Total 85,385,213
PRODUCER MANUFACTURING -- 5.0%
112,320 (a)FMC Corp. 8,269,560
115,000 General Electric Co. 11,126,250
91,200 Loews Corp. 7,535,400
167,700 Textron, Inc. 14,883,375
Total 41,814,585
RETAIL TRADE -- 5.2%
302,300 Dayton-Hudson Corp. 10,467,137
78,500 Great Atlantic & Pacific Tea Co., Inc. 2,355,000
293,300 Sears, Roebuck & Co. 14,188,388
610,500 Wal-Mart Stores, Inc. 16,254,563
Total 43,265,088
SERVICES -- 3.3%
166,800 Block (H&R), Inc. 4,128,300
484,300 Browning-Ferris Industries, Inc. 12,712,875
139,900 Gannett Co., Inc. 10,614,912
Total 27,456,087
TECHNOLOGY -- 7.8%
300,000 (a)Analog Devices, Inc. 7,800,000
281,600 Electronic Data Systems Corp. 12,672,000
104,900 Intel Corp. 11,525,887
32,500 International Business Machines Corp. 4,192,500
76,534 Lockheed Martin Corp. 6,859,359
90,283 Lucent Technologies, Inc. 4,243,301
144,500 Raytheon Co. 7,116,625
192,100 Rockwell International Corp. 10,565,500
Total 64,975,172
FEDERATED STOCK TRUST
SHARES OR
PRINCIPAL
AMOUNT VALUE
EQUITIES -- CONTINUED
TRANSPORTATION -- 0.7%
103,100 Union Pacific Corp. $ 5,786,488
UTILITIES -- 12.0%
246,800 AT&T Corp. 8,607,150
251,700 CMS Energy Corp. 7,960,012
170,600 Columbia Gas System, Inc. 10,363,950
260,000 Enron Corp. 12,090,000
173,300 FPL Group, Inc. 7,971,800
315,000 GTE Corp. 13,269,375
650,000 MCI Communications Corp. 16,331,250
343,300 Pacific Gas & Electric Co. 8,067,550
328,800 Southern Co. 7,274,700
293,300 TECO Energy, Inc. 7,222,513
Total 99,158,300
TOTAL EQUITIES (IDENTIFIED COST $557,366,945) 769,343,392
CONVERTIBLE SECURITIES -- 2.1%
CONSUMER NON-DURABLES -- 0.8%
173,700 Dole Food, Inc., ACES, $2.75 6,839,437
PRODUCER MANUFACTURING -- 1.3%
677,300 (b)Westinghouse Electric Corp., PEPS, Series C, $1.30 10,932,299
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST $17,519,400) 17,771,736
(C)REPURCHASE AGREEMENT -- 3.4%
28,570,000 BT Securities Corporation, 5.55%, dated 10/31/1996, due
11/1/1996 (AT AMORTIZED COST) 28,570,000
TOTAL INVESTMENTS (IDENTIFIED COST $603,456,345)(D) $ 815,685,128
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $10,932,299 which represents 1.3% of net assets.
(c) 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.
(d) The cost of investments for federal tax purposes amounts to
$603,456,345. The net unrealized appreciation of investments on a federal
tax basis amounts to $212,228,783 which is comprised of $214,457,526
appreciation and $2,228,743 depreciation at October 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($830,545,284) at October 31, 1996.
The following acronyms are used throughout this portfolio:
ACES -- Adjustable Convertible Extendable Securities
ADR -- American Depositary Receipt
PEPS -- Participating Equity Preferred Stock
(See Notes which are an integral part of the Financial Statements)
FEDERATED STOCK TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost, $603,456,345) $815,685,128
Income receivable 1,429,527
Receivable for investments sold 21,156,099
Receivable for shares sold 1,579,949
Total assets 839,850,703
LIABILITIES:
Payable for investments purchased $4,555,309
Payable for shares redeemed 3,940,543
Payable to Bank 694,542
Accrued expenses 115,025
Total liabilities 9,305,419
Net Assets for 24,155,535 shares outstanding $830,545,284
NET ASSETS CONSIST OF:
Paid in capital $519,844,441
Net unrealized appreciation of investments 212,228,783
Accumulated net realized loss on investments 97,656,391
Undistributed net investment income 815,669
Total Net Assets $830,545,284
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$830,545,284 / 24,155,535 shares outstanding $34.38
(See Notes which are an integral part of the Financial Statements)
FEDERATED STOCK TRUST
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
INVESTMENT INCOME:
Dividends $ 16,884,966
Interest 2,611,765
Total Income 19,496,731
EXPENSES:
Investment advisory fee $ 5,368,592
Administrative personnel and services fee 559,347
Custodian fees 106,166
Transfer and dividend disbursing agent fees and expenses 241,972
Directors'/Trustees' fees 18,600
Auditing fees 15,001
Legal fees 5,943
Portfolio accounting fees 114,272
Shareholder services fee 1,849,479
Share registration costs 25,642
Printing and postage 41,459
Insurance premiums 8,434
Taxes 43,606
Miscellaneous 7,609
Total expenses 8,406,122
Waivers --
Waiver of shareholder services fee (1,070,663)
Net expenses 7,335,459
Net investment income 12,161,272
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 97,657,841
Net change in unrealized appreciation of investments 34,131,642
Net realized and unrealized gain on investments 131,789,483
Change in net assets resulting from operations $143,950,755
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STOCK TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 12,161,272 $ 9,973,993
Net realized gain on investments ($97,657,841 and $45,017,308,
respectively, as computed for federal tax purposes) 97,657,841 45,305,647
Net change in unrealized appreciation 34,131,642 58,089,861
Change in net assets resulting from operations 143,950,755 113,369,501
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (11,559,487) (10,498,641)
Distributions from net realized gains (45,017,605) (15,442,313)
Change in net assets resulting from distributions to shareholders (56,577,092) (25,940,954)
SHARE TRANSACTIONS --
Proceeds from sale of shares 286,718,473 146,619,990
Net asset value of shares issued to shareholders in payment of
distributions declared 32,453,084 13,596,554
Cost of shares redeemed (208,069,160) (216,239,762)
Change in net assets resulting from share transactions 111,102,397 (56,023,218)
Change in net assets 198,476,060 31,405,329
NET ASSETS:
Beginning of period 632,069,224 600,663,895
End of period (including undistributed net investment income of
$815,669 and $213,884, respectively) $ 830,545,284 $632,069,224
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STOCK TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. ORGANIZATION
Federated Stock Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The investment objective of the Trust is to provide
growth of income and capital by investing principally in a
professionally-managed and diversified portfolio of common stock of
high-quality companies.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Listed equity securities are valued at the last
sale price reported on a national securities exchange. Short-term securities
are valued at the prices provided by an independent pricing service.
However, 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.
REPURCHASE AGREEMENTS -- It is the policy of the Trust 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 Trust 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 Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust 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 Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
FEDERATED STOCK TRUST
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Trust or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Trustees. The Trust will not incur any
registration costs upon such resales. The Trust's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Trust's
pricing committee.
Additional information on the restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Westinghouse Electric Corp., PEPS, Series C 09/26/95 - 02/07/96 $10,701,675
</TABLE>
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.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
<S> <C> <C>
1996 1995
Shares sold 8,931,554 5,349,711
Shares issued to shareholders in payment of distributions declared 1,080,218 541,686
Shares redeemed (6,474,281) (8,086,028)
Net change resulting from share transactions 3,537,491 (2,194,631)
</TABLE>
FEDERATED STOCK TRUST
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Trust's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee of 0.75% of the first $500 million in average daily net assets,
0.675% of the second $500 million in average daily net assets, 0.60% of the
third $500 million in average daily net assets, 0.525% of the fourth $500
million in average daily net assets, and 0.40% of average daily net assets
in excess of $2 billion. The Adviser will waive, to the extent of its
advisory fee, the amount, if any, by which the Trust's aggregate annual
operating expenses (excluding interest, taxes, brokerage commissions,
expenses of registering and qualifying the Trust and its shares under
federal and state laws, expenses of withholding taxes, and extraordinary
expenses) exceed 1% of average daily net assets of the Trust.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ 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 Trust will pay
FSS up to 0.25% of average daily net assets of the Trust for the period.
The fee paid to FSS is used to finance certain services for shareholders
and to maintain shareholder accounts. Federated Shareholder Services may
voluntarily choose to waive any portion of its fee. Federated Shareholder
Services can modify or terminate this voluntary waiver at any time at its
sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Trust. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1996, were as follows:
PURCHASES $555,306,700
SALES $383,602,776
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
FEDERATED STOCK TRUST:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Stock Trust as of
October 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights (see page 2 of this
prospectus) for each of the periods presented. These financial statements
and financial highlights are the responsibility of the Trust'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 October 31, 1996, by correspondence with the
custodian and brokers. 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Federated Stock Trust at October 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the
periods presented, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 16, 1996
ADDRESSES
Federated Stock Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
FEDERATED STOCK TRUST
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
December 31, 1996
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 313900102
8120102A (12/96)
FEDERATED STOCK TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of the Federated Stock Trust (the "Trust") dated December 31, 1996. This
Statement is not a prospectus itself. You may request a copy of a prospectus
or a paper copy of this Statement of Additional Information, if you have
received it electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1996
Cusip 313900102
8120102B (12/96)
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Portfolio Turnover 1
Investment Limitations 1
FEDERATED STOCK TRUST MANAGEMENT 3
Trust Ownership 7
Trustees Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 9
Adviser to the Trust 9
Advisory Fees 9
OTHER SERVICES 9
Trust Administration 9
Custodian and Portfolio Recordkeeper 9
Transfer Agent 9
Independent Auditor 9
SHAREHOLDER SERVICES 9
BROKERAGE TRANSACTIONS 10
PURCHASING SHARES 10
Conversion to Federal Funds 10
Determining Net Asset Value 10
Determining Market Value of Securities 10
REDEEMING SHARES 11
Redemption in Kind 11
Massachusetts Partnership Law 11
EXCHANGING SECURITIES FOR TRUST SHARES 11
Tax Consequences 11
TAX STATUS 12
The Trust's Tax Status 12
Shareholders' Tax Status 12
TOTAL RETURN 12
YIELD 12
PERFORMANCE COMPARISONS 13
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14
Institutional 14
Trust Organizations 14
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 14
GENERAL INFORMATION ABOUT THE TRUST
Federated Stock Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated December 30, 1981. On May
2, 1993, the shareholders of the Trust voted to permit the Trust to offer
separate series and classes of shares.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to provide growth of income and capital
by investing principally in a professionally-
managed and diversified portfolio of common stocks of high quality
companies.
TYPES OF INVESTMENTS
Although the Trust may invest in other securities of these companies and in
money market instruments, it is the Trust's policy to invest at least 80% of
its portfolio in common stocks. The above investment objective and policies
cannot be changed without approval of shareholders.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Trust may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
* the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
* Federal Land Banks;
* Central Bank for Cooperatives;
* Federal Intermediate Credit Banks;
* Federal Home Loan Banks;
* Farmers Home Administration; and
* Federal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Trust sufficient to make payment for the securities to be purchased are
segregated on the Trust's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Trust does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
PORTFOLIO TURNOVER
The Trust will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt to
achieve the Trust's investment objective. For the fiscal years ended October
31, 1996, and 1995, the portfolio turnover rates were 55% and 42%,
respectively.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders, unless indicated otherwise.
SELLING SHORT AND BUYING ON MARGIN
The Trust will not purchase any securities on margin, except for such
credits as are necessary for the clearance of transactions.
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of its total assets or in an amount up to one-third of
the value of its total assets, including the amount borrowed, in order to
meet redemption requests without immediately selling portfolio securities.
This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Trust to meet
redemption requests where the liquidation of portfolio securities is deemed
inconvenient or disadvantageous. While any such borrowings are outstanding,
no purchases of investment securities will be made by the Trust.
PLEDGING ASSETS
The Trust will not pledge, mortgage or hypothecate its assets, except that,
to secure borrowings. It may
pledge securities having a market value at the time of pledge not exceeding
10% of the value of the Trust's total assets.
DIVERSIFICATION OF INVESTMENTS
The Trust will not purchase the securities of any issuer, except cash, cash
instruments and securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, if as a result more than 5% of its total
assets would be invested in the securities of such issuer and the Trust may
not acquire more than 10% of the voting securites of any one issuer.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Trust may not invest in securities of a company for the purpose of
exercising control or management. However, the Trust will acquire no more
than 10% of the voting securities of an issuer and may exercise its voting
power in the Trust's best interest. From time to time the Trust, together
with other investment companies advised by the Adviser or its affiliated
companies, may buy and hold substantial amounts of the voting stock of a
company, and all such stock may be voted together in regard to the company's
affairs. In some cases, the Trust and other investment companies advised by
the Adviser or its affiliated companies holding such stock might
collectively be considered to be in control of such a company. Officers or
affiliates of the Trust might possibly become directors of companies in
which the Trust holds stock.
PURCHASING SECURITIES OF OTHER ISSUERS
The Trust will not invest in securities issued by any other investment
company or investment trust except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchases
other than the customary broker's commission or except when such a purchase,
though not made in open market, is part of a plan of merger or
consolidation.
INVESTING IN NEW ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST
The Trust will not invest more than 5% of the value of the total assets of
the Trust in securities of issuers which have a record of less than three
years of continuous operation, including the operation of any predecessor.
INVESTING IN ISSUERS
The Trust will not purchase or retain the securities of any issuer other
than the securities of the Trust, if, to the Trust's knowledge, those
officers and Trustees of the Trust, or of the Adviser, who individually own
beneficially more than 1/2 of 1% of the outstanding securities of such
issuer, together own beneficially more than 5% of such outstanding
securities.
UNDERWRITING
The Trust will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933, in connection
with the sale of securities in accordance with its investment objective,
policies and limitations.
INVESTING IN REAL ESTATE
The Trust will not purchase or sell real estate, but this shall not prevent
the Trust from investing in Municipal Bonds secured by real estate or
interest therein.
INVESTING IN COMMODITIES OR MINERALS
The Trust will not purchase or sell commodities or commodity contracts or
oil, gas, or other mineral exploration or development programs.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except that it may purchase or
hold corporate or government bonds, debentures, notes, certificates of
indebtedness or other debt securities permitted by its investment objective.
CONCENTRATION OF INVESTMENTS IN ONE INDUSTRY
The Trust will not invest more than 25% of the value of its total assets in
one industry.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities except as permitted by its
investment objective, policies and limitations.
DEALING IN PUTS AND CALLS
The Trust will not write, purchase or sell puts, call, straddles or spreads
or any combinations thereof.
RESTRICTED SECURITIES
The Trust will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933, except
for commercial paper issued under Section 4 (2) of the Securities Act of
1933 and certain other restricted securities which meet the criteria for
liquidity as established by the Trustees.
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 nor will the Trust be required to make
any changes in its portfolio holdings.
The Trust did not borrow money, pledge securities, or purchase restricted
securities in excess of 5% of the value of its total assets during the last
fiscal year and has no present intent to do so in the coming fiscal year.
This representation may be changed without shareholder vote to the extent
permitted by the above restrictions.
FEDERATED STOCK TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Stock Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, U.S. Space Foundation and Czech
Management Center; President Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory Council for Environmental Policy and Technology,
Federal Emergency Management Advisory Board and Czech Management Center;
Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds.
Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the
Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; BayFunds; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; 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 Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5
Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated
Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.;
High Yield Cash Trust; Independence One Mutual Funds; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds; The
Monitor Funds; The Planters Funds; The Starburst Funds; The Starburst Funds
II; The Virtus Funds; Tower Mutual Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds,
Inc.;
TRUST OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund's outstanding
shares.
As of December 4, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of Federated Stock Trust: Charles Schwab &
Co., Inc. San Francisco, CA, 7.55%.
TRUSTEES COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Thomas G. Bigley++ $1,626.97 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
John T. Conroy, Jr. $1,779.57 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
William J. Copeland $1,779.57 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Glen R. Johnson $0 $0 for the Trust and
President and Trustee 9 other investment companies in the Fund
James E. Dowd $1,779.57 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Lawrence D. Ellis, M.D. $1,626.97 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Edward L. Flaherty, Jr. $1,779.57 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Peter E. Madden $1,626.97 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Gregor F. Meyer $1,626.97 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
John E. Murray, Jr., $1,626.97 $0 for the Trust and
Trustee 64 other investment companies in the Fund
Wesley W. Posvar $1,626.97 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Marjorie P. Smuts $1,626.97 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1996.
# The aggregate compensation is provided for the Trust.
+ The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment Adviser is Federated Management (the "Adviser"). It
is a subsidiary of Federated Investors. All of the voting securities of
Federated Investors are owned by a trust, the Trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust or any 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.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. During the fiscal
years ended October 31, 1996, 1995, and 1994, the Trust's Adviser earned
$5,368,592, $4,305,810, and $4,204,915, respectively, of which $0 was waived
for the period ended October 31, 1996.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee described in
the prospectus. Prior to March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal years ended 1996, 1995, and 1994, the
Administrators earned $559,347, $440,833, and $528,231, respectively.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Trust's portfolio investments. The fee paid for this services is based
upon the level of the Trust's average net assets for the period plus
out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITOR
The independent auditors for the Trust are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be providedwhich are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that the
Trust will benefit by: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and administrative
detail;
(3) enhancing shareholder record keeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal period ending October 31, 1996, payments in the amount of
$1,849,479 were made pursuant to the Shareholder Services Agreement, of
which $1,070,663 was waived.
BROKERAGE TRANSACTIONS
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and 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 provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Trust and other accounts. To
the extent that receipt of these services may supplant 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 brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. For the fiscal
years ended October 31, 1996, 1995, and 1994, the Trust paid total brokerage
commissions of $1,132,666, $549,947, and $271,265, respectively.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Trust or the size of the position
obtained or disposed of by the Trust. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Trust.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
shares of the Trust is explained in the prospectus under "Investing in the
Trust."
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. State Street Bank acts
as the shareholder's agent in depositing checks and converting them to
federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which the net asset
value is calculated by the Trust are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities are determined as follows:
* for equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange, if
available;
* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices and for bonds and other
fixed income securities as determined by an independent pricing service;
* for unlisted equity securities, the latest bid prices;
* for short-term obligations, according to the mean between bid and asked
prices, as furnished by an independent pricing service or for short-term
obligations with remaining maturities of 60 days or less, at the time of
purchase, at amortized cost; or
* for all other securities, at fair value as determined in good faith by the
Trustees.
REDEEMING SHARES
The Trust redeems shares at the next computed net asset value after the
Trust receives the redemption request. Redemption procedures are explained
in the prospectus under "Redeeming Shares." Although State Street Bank does
not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's
net asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will
pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as the Fund determines net asset value.
The portfolio instruments will be selected in a manner that the Trustees
deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund 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 from its assets.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain securities they already own for Trust shares,
or they may exchange a combination of securities and cash for Trust shares.
An investor should forward the securities in negotiable form with an
authorized letter of transmittal to Federated Securities Corp. The Trust
will notify the investor of its acceptance and valuation of the securities
within five business days of their receipt by State Street Bank.
The Trust values securities in the same manner as the Trust values its
assets. The basis of the exchange will depend upon the net asset value of
Trust shares on the day the securities are valued. One share of the Trust
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription
or other rights attached to the securities become the property of the Trust,
along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
Trust shares, a gain or loss may be realized by the investor.
TAX STATUS
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Trust must,
among other requirements:
* derive at least 90% of its gross income from dividends, interest, and gain
from the sale of securities;
* derive less than 30% of its gross income from the sale of securities held
less than three months;
* invest in securities within certain statutory limits; and
* distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. At least a percentage of
dividends paid by the Trust will generally qualify for the shareholder's
$100 dividends received deduction available to corporations. The percentage
is based on and equal to the proportion of the Trust's gross income derived
from dividends of domestic corporations. These dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Trust shares.
TOTAL RETURN
The Trust's average annual total returns for the one-year, five-year and
ten-year periods ended October 31, 1996, were 22.08%, 15.83%, and 11.94%,
respectively. The Trust's average annual total return since inception was
16.37%.
The average annual total return for the Trust is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, adjusted over
the period by any additional shares, assuming the quarterly reinvestment of
all dividends and distributions.
YIELD
The Trust's yield for the thirty-day period ended October 31, 1996, was
1.49%.
The yield for the Trust is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Trust over a thirty-day period by the offering price per share of the
Trust on the last day of the period. This value is then annualized using
semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a
twelve-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by the Trust because of certain
adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Trust, performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The Trust's performance depends upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested;
* changes in interest rates and market value of portfolio securities;
* changes in Trust expenses; and
* various other factors.
The Trust's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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:
* 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 specific period of
time. From time to time, the Trust will quote it Lipper ranking in the
"growth and income funds" category in advertising and sales literature.
* DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA's index movements are leading economic indicators for the
stock market as a whole.
* STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, 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 Standard & Poor's index 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 Standard & Poor's
figures.
* MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values 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.
Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.
* FIDUCIARY CONSULTING GRID UNIVERSE, for example, is composed of over 1,000
funds, representing 350 different investment managers, divided into
subcategories based on asset mix. The funds are ranked quarterly based on
performance and risk characteristics.
* SEI database for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on investor
groups and asset mix. The funds are ranked every three, six, and twelve
months.
* MERCER MEIDINGER, INC. compiles a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their
rankings each calendar quarter as well as on a one-, three-, and five-year
basis.
Advertisements and other sales literature for the Trust may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Trust based on quarterly reinvestment of dividends over a specified
period of time.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the trust can
compare its performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Trust portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making -- structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts,
and traders dedicated to specific market sectors. These traders handle
trillions of dollars in annual trading volume.
In the equity sector, Federated Investors has more than 25 years'
experience. As of December 31, 1995, Federated Investors managed 22 equity
funds totaling approximately $5.4 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.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and
high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, 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 advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage
firms nationwide -- including 200 New York Stock Exchange firms -- supported
by more wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as
the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer
Division.
* Source: Investment Company Institute.
