Federated Stock Trust
Annual Report For Fiscal Year Ended October 31, 1997
MANAGEMENT DISCUSSION & ANALYSIS
The fiscal year ended October 31, 1997, was a strong year for the trust. The
trust had a total return of 32.27%* vs. 28.12% and 32.11% for the Lipper Growth
and Income Funds Average and the Standard & Poors 500 Index** respectively.
Continued market strength has led us to become more defensive as valuations have
become excessive in some areas and speculation seems more abundant. We are close
to seven years of an economic expansion, which is long by historic standards.
The current economic turmoil facing some of our foreign trading partners also
concerns us. The combination of these and other factors has increased the
uncertainty levels in investors minds. As previously stated, when uncertainty
increases in financial markets, the typical reaction is a "flight to quality."
This is where investors begin taking profits in more speculative and often
smaller companies and invest in large well run companies which have weathered
difficult economic and market periods. This occurrence should bode well for the
trust given our investment process.
The best performing sectors were Finance, Technology and Energy. We continue to
overweight Energy due to its defensive nature as well as attractive valuation.
In Finance, we remain slightly below market weight as valuation is now in the
upper end of historic ranges. The run up in Technology has given us the
opportunity to reduce our exposure, as excessive valuation and slowing growth
rates persist. We continue to increase our exposure to Utilities and Retailing
as both groups have been ignored by investors, valuations are attractive, and
fundamentals are improving. We continue to seek undervalued quality companies
and avoid good stories with high risk.
As part of our portfolio management process in determining relative sector
weightings, we also attempt to identify underlying investment themes. At this
time, the major themes in the trust's portfolio are as follows:
1. Beneficiaries of corporate restructuring, such as Pharmacia & Upjohn,
Rubbermaid, Unilever N.V., and CIGNA.
2. Companies which generate significant excess cash flow such as Philip Morris
and Dow chemical.
3. Dominant companies with superior management; PepsiCo, Wal-Mart Stores, and
Philip Morris fit this description.
While concerned by the market's strength over the past years, we believe good
long-term values can be identified by our disciplined investment process and
careful fundamental research. We believe 1998 will be more challenging, and we
will continue to help control risk through diversification and attention to
valuation of individual stocks.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less that their
original cost.
** This index is unmanaged.
FEDERATED STOCK TRUST
GROWTH OF $25,000 INVESTED IN FEDERATED STOCK TRUST
The graph below illustrates the hypothetical investment of $25,000* in Federated
Stock Trust (the "Trust") from October 31, 1987 to October 31, 1997, compared to
the Standard and Poor's 500 Index ("S&P 500")+ and the Lipper Growth and Income
Funds Average ("LGIFA").++
[Graphic representation "A1" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Trust's prospectus dated
December 31, 1997 and, together with financial statements contained therein,
constitutes the Trust's annual report.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and the average.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Trust's performance. This index
is unmanaged.
++ The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313900102
006682-ARS (12/97)
[Graphic]
3109MD&A .EDG PAGE 3
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, 1997, 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 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, 1997
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 4
Trust Information 5
Management of the Trust 5
Distribution of Shares 6
Administration of the Trust 6
Brokerage Transactions 6
Net Asset Value 6
Investing in the Trust 6
Share Purchases 6
Minimum Investment Required 7
What Shares Cost 7
Exchanging Securities for Trust Shares 7
Confirmations and Account Statements 7
Dividends 7
Capital Gains 7
Retirement Plans 7
Redeeming Shares 7
Telephone Redemption 8
Written Requests 8
Accounts with Low Balances 8
Shareholder Information 8
Voting Rights 8
Tax Information 9
Federal Income Tax 9
Pennsylvania Corporate and Personal
Property Taxes 9
Performance Information 9
Financial Statements 10
Report of Ernst & Young LLP, Independent Auditors 20
SUMMARY OF TRUST EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <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
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee(1) 0.71%
12b-1 Fee None
Total Other Expenses 0.28%
Shareholder Services Fee (after waiver)(2) 0.12%
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 shareholders 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 1.12% 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>
Example
- -----------------------------------------------------------------------------------------------------------------
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.
<S> <C>
1 Year $10
3 Years $32
5 Years $55
10 Years $121
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
</TABLE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 20.
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
------------------------------------------------------------------------------------------------------------ -----------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(a) 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $34.38 $30.66 $26.33 $26.40 $24.18 $23.99 $18.55 $25.19 $22.87 $22.10 $24.00
- ------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------
Net investment income 0.36 0.53 0.47 0.46 0.48 0.56 0.51 0.70 0.70 0.52 0.68
- ------------------------
Net realized and
unrealized gain (loss)
on investments 9.54 5.84 5.04 0.68 4.27 1.79 6.23 (4.42) 2.34 1.03 (1.50)
- ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 9.90 6.37 5.51 1.14 4.75 2.35 6.74 (3.72) 3.04 1.55 (0.82)
- ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ------------------------
Distributions from net
investment income (0.38) (0.51) (0.49) (0.43) (0.49) (0.55) (0.56) (0.78) (0.65) (0.52) (0.64)
- ------------------------
Distributions in
excess of net
investment income -- -- -- -- (0.02)(d) -- -- -- -- -- --
- ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions from
net investment income (0.38) (0.51) (0.49) (0.43) (0.51) (0.55) (0.56) (0.78) (0.65) (0.52) (0.64)
- ------------------------
Distributions from net
realized gain on
investments (4.00) (2.14) (0.69) (0.78) (2.02) (1.61) (0.74) (2.14) (0.07) (0.26) (0.44)
- ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (4.38) (2.65) (1.18) (1.21) (2.53) (2.16) (1.30) (2.92) (0.72) (0.78) (1.08)
- ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $39.90 $34.38 $30.66 $26.33 $26.40 $24.18 $23.99 $18.55 $25.19 $22.87 $22.10
- ------------------------ ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(B) 32.27% 22.08% 21.98% 4.55% 20.88% 10.78% 37.50% (16.36)% 13.48% 7.14% (3.64)%
- ------------------------
RATIOS TO AVERAGE
NET ASSETS
- ------------------------
Expenses 0.99% 0.99% 1.01% 0.97% 0.97% 0.99% 1.00% 0.98% 0.95% 0.94%* 0.89%
- ------------------------
Net investment income 0.99% 1.64% 1.71% 1.81% 1.83% 2.33% 2.25% 3.03% 2.75% 3.08* 2.82%
- ------------------------
Expense waiver/
reimbursement(c) 0.13% 0.15% 0.15% -- -- -- -- -- -- -- --
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
Net assets, end of
period (000 omitted) $1,174,018 $830,545 $632,069 $600,664 $554,062 $386,490 $369,505 $332,241 $573,047 $636,426 $675,110
- ------------------------
Average commission
rate paid(e) $0.0497 $0.0273 -- -- -- -- -- -- -- -- --
- ------------------------
Portfolio turnover 71% 55% 42% 28% 26% 54% 49% 53% 35% 31% 51%
- ------------------------
</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 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.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(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 Board of
Trustees (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.
AMERICAN DEPOSITARY RECEIPTS
The Trust may invest in American depositary receipts ("ADRs") of
foreign-domiciled companies. ADRs are trust receipts issued by U.S.
banks or trust companies representing ownership interests in the
equity securities of these companies. ADRs are U.S. dollar-denominated
and traded on U.S. securities exchanges or over-the-counter. The value
of ADRs could be affected by changes in foreign currency exchange
rates.
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 Trustees 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
As a matter of non-fundamental investment policy, the Trust may invest its
assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Trust in shares of other investment companies may be subject
to such duplicate expenses.
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:
[bullet] 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;
[bullet] invest more than 5% of its total assets in the securities of
one issuer (except cash and cash items and U.S. government
securities);
[bullet] invest more than 5% of total assets in securities of issuers that have
records of less than three years of continuous operations;
[bullet] 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.
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 A
AVERAGE DAILY PERCENTAGE OF AVERAGE
NET ASSETS DAILY NET ASSETS
---------------------- ----------------------------
First $500 million 0.750%
Second $500 million 0.675%
Third $500 million 0.600%
Fourth $500 million 0.525%
Over $2 billion 0.400%
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 1.00% 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.
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 $110 billion invested across over 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.
Scott B. Schermerhorn has been a portfolio manager of the Trust 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.
Michael P. Donnelly has been a portfolio manager of the Trust since
November 1997. Mr. Donnelly joined Federated in 1989 as an Investment
Analyst and has been a Vice President of the Trust's adviser since
1994. He served as an Assistant Vice President of the Trust's adviser
from 1992 to 1994. Mr. Donnelly is a Chartered Financial Analyst and
received his M.B.A. from the University of Virginia.
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 Trustees, and could
result in severe penalties.
DISTRIBUTION OF 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 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 shares,
computed at an annual rate, to obtain certain personal services for shareholders
and provide maintenance of shareholder accounts ("shareholder services"). 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 will
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.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Trust. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by subsidiaries of Federated Investors as
specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
- ------------ ------------------------------------
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% 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 Services Company 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 use 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
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, MA; 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,
MA 02266-8600. Orders by mail are considered received after payment by check is
converted by the transfer agent's bank, State Street Bank and Trust Company
("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, Martin Luther King 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.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Trust will not issue share certificates.
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.
Shareholders will be asked to provide in the request their name, the Trust name,
their 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:
[bullet] 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");
[bullet] a member firm of the New York, American, Boston, Midwest, or
Pacific Stock Exchanges;
[bullet] a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund, which is administered by the FDIC;
or
[bullet] 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, Donnelly and Meck, counsel to the Trust:
[bullet] the Trust is not subject to Pennsylvania corporate or
personal property taxes; and
[bullet] 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 SEC) 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.
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
FEDERATED STOCK TRUST
OCTOBER 31, 1997
SHARES VALUE
- ---------------- -------------------------------------------------------------------------- --------------
<S> <C> <C> <C>
EQUITIES -- 99.8%
- --------------------------------------------------------------------------------------------
BASIC INDUSTRY -- 4.1%
- --------------------------------------------------------------------------------------------
667,200 Archer-Daniels-Midland Co. $14,845,200
--------------------------------------------------------------------------
143,400 Dow Chemical Co. 13,013,550
--------------------------------------------------------------------------
840,600 LTV Corp. 10,244,813
--------------------------------------------------------------------------
488,500 Louisiana-Pacific Corp. 10,258,500
-------------------------------------------------------------------------- --------------
Total 48,362,063
-------------------------------------------------------------------------- --------------
CONSUMER DURABLES -- 2.5%
- --------------------------------------------------------------------------------------------
163,000 Eastman Kodak Co. 9,759,625
--------------------------------------------------------------------------
128,000 General Motors Corp. 8,216,000
--------------------------------------------------------------------------
459,500 Rubbermaid, Inc. 11,056,719
-------------------------------------------------------------------------- --------------
Total 29,032,344
-------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES -- 8.8%
- --------------------------------------------------------------------------------------------
106,000 CPC International, Inc. 10,494,000
--------------------------------------------------------------------------
631,000 PepsiCo, Inc. 23,228,688
--------------------------------------------------------------------------
204,400 Philip Morris Cos., Inc. 8,099,350
--------------------------------------------------------------------------
232,000 RJR Nabisco Holdings Corp. 7,351,500
--------------------------------------------------------------------------
586,000 Russell Corp. 17,213,750
--------------------------------------------------------------------------
297,500 Sara Lee Corp. 15,209,688
--------------------------------------------------------------------------
400,000 Unilever N.V., ADR 21,350,000
-------------------------------------------------------------------------- --------------
Total 102,946,976
-------------------------------------------------------------------------- --------------
ENERGY MINERALS -- 11.9%
- --------------------------------------------------------------------------------------------
136,900 Atlantic Richfield Co. 11,268,582
--------------------------------------------------------------------------
216,600 Chevron Corp. 17,964,263
--------------------------------------------------------------------------
272,000 Exxon Corp. 16,711,000
--------------------------------------------------------------------------
462,500 Occidental Petroleum Corp. 12,892,188
--------------------------------------------------------------------------
194,000 Royal Dutch Petroleum Co., ADR 10,209,250
--------------------------------------------------------------------------
535,000 Sun Co., Inc. 21,433,438
--------------------------------------------------------------------------
301,000 Texaco, Inc. 17,138,188
--------------------------------------------------------------------------
539,500 USX Corp. 19,287,125
--------------------------------------------------------------------------
410,500 YPF Sociedad Anonima, ADR 13,136,000
-------------------------------------------------------------------------- --------------
Total 140,040,034
-------------------------------------------------------------------------- --------------
FINANCE -- 11.9%
- --------------------------------------------------------------------------------------------
263,000 Allmerica Financial Corp. 12,328,125
--------------------------------------------------------------------------
149,900 Allstate Corp. 12,432,331
--------------------------------------------------------------------------
323,500 Bear Stearns Cos., Inc. 12,838,907
--------------------------------------------------------------------------
314,500 Block (H&R), Inc. 11,636,500
--------------------------------------------------------------------------
358,000 (a)Boston Properties, Inc. 11,456,000
--------------------------------------------------------------------------
133,500 CIGNA Corp. 20,725,875
--------------------------------------------------------------------------
57,000 General RE Corp. 11,239,688
--------------------------------------------------------------------------
315,100 Marsh & McLennan Cos., Inc. 22,372,100
--------------------------------------------------------------------------
251,000 Morgan Stanley, Dean Witter, Discover & Co. 12,299,000
--------------------------------------------------------------------------
177,500 Travelers Group, Inc. 12,425,000
-------------------------------------------------------------------------- --------------
Total 139,753,526
-------------------------------------------------------------------------- --------------
HEALTH CARE -- 9.9%
- --------------------------------------------------------------------------------------------
236,000 Abbott Laboratories 14,469,750
--------------------------------------------------------------------------
788,700 (a)Beverly Enterprises, Inc. 11,781,206
--------------------------------------------------------------------------
292,100 Bristol-Myers Squibb Co. 25,631,775
--------------------------------------------------------------------------
132,500 Merck & Co., Inc. 11,825,625
--------------------------------------------------------------------------
388,500 (a)Perrigo Co. 5,973,188
--------------------------------------------------------------------------
481,000 Pharmacia & Upjohn, Inc. 15,271,750
--------------------------------------------------------------------------
219,000 Smithkline Beecham Corp., ADR 10,429,875
--------------------------------------------------------------------------
387,500 U.S. Surgical Corp. 10,438,281
--------------------------------------------------------------------------
212,500 United Healthcare Corp. 9,841,406
-------------------------------------------------------------------------- --------------
Total 115,662,856
-------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING -- 7.9%
- --------------------------------------------------------------------------------------------
729,500 ITT Industries, Inc. 23,024,844
--------------------------------------------------------------------------
540,000 Ingersoll-Rand Co. 21,026,250
--------------------------------------------------------------------------
329,000 Johnson Controls, Inc. 14,763,875
--------------------------------------------------------------------------
448,500 (a)Lexmark Intl. Group, Class A 13,707,281
--------------------------------------------------------------------------
91,100 Loews Corp. 10,174,731
--------------------------------------------------------------------------
226,000 PACCAR, Inc. 10,184,125
-------------------------------------------------------------------------- --------------
Total 92,881,106
-------------------------------------------------------------------------- --------------
RETAIL TRADE -- 7.4%
- --------------------------------------------------------------------------------------------
391,300 Dayton-Hudson Corp. 24,578,531
--------------------------------------------------------------------------
2,027,500 (a)K Mart Corp. 26,737,656
--------------------------------------------------------------------------
400,000 (a)Meyer (Fred), Inc. 11,425,000
--------------------------------------------------------------------------
RETAIL TRADE -- continued
- --------------------------------------------------------------------------------------------
686,500 Wal-Mart Stores, Inc. 24,113,313
-------------------------------------------------------------------------- --------------
Total 86,854,500
-------------------------------------------------------------------------- --------------
SERVICES -- 9.1%
- --------------------------------------------------------------------------------------------
95,300 ABB AB, ADR 11,054,800
--------------------------------------------------------------------------
309,000 Browning-Ferris Industries, Inc. 10,042,500
--------------------------------------------------------------------------
89,500 News Corp., Ltd., ADR 1,706,094
--------------------------------------------------------------------------
1,221,500 News Corp., Ltd., ADR 21,681,625
--------------------------------------------------------------------------
570,500 Readers Digest Association, Inc., Class A 12,978,875
--------------------------------------------------------------------------
536,057 (a)TCI Ventures Group, Class A 12,362,815
--------------------------------------------------------------------------
63,100 (a)Tricon Global Restaurants, Inc. 1,912,719
--------------------------------------------------------------------------
318,500 (a)Viacom, Inc., Class A 9,515,188
--------------------------------------------------------------------------
202,500 (a)Viacom, Inc., Class B 6,125,625
--------------------------------------------------------------------------
809,000 Waste Management, Inc. 18,910,375
-------------------------------------------------------------------------- --------------
Total 106,290,616
-------------------------------------------------------------------------- --------------
TECHNOLOGY -- 11.4%
- --------------------------------------------------------------------------------------------
349,000 AMP, Inc. 15,705,000
--------------------------------------------------------------------------
301,500 (a)Cabletron Systems, Inc. 8,743,500
--------------------------------------------------------------------------
191,000 General Motors Corp., Class H 12,080,750
--------------------------------------------------------------------------
129,000 International Business Machines Corp. 12,650,063
--------------------------------------------------------------------------
138,056 Lucent Technologies, Inc. 11,380,992
--------------------------------------------------------------------------
97,500 Matsushita Electric Industrial Co., ADR 16,489,688
--------------------------------------------------------------------------
1,401,300 (a)Novell, Inc. 11,823,469
--------------------------------------------------------------------------
148,600 Raytheon Co. 8,061,550
--------------------------------------------------------------------------
469,000 (a)Seagate Technology, Inc. 12,721,625
--------------------------------------------------------------------------
422,000 (a)Storage Technology Corp. 24,766,125
-------------------------------------------------------------------------- --------------
Total 134,422,762
-------------------------------------------------------------------------- --------------
TRANSPORTATION -- 3.2%
- --------------------------------------------------------------------------------------------
341,000 CNF Transportation, Inc. 15,217,125
--------------------------------------------------------------------------
326,481 KLM Royal Dutch Airlines, ADR 11,141,164
--------------------------------------------------------------------------
325,000 Ryder Systems, Inc. 11,375,000
--------------------------------------------------------------------------
Total 37,733,289
--------------------------------------------------------------------------
UTILITIES -- 11.7%
- --------------------------------------------------------------------------------------------
257,500 CMS Energy Corp. 9,398,750
--------------------------------------------------------------------------
163,000 (a)CalEnergy Co., Inc. 5,582,750
--------------------------------------------------------------------------
FEDERATED STOCK TRUST
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------------- -------------------------------------------------------------------------- --------------
EQUITIES -- CONTINUED
- --------------------------------------------------------------------------------------------
UTILITIES -- CONTINUED
- --------------------------------------------------------------------------------------------
182,000 Coastal Corp. 10,942,750
--------------------------------------------------------------------------
171,000 Columbia Gas System, Inc. 12,354,750
--------------------------------------------------------------------------
182,000 GTE Corp. 7,723,625
--------------------------------------------------------------------------
519,500 Houston Industries, Inc. 11,299,125
--------------------------------------------------------------------------
625,200 MCI Communications Corp. 22,194,600
--------------------------------------------------------------------------
584,000 P G & E Corp. 14,928,500
--------------------------------------------------------------------------
352,500 Public Service Enterprises Group, Inc. 9,142,969
--------------------------------------------------------------------------
937,443 (a)Tele-Communications, Inc., Class A 21,502,599
--------------------------------------------------------------------------
311,000 U.S. West, Inc. 12,381,688
-------------------------------------------------------------------------- --------------
Total 137,452,106
-------------------------------------------------------------------------- --------------
TOTAL EQUITIES (IDENTIFIED COST $898,232,106) 1,171,432,178
-------------------------------------------------------------------------- --------------
(B)REPURCHASE AGREEMENT -- 1.9%
- --------------------------------------------------------------------------------------------
$21,835,000 BT Securities Corp., 5.71%, dated 10/31/1997, due 11/3/1997
(at amortized cost) 21,835,000
-------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $920,067,106)(C) $1,193,267,178
-------------------------------------------------------------------------- ==============
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $920,073,133.
The net unrealized appreciation of investments on a federal tax basis
amounts to $273,194,045 which is comprised of $295,673,211 appreciation and
$22,479,166 depreciation at October 31, 1997.
Note: The categories of investments are shown as a percentage of net assets ($1,174,017,860) at October 31, 1997.
The following acronym is used throughout this portfolio:
ADR -- American Depository Receipt
(See Notes which are an integral part of the Financial Statements)
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED STOCK TRUST
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost,
$920,067,106 and $920,073,133, respectively) $1,193,267,178
- ---------------------------------------------------------------------------------------------------------
Income receivable 1,190,568
- ---------------------------------------------------------------------------------------------------------
Receivable for investments sold 191,311
- ---------------------------------------------------------------------------------------------------------
Receivable for shares sold 2,191,627
- --------------------------------------------------------------------------------------------------------- --------------
Total assets 1,196,840,684
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------
Payable for investments purchased $20,544,954
- ------------------------------------------------------------------------------------
Payable for shares redeemed 1,120,939
- ------------------------------------------------------------------------------------
Payable to Bank 923,668
- ------------------------------------------------------------------------------------
Accrued expenses 233,263
- ------------------------------------------------------------------------------------ ------------
Total liabilities 22,822,824
- --------------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 29,424,397 shares outstanding $1,174,017,860
- --------------------------------------------------------------------------------------------------------- ==============
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------------
Paid in capital $684,265,553
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 273,200,072
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 216,052,735
- ---------------------------------------------------------------------------------------------------------
Undistributed net investment income 499,500
- ---------------------------------------------------------------------------------------------------------
Total Net Assets $1,174,017,860
- --------------------------------------------------------------------------------------------------------- ==============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------------
$1,174,017,860 (divided by) 29,424,397 shares outstanding $39.90
- --------------------------------------------------------------------------------------------------------- ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED STOCK TRUST
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------------
Dividends $18,520,489
- ---------------------------------------------------------------------------------------------------------
Interest 1,549,011
- --------------------------------------------------------------------------------------------------------- --------------
Total income 20,069,500
- ---------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $7,175,722
- ------------------------------------------------------------------------------------
Administrative personnel and services fee 766,339
- ------------------------------------------------------------------------------------
Custodian fees 70,073
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 447,380
- ------------------------------------------------------------------------------------
Directors'/Trustees' fees 13,237
- ------------------------------------------------------------------------------------
Auditing fees 15,294
- ------------------------------------------------------------------------------------
Legal fees 6,492
- ------------------------------------------------------------------------------------
Portfolio accounting fees 122,381
- ------------------------------------------------------------------------------------
Shareholder services fee 2,537,416
- ------------------------------------------------------------------------------------
Share registration costs 34,394
- ------------------------------------------------------------------------------------
Printing and postage 39,565
- ------------------------------------------------------------------------------------
Insurance premiums 8,835
- ------------------------------------------------------------------------------------
Taxes 71,191
- ------------------------------------------------------------------------------------
Miscellaneous 18,858
- ------------------------------------------------------------------------------------ ----------------
Total expenses 11,327,177
- ------------------------------------------------------------------------------------
Waivers --
- ------------------------------------------------------------------------------------
Waiver of shareholder services fee (1,302,933)
- ------------------------------------------------------------------------------------ ----------------
Net expenses 10,024,244
- --------------------------------------------------------------------------------------------------------- --------------
Net investment income 10,045,256
- --------------------------------------------------------------------------------------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------------
Net realized gain on investments 216,054,303
- ---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 60,971,289
- --------------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain on investments 277,025,592
- --------------------------------------------------------------------------------------------------------- --------------
Change in net assets resulting from operations $287,070,848
- --------------------------------------------------------------------------------------------------------- ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED STOCK TRUST
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------
1997 1996
--------------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------
OPERATIONS --
- ---------------------------------------------------------------------
Net investment income $10,045,256 $,161,272
- ---------------------------------------------------------------------
Net realized gain on investments ($216,060,330 and $97,657,841,
respectively, as computed for federal tax purposes) 216,054,303 97,657,841
- ---------------------------------------------------------------------
Net change in unrealized appreciation 60,971,289 34,131,642
- --------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 287,070,848 143,950,755
- --------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS --
- ---------------------------------------------------------------------
Distributions from net investment income (10,361,425) (11,559,487)
- ---------------------------------------------------------------------
Distributions from net realized gains (97,657,959) (45,017,605)
- --------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (108,019,384) (56,577,092)
- --------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS --
- ---------------------------------------------------------------------
Proceeds from sale of shares 460,006,623 286,718,473
- ---------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 64,586,473 32,453,084
- ---------------------------------------------------------------------
Cost of shares redeemed (360,171,984) (208,069,160)
- --------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 164,421,112 111,102,397
- --------------------------------------------------------------------- -------------- --------------
Change in net assets 343,472,576 198,476,060
- ---------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------
Beginning of period 830,545,284 632,069,224
- --------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of
$499,500 and $815,669, respectively) $1,174,017,860 $830,545,284
- --------------------------------------------------------------------- ============== ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
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.
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"). Dividend income and 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.
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.
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.
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,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Shares sold 12,996,702 8,931,554
- ---------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 2,042,263 1,080,218
- ---------------------------------------------------------------------
Shares redeemed (9,770,103) (6,474,281)
- --------------------------------------------------------------------- ---------- ----------
Net change resulting from share transactions 5,268,862 3,537,491
- --------------------------------------------------------------------- ========== ==========
</TABLE>
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. FSS may
voluntarily choose to waive any portion of its fee. FSS 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1997, were as follows:
Purchases $807,511,853
- -------------------------------------------- ============
Sales $700,220,395
- -------------------------------------------- ============
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 12, 1997
[LOGO OMITTED] FEDERATED INVESTORS
FEDERATED STOCK TRUST
PROSPECTUS
DECEMBER 31, 1997
A No-Load, Open-End, Diversified
Management Investment Company
FEDERATED STOCK TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 313900102
8120102A (12/97)
[RECYCLE LOGO]
RECYCLED PAPER
FEDERATED STOCK TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Federated Stock Trust (the "Trust") dated December 31, 1997. This Statement is
not a prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-235-4669.
FEDERATED STOCK TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000
Statement dated December 31, 1997
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313900102
8120102B (12/97)
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
Investing in Securities of Other Investment Companies 1
Portfolio Turnover 1
Investment Limitations 2
FEDERATED STOCK TRUST MANAGEMENT 4
Trust Ownership 7
Trustees Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Adviser to the Trust 8
Advisory Fees 9
OTHER SERVICES 9
Trust Administration 9
Custodian and Portfolio Accountant 9
Transfer Agent 9
Independent Auditor 9
SHAREHOLDER SERVICES AGREEMENT 9
BROKERAGE TRANSACTIONS 9
PURCHASING SHARES 10
Conversion to Federal Funds 10
Determining Net Asset Value 10
Determining Market Value of Securities 10
REDEEMING SHARES 10
Redemption in Kind 10
Massachusetts Partnership Law 11
EXCHANGING SECURITIES FOR TRUST SHARES 11
Tax Consequences 11
TAX STATUS 11
The Trust's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 12
YIELD 12
PERFORMANCE COMPARISONS 12
ABOUT FEDERATED INVESTORS 13
GENERAL INFORMATION ABOUT THE TRUST
Federated Stock 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
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, 1997,
and 1996, the portfolio turnover rates were 71% and 55%, respectively.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders, unless indicated otherwise.
BUYING ON MARGIN
The Trust will purchase any securities on margin, except for such credits as
are necessary for the clearance of transactions.
SELLING SHORT
The Trust will not make short sales of securities.
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then (a) only in amounts not in
excess of 5% of the value of its total assets or (b) 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 to be 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 permitted by subparagraph (3) above, 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.
INVESTING IN COMMODITIES OR MINERALS
The Trust will not purchase or sell commodities, commodity contracts, oil,
gas, or other mineral exploration or development programs.
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.
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.
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.
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.
DIVERSIFICATION OF INVESTMENTS
The Trust will not purchase the securities of any issuer (except cash, cash
instruments and securities issued or guaranteed by the United States
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.
DEALING IN PUTS AND CALLS
The Trust will not write, purchase or sell puts, call, straddles or spreads
or any combinations thereof.
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.
CONCENTRATION OF INVESTMENTS IN ONE INDUSTRY
The Trust will not invest more than 25% of the value of its total assets in
one industry.
ACQUIRING SECURITIES
The Trust may not acquire more than 10% of the voting securities of any one
issuer.
INVESTING IN NEW ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE
TRUST
The Trust may 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.
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.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities except as permitted by its
investment objective, policies and limitations.
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 any of the percentage limitations set
forth are 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, birthrates, 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. Mr. Donahue is the father of J. Christopher Donahue, Executive
Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
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.; Director, Member of
Executive Committee, 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.; Director or
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.
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; 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 and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of
the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
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; Arrow Funds; Automated Government
Money Trust; 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; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. -- 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust's outstanding
shares.
As of December 1, 1997, the following shareholder of record owned 5% or more of
the outstanding shares of the Trust: Charles Schwab & Co., Inc., San Francisco,
CA, as record owner holding Trust shares for its clients, owned approximately
2,362,607 shares (7.95%).
TRUSTEES COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $-0- $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund
Thomas G. Bigley $1,702 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
John T. Conroy, Jr. $1,873 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
William J. Copeland $1,873 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
Glen R. Johnson $-0- $0 for the Trust and
President and Trustee 8 other investment companies in the Fund
James E. Dowd $1,873 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
Lawrence D. Ellis, M.D. $1,702 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Edward L. Flaherty, Jr. $1,873 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
Peter E. Madden $1,702 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
John E. Murray, Jr., $1,702 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Wesley W. Posvar $1,702 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Marjorie P. Smuts $1,702 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
</TABLE>
* Information is furnished for the fiscal year ended October 31, 1997.
# The aggregate compensation is provided for the Trust.
+ The information is provided for the last calendar year.
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, 1997, 1996, and 1995, the Adviser earned $7,175,722, $5,368,592, and
$4,305,810, respectively, of which $0, $0 and $128,351, respectively, were
waived.
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. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
1997, 1996, and 1995, the Administrators earned $766,339, $559,347, and
$440,833, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company ("State Street Bank"), 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, PA.
SHAREHOLDER SERVICES AGREEMENT
This arrangement permits the payment of fees to Federated Shareholder Services
and to financial institutions to cause services to be provided 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, 1997, payments in the amount of
$2,537,416 were made pursuant to the Shareholder Services Agreement, of which
$1,302,933 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, 1997, 1996, and 1995, the Trust
paid total brokerage commissions of $1,735,722, $1,132,666, and $549,947,
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 1.00% 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 Trust 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 Trust, 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 Trust.
In the unlikely event a shareholder of the Trust 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;
* 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, 1997, were 32.27%, 20.01%, and 14.93%,
respectively.
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, 1997, was 1.00%.
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 12-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 Trust 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 offering price 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 data base 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 g volume.
In the equity sector, Federated Investors has more than 26 years' experience. As
of December 31, 1996, Federated Investors managed 31 equity funds totaling
approximately $7.6 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 Investor's equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investor's domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investor's international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
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.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries Federated mutual funds are
available to consumers through major brokerage firms nationwide-we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country-supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Federated Securities Corp.
* Source: Investment Company Institute
A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Federated
Stock Trust is represented by a solid line. The Standard & Poor's 500 Index (the
"S&P 500") is represented by a dotted line and the Lipper Growth and Income
Funds Average (the "LGIFA") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a $25,000
hypothetical investment in Federated Stock Trust, the S&P 500 and the LGIFA. The
"x" axis reflects computation periods from 10/31/87 to 10/31/97. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in Federated Stock Trust as compared to the S&P
500 and the LGIFA. The ending values were $100,490, $121,608, and $101,436,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the total returns of Federated Stock Trust for the one-year, five-year
and 10-year periods ended 10/31/97 and from the start of performance (3/31/82)
to 10/31/97. The total returns were 32.27%, 20.01%, 14.93% and 17.33%,
respectively.
