FEDERATED STOCK TRUST
A large capitalization value mutual fund investing primarily in common stocks of
high quality companies.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 5
What do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 11
Report of Independent Auditors 23
</TABLE>
DECEMBER 31, 1998
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide growth of income and capital.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in equity
securities of companies that are generally leaders in their industries,
characterized by sound management and have the ability to finance expected
growth.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's Share price may
decline and you could lose money. Other risks of investing in the Fund include
Sector Risk and Risk of Foreign Investing.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federated Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
Risk/Return Bar Chart and Table
o Federated Stock Trust
[GRAPH REPRESENTATION OMITTED. SEE APPENDIX.]
Average Annual Total Return
Average Annual Returns for the Fund compared to the Standard & Poor's 500 Index
(S&P 500) and Lipper Growth and Income Funds Average (LGIFA).
<TABLE>
<CAPTION>
S&P 500
Fund Index LGIFA
<S> <C> <C> <C>
1 Year 34.42% 33.36% 9.88%
5 Years 19.86% 20.27% 16.38%
10 Years 15.78% 18.02% 14.59%
</TABLE>
The table shows the Fund's average annual total returns relative to the S&P 500,
a broad-based market index and the LGIFA, an average of funds with similar
investment objectives.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
FEDERATED STOCK TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)....................................... None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or
redemption proceeds, as applicable)........................................................................................ None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering price)........................................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)......................................................... None
Exchange Fee............................................................................................................... None
Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee/2/.......................................................................................................... 0.68%
Distribution (12b-1) Fee................................................................................................... None
Shareholder Services Fee/3/................................................................................................ 0.25%
Other Expenses............................................................................................................. 0.14%
Total Annual Fund Operating Expenses....................................................................................... 1.07%
</TABLE>
1 Although not contractually obligated to do so, the shareholder services
provider waived a portion of their fees. These are described below with the
net expenses the Fund actually paid for the fiscal year ended October 31,
1998.
<TABLE>
<S> <C>
Waiver of Fund expenses 0.11%
Total Actual Annual Fund Operating Expenses (after waivers) 0.96%
</TABLE>
2 The maximum management services 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.
3 The shareholder services fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid
by the Fund (after the voluntary reduction) was 0.14% for the year ended
October 31, 1998.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$109 $340 $590 $1,306
</TABLE>
What are the Fund's Investment Strategies?
The Fund pursues its investment objective by investing primarily in equity
securities of companies that are generally leaders in their industries,
characterized by sound management and have the ability to finance expected
growth. The Adviser attempts to identify good long-term values through
disciplined investing and careful fundamental research. The Fund's holdings
ordinarily will be in large capitalization companies that are in the top 25% of
their industries with regard to revenues.
The Adviser ranks the future performance potential of companies, based on
valuation models which attempt to identify companies trading at low valuation
relative to their history, to the market and to their expected future growth. To
determine the timing of purchases and sales of portfolio securities, the Adviser
looks at recent stock price performance and the direction of current fiscal year
earning estimates. In addition, the Adviser performs traditional fundamental
analysis to select the most promising companies for the Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the S&P 500 Index. The Fund's allocation to a sector will not be less than 50%
or more than 200% of the Index's allocation to that sector.
Portfolio Turnover
The Fund may actively trade its portfolio securities in an attempt to achieve
its investment objective. Active trading will cause the Fund to have an
increased portfolio turnover rate, which is likely to generate shorter-term
gains (losses) for its shareholders, which are taxed at a higher rate than
longer-term gains (losses). Actively trading portfolio securities increases the
Fund's trading costs and may have an adverse impact on the Fund's performance.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
What are the Principal Securities in Which the Fund Invests?
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
AMERICAN DEPOSITARY RECEIPTS
American Depositary Receipts represent interests in underlying securities issued
by a foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are traded
in the U.S. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. Depositary Receipts
involve the Risk of Foreign Investing.
What are the Specific Risks of Investing in the Fund?
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's Share price may
decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
SECTOR RISK
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may perform differently than other sectors or as the market as a whole. As the
adviser allocates more of the Fund's portfolio holdings to a particular sector,
the Fund's performance will be more susceptible to any economic, business or
other developments which generally affect that sector.
RISKS RELATED TO INVESTING FOR VALUE
Due to their relatively low valuations, Value stocks are typically less volatile
than Growth stocks. For instance, the price of a Value stock may experience a
smaller increase on an analyst's upward earnings estimate revision, a positive
fundamental development, or other positive market development. Further, Value
stocks tend to have higher dividend yields than Growth stocks. This means they
depend less on price changes for returns. Accordingly, they might not
participate in upward market movements, but may be less adversely affected in a
down market compared to lower yielding stocks.
RISK OF FOREIGN INVESTING
Exchange rates for currency fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable that those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
What do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). Fund Shares are sold
without a sales charge.
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is
no required minimum subsequent investment amount.
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 is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to institutions or individuals, directly or through
investment professionals. The Distributor and its affiliates may pay out of
their assets amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within one
business day. You will become the owner of Shares and receive dividends when
the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV on the day the Fund receives your wire or your check. If your
check does not clear, your purchase will be canceled and you could be liable for
any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
By Wire
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds).
BY AUTOMATED CLEARINGHOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV on the day the
Fund receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you
will receive a redemption amount based on the next calculated NAV.
By Mail
You may redeem Shares by mailing a written request to the Fund. You will receive
a redemption amount based on the NAV on the day the Fund receives your written
request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed, and;
. signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last thirty days; or
. a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union, or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
THE FUND'S PORTFOLIO MANAGER IS AS FOLLOWS:
Michael P. Donnelly
Michael P. Donnelly has been the Fund's portfolio manager since November 1997.
Mr. Donnelly has been a Portfolio Manager of various Federated Funds for the
past five years. Mr. Donnelly joined Federated in 1989 as an Investment Analyst
and has been a Vice President of the Fund's Adviser since 1994. He served as an
Assistant Vice President of the Fund's Adviser from 1992 to 1994. Mr. Donnelly
is a Chartered Financial Analyst and received his M.B.A. from the University of
Virginia.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee based on the Fund's
average daily net assets as shown on the chart below. The Adviser may
voluntarily waive a portion of its fee or reimburse the Fund for certain
operating expenses.
<TABLE>
<CAPTION>
Advisory Fee as a
Average Daily Percentage of Average
Net Assets Daily Net Assets
- -------------------------------------------------------------------------
<S> <C>
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%
- -------------------------------------------------------------------------
</TABLE>
Under the investment advisory contract, the Adviser will reimburse the Fund the
amount, limited to the amount of the advisory fee, by which the Fund's aggregate
annual operating expenses, including its investment advisory fee but excluding
interest, taxes, brokerage commissions, expenses of registering and qualifying
the Fund 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 Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities, will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Reference is made to the Independent Auditor's Report on page 23.
<TABLE>
<CAPTION>
Year Ended October 31 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 39.90 $ 34.38 $ 30.66 $ 26.33 $ 26.40
- ---------------------------------------
Income From Investment Operations:
- ---------------------------------------
Net investment income 0.37 0.36 0.53 0.47 0.46
- ---------------------------------------
Net realized and unrealized gain on
investments 5.38 9.54 5.84 5.04 0.68
- ------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.75 9.90 6.37 5.51 1.14
- ------------------------------------------------------------------------------------------------------------------
Less Distributions:
- ---------------------------------------
Distributions from net investment
income (0.36) (0.38) (0.51) (0.49) (0.43)
- ------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments (7.22) (4.00) (2.14) (0.69) (0.78)
- ------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (7.58) (4.38) (2.65) (1.18) (1.21)
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 38.07 $ 39.90 $ 34.38 $ 30.66 $ 26.33
- ------------------------------------------------------------------------------------------------------------------
Total Return/1/ 16.40% 32.27% 22.08% 21.98% 4.55%
- ------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------
Expenses 0.96% 0.99% 0.99% 1.01% 0.97%
- ------------------------------------------------------------------------------------------------------------------
Net investment income 0.98% 0.99% 1.64% 1.71% 1.81%
- ------------------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement/2/ 0.11% 0.13% 0.15% 0.15% --
- ------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000 omitted) $1,448,819 $1,174,018 $830,545 $632,069 $600,664
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover 41% 71% 55% 42% 28%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--98.5%
Basic Industry--4.2%
940,800 Archer-Daniels-Midland Co. $ 15,699,600
---------------------------------------------------------------------
520,400 Crown Cork & Seal Co., Inc. 16,587,750
---------------------------------------------------------------------
154,000 Dow Chemical Co. 14,418,250
---------------------------------------------------------------------
2,287,500 LTV Corp. 14,010,938
----------------------------------------------------------------------------------------
TOTAL 60,716,538
----------------------------------------------------------------------------------------
Consumer Durables--5.3%
775,000 Cooper Tire & Rubber Co. 12,884,375
---------------------------------------------------------------------
228,800 Eastman Kodak Co. 17,732,000
---------------------------------------------------------------------
252,500 General Motors Corp. 15,923,281
---------------------------------------------------------------------
424,000 Hasbro, Inc. 14,866,500
---------------------------------------------------------------------
459,500 Rubbermaid, Inc. 15,249,656
----------------------------------------------------------------------------------------
TOTAL 76,655,812
----------------------------------------------------------------------------------------
Consumer Non-durables--7.3%
293,000 Kimberly-Clark Corp. 14,137,250
---------------------------------------------------------------------
400,200 Philip Morris Cos., Inc. 20,460,225
---------------------------------------------------------------------
430,900 RJR Nabisco Holdings Corp. 12,307,581
---------------------------------------------------------------------
244,200 Sara Lee Corp. 14,575,688
---------------------------------------------------------------------
729,500 UST, Inc. 24,803,000
---------------------------------------------------------------------
253,000 Unilever N.V., ADR 19,038,250
----------------------------------------------------------------------------------------
TOTAL 105,321,994
----------------------------------------------------------------------------------------
Energy Minerals--8.4%
136,900 Atlantic Richfield Co. 9,428,987
---------------------------------------------------------------------
176,500 Chevron Corp. 14,384,750
---------------------------------------------------------------------
238,800 Exxon Corp. 17,014,500
---------------------------------------------------------------------
150,400 /1/Noble Drilling Corp. 2,585,000
---------------------------------------------------------------------
423,000 Occidental Petroleum Corp. 8,407,125
---------------------------------------------------------------------
196,500 Royal Dutch Petroleum Co., ADR 9,677,625
---------------------------------------------------------------------
531,900 Sun Co., Inc. 18,250,819
---------------------------------------------------------------------
220,500 Texaco, Inc. 13,078,406
---------------------------------------------------------------------
539,500 USX Marathon Group, Inc. 17,634,906
---------------------------------------------------------------------
410,500 YPF Sociedad Anonima, ADR 11,878,844
----------------------------------------------------------------------------------------
TOTAL 122,340,962
----------------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS--continued
Finance--13.6%
254,000 Allmerica Financial Corp. $ 12,700,000
---------------------------------------------------------------------
364,000 Allstate Corp. 15,674,750
---------------------------------------------------------------------
284,500 Bear Stearns Cos., Inc. 10,153,094
---------------------------------------------------------------------
316,000 Block (H&R), Inc. 14,160,750
---------------------------------------------------------------------
444,700 Boston Properties, Inc. 12,673,950
---------------------------------------------------------------------
401,100 CIGNA Corp. 29,255,231
---------------------------------------------------------------------
509,000 Conseco, Inc. 17,655,937
---------------------------------------------------------------------
64,000 General RE Corp. 14,060,000
---------------------------------------------------------------------
280,800 Hartford Financial Services Group, Inc. 14,917,500
---------------------------------------------------------------------
198,800 MBIA Insurance Corporation 12,151,650
---------------------------------------------------------------------
252,750 Marsh & McLennan Cos., Inc. 14,027,625
---------------------------------------------------------------------
225,000 Morgan Stanley, Dean Witter & Co. 14,568,750
---------------------------------------------------------------------
399,600 Washington Mutual, Inc. 14,960,025
----------------------------------------------------------------------------------------
TOTAL 196,959,262
----------------------------------------------------------------------------------------
Health Care--10.4%
472,000 Abbott Laboratories 22,154,500
---------------------------------------------------------------------
259,400 Baxter International, Inc. 15,547,787
---------------------------------------------------------------------
1,236,200 /1/Beverly Enterprises, Inc. 8,344,350
---------------------------------------------------------------------
254,500 Bristol-Myers Squibb Co. 28,138,156
---------------------------------------------------------------------
134,100 Merck & Co., Inc. 18,137,025
---------------------------------------------------------------------
525,000 Pharmacia & Upjohn, Inc. 27,792,188
---------------------------------------------------------------------
239,500 Smithkline Beecham Corp., ADR 15,268,125
---------------------------------------------------------------------
363,500 United Healthcare Corp. 15,834,969
----------------------------------------------------------------------------------------
TOTAL 151,217,100
----------------------------------------------------------------------------------------
Producer Manufacturing--11.4%
347,500 Deere & Co. 12,292,812
---------------------------------------------------------------------
471,500 Ingersoll-Rand Co. 23,810,750
---------------------------------------------------------------------
336,000 Johnson Controls, Inc. 18,900,000
---------------------------------------------------------------------
402,300 /1/Lexmark Intl. Group, Class A 28,135,856
---------------------------------------------------------------------
265,000 Loews Corp. 24,893,438
---------------------------------------------------------------------
494,000 Parker-Hannifin Corp. 17,660,500
---------------------------------------------------------------------
257,500 Philips Electronics N.V., ADR 14,130,313
---------------------------------------------------------------------
402,900 Tenneco, Inc. 12,238,088
---------------------------------------------------------------------
219,965 Tyco International Ltd. 13,624,082
----------------------------------------------------------------------------------------
TOTAL 165,685,839
----------------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS--continued
Retail Trade--3.8%
404,600 Dillards, Inc., Class A $ 12,567,887
---------------------------------------------------------------------
921,300 /1/K Mart Corp. 13,013,362
---------------------------------------------------------------------
415,500 Wal-Mart Stores, Inc. 28,669,500
----------------------------------------------------------------------------------------
TOTAL 54,250,749
----------------------------------------------------------------------------------------
Services--7.3%
151,300 ABB AB, ADR 15,886,500
---------------------------------------------------------------------
561,200 /1/King World Productions, Inc. 14,731,500
---------------------------------------------------------------------
982,000 News Corp. Ltd., ADR 23,752,125
---------------------------------------------------------------------
507,500 /1/Tricon Global Restaurants, Inc. 22,076,250
---------------------------------------------------------------------
246,500 /1/Viacom, Inc., Class A 14,635,938
---------------------------------------------------------------------
321,900 Waste Management, Inc. 14,525,738
----------------------------------------------------------------------------------------
TOTAL 105,608,051
----------------------------------------------------------------------------------------
Technology--13.0%
344,975 AMP, Inc. 14,165,536
---------------------------------------------------------------------
465,000 Electronic Data Systems Corp. 18,919,687
---------------------------------------------------------------------
850,000 First Data Corp. 22,525,000
---------------------------------------------------------------------
143,700 International Business Machines Corp. 21,330,469
---------------------------------------------------------------------
194,700 Northrop Corp. 15,527,325
---------------------------------------------------------------------
1,062,500 /1/Novell, Inc. 15,804,688
---------------------------------------------------------------------
251,500 Raytheon Co., Class A 14,084,000
---------------------------------------------------------------------
469,000 /1/Seagate Technology, Inc. 12,369,875
---------------------------------------------------------------------
593,000 /1/Storage Technology Corp. 19,828,438
---------------------------------------------------------------------
572,900 /1/Sun Microsystems, Inc. 33,371,425
----------------------------------------------------------------------------------------
TOTAL 187,926,443
----------------------------------------------------------------------------------------
Transportation--2.4%
395,100 CNF Transportation, Inc. 11,951,775
---------------------------------------------------------------------
377,000 KLM Royal Dutch Airlines, ADR 11,380,687
---------------------------------------------------------------------
477,000 Ryder Systems, Inc. 11,746,125
----------------------------------------------------------------------------------------
TOTAL 35,078,587
----------------------------------------------------------------------------------------
Utilities--11.4%
260,900 AT&T Corp. 16,241,025
---------------------------------------------------------------------
326,800 Bell Atlantic Corp. 17,361,250
---------------------------------------------------------------------
364,000 Coastal Corp. 12,831,000
---------------------------------------------------------------------
688,000 Entergy Corp. 19,780,000
---------------------------------------------------------------------
251,000 FPL Group, Inc. 15,703,187
---------------------------------------------------------------------
258,000 GTE. Corp. 15,141,375
---------------------------------------------------------------------
Shares or
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS--continued
Utilities--continued
519,500 Houston Industries, Inc. $ 16,136,969
---------------------------------------------------------------------
584,000 P G & E Corp. 17,775,500
---------------------------------------------------------------------
426,000 Public Service Enterprises Group, Inc. 16,188,000
---------------------------------------------------------------------
311,000 U.S. West, Inc. 17,843,625
----------------------------------------------------------------------------------------
TOTAL 165,001,931
----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST $1,119,177,313) 1,426,763,268
----------------------------------------------------------------------------------------
/2/REPURCHASE AGREEMENTS--1.9%
$27,700,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 10.30/1988, due
11/2/1998 (at amortized cost) 27,700,000
----------------------------------------------------------------------------------------
/3/TOTAL investments (identified cost $1,146,877,313) $1,454,463,268
----------------------------------------------------------------------------------------
</TABLE>
1 Non-income producing security.
2 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.
3 The cost of investments for federal tax purposes amounts to $1,146,877,313.
The net unrealized appreciation/depreciation of investments on a federal tax
basis amounts to $307,585,955 which is comprised of $369,614,515 appreciation
and $62,028,560 depreciation at October 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($1,448,819,399) at October 31, 1998.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
Assets:
- ---------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $1,146,877,313) $1,454,463,268
- ---------------------------------------------------------------------------------------
Income receivable 1,200,723
- ---------------------------------------------------------------------------------------
Receivable for shares sold 6,389,624
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,462,053,615
- ---------------------------------------------------------------------------------------------------------------------
Liabilities:
- ---------------------------------------------------------------------------------------
Payable for investments purchased $8,782,329
- ---------------------------------------------------------------------------------------
Payable for shares redeemed 1,111,238
- ---------------------------------------------------------------------------------------
Payable to Bank 2,998,220
- ---------------------------------------------------------------------------------------
Payable for taxes withheld 16,164
- ---------------------------------------------------------------------------------------
Accrued expenses 326,265
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 13,234,216
- ---------------------------------------------------------------------------------------------------------------------
Net Assets for 38,059,584 shares outstanding $1,448,819,399
- ---------------------------------------------------------------------------------------------------------------------
Net Assets Consists of:
- ---------------------------------------------------------------------------------------
Paid in capital $ 991,734,538
- ---------------------------------------------------------------------------------------
Net unrealized appreciation of investments 307,585,955
- ---------------------------------------------------------------------------------------
Accumulated net realized gain on investments 148,401,653
- ---------------------------------------------------------------------------------------
Undistributed net investment income 1,097,253
- ---------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $1,448,819,399
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
- ---------------------------------------------------------------------------------------
$1,448,819,399 (divide) 38,059,584 shares outstanding $38.07
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
- ----------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $206,795) $ 24,937,974
- ----------------------------------------------------------------------------------------
Interest 1,692,333
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 26,630,307
- ----------------------------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 9,348,739
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee 1,033,896
- ----------------------------------------------------------------------------------------
Custodian fees 85,224
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 335,595
- ----------------------------------------------------------------------------------------
Trustees' fees 19,172
- ----------------------------------------------------------------------------------------
Auditing fees 15,000
- ----------------------------------------------------------------------------------------
Legal fees 6,182
- ----------------------------------------------------------------------------------------
Portfolio accounting fees 174,029
- ----------------------------------------------------------------------------------------
Shareholder services fee 3,427,708
- ----------------------------------------------------------------------------------------
Share registration costs 96,295
- ----------------------------------------------------------------------------------------
Printing and postage 33,908
- ----------------------------------------------------------------------------------------
Insurance premiums 8,835
- ----------------------------------------------------------------------------------------
Taxes 75
- ----------------------------------------------------------------------------------------
Miscellaneous 20,216
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 14,604,874
- ----------------------------------------------------------------------------------------------------------------------
Waivers:
- ----------------------------------------------------------------------------------------
Waiver of shareholder services fee (1,458,795)
- ----------------------------------------------------------------------------------------------------------------------
Net expenses 13,146,079
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 13,484,228
- ----------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
- ----------------------------------------------------------------------------------------
Net realized gain on investments 148,484,465
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 34,385,883
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 182,870,348
- ----------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $196,354,576
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
- ----------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------
Net investment income $ 13,484,228 $ 10,045,256
- ----------------------------------------------------------------------------------
Net realized gain on investments ($148,479,604 and $216,060,330, respectively,
as computed for federal tax purposes) 148,484,465 216,054,303
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation 34,385,883 60,971,289
- --------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 196,354,576 287,070,848
- --------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
- ----------------------------------------------------------------------------------
Distributions from net investment income (12,886,475) (10,361,425)
- ----------------------------------------------------------------------------------
Distributions from net realized gains (216,135,366) (97,657,959)
- ----------------------------------------------------------------------------------
Change in net assets resulting from distributions to shareholders (229,021,841) 108,019,384
- --------------------------------------------------------------------------------------------------------------------
Share Transactions:
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 632,560,746 460,006,623
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 143,104,220 64,586,473
- ----------------------------------------------------------------------------------
Cost of shares redeemed (468,196,162) (360,171,984)
- --------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from share transactions 307,468,804 164,421,112
- --------------------------------------------------------------------------------------------------------------------
Change in net assets 274,801,539 343,472,576
- --------------------------------------------------------------------------------------------------------------------
Net Assets:
- ----------------------------------------------------------------------------------
Beginning of period 1,174,017,860 830,545,284
- --------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $1,097,253 and
$499,500, respectively) $1,448,819,399 $1,174,017,860
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1998
ORGANIZATION
Federated Stock Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, 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 60 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 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 16,935,050 12,996,702
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 4,119,701 2,042,263
- -----------------------------------------------------------------------------------------------
Shares redeemed (12,419,564) (9,770,103)
- -----------------------------------------------------------------------------------------------------------------------------
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 8,635,187 5,268,862
- -----------------------------------------------------------------------------------------------------------------------------
</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 equal to 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, 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 Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily
net assets of the Trust for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC 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, 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, 1998, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------
Purchases $615,223,606
- -----------------------------------------------------------
Sales $549,458,236
- -----------------------------------------------------------
</TABLE>
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
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, 1998,
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 for each of the five years in the period then ended.
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, 1998, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. 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, 1998, 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 the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Boston, Massachusetts
December 21, 1998
NOTES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. To obtain the SAI and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at http://
www.sec.gov. You can call 1-800-SEC-0330 for information on the Public Reference
Room's operations and copying charges.
Federated
WORLD-CLASS INVESTMENT MANAGER(SM)
Federated Stock Trust
P R O S P E C T U S
Federated(SM)
Federated Stock Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Investment Company Act File No. 811-3385
Cusip 313900102
8120102A (12/98)
Federated is a registered mark [RECYCLED
of Federated Investors, Inc. PAPER
1998 (C) Federated Investors, Inc. LOGO] DECEMBER 31, 1998
STATEMENT OF ADDITIONAL INFORMATION
Federated Stock Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Stock Trust (Fund), dated
December 31, 1998. Obtain the prospectus without charge by calling 1-800-341-
7400.
DECEMBER 31, 1998
CONTENTS
How is the Fund Organized?
Investment Risks
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Addresses
Cusip 313900102
8120102B (12/98)
How is the Fund Organized?
The Fund is a diversified open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on December 30,
1981.
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
Equity Securities
Equity securities represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may provide for the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
REITs
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants
Warrants give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are
typically issued to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
Credit Risk.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A few
GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities. Investors
regard agency securities as having low Credit Risk, but not as low as Treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against Credit Risk, it does not
reduce the Market and prepayment risks of these mortgage backed securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The credit risks of corporate debt securities vary
widely among issuers.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or borrowings from bank loans) to repay maturing paper. If the
issuer cannot continue to obtain liquidity in this fashion, its commercial
paper may default. The short maturity of commercial paper reduces both the
Market and Credit Risks as compared to other debt securities of the same
issuer.
Demand Instruments
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.
Zero Coupon Securities
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security. An
investor must wait until maturity to receive interest and principal, which
increases the Market and Credit Risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.
Bank Instruments
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are
denominated in U.S. dollars and issued by non-U.S. branches of U.S. or foreign
banks.
Special Transactions
Repurchase Agreements
Repurchase Agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy.
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the value
of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient
means of carrying out its investment policies and managing its uninvested
cash. It should be noted that investment companies incur certain expenses,
such as management fees, and, therefore, any investment by the Fund in shares
of other investment companies may be subject to such duplicate expenses.
When Issued Transactions
When Issued Transactions are arrangements in which a Fund purchases securities
for a set price, with payment and delivery scheduled for a future time. During
the period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to purchase the securities and reflects their value
in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices. Therefore, when issued
transactions create Bond Market Risk for the Fund. When issued transactions
also involve Credit Risk in the event of a counterparty default.
Foreign Securities
Foreign Securities are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S. In
addition to the risks normally associated with U.S. securities of the same
type, Foreign Securities are subject to risks related to the issuer's country
and that country's currency.
Depositary Receipts
Depositary Receipts represent interests in underlying securities issued by
a foreign company, but traded in another market than the underlying
security. The foreign securities underlying American Depositary Receipts
(ADRs) are traded in the U.S. ADRs provide a way to buy shares of foreign-
based companies in the U.S. rather than in overseas markets. ADRs are also
traded in U.S. dollars, eliminating the need for foreign exchange
transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International
Depositary Receipts (IDRs), are traded globally or outside the U.S.
Depositary Receipts involve many of the same risks of investing directly in
foreign securities.
Investment risks
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.
EQUITY SECURITIES INVESTMENT RISKS
Liquidity Risks
Equity securities that are not widely held may trade less frequently than more
widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or give
up an investment opportunity, any of which could have a negative effect on its
performance. Infrequent trading may also lead to greater price volatility.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater risk
because these companies may have unproven track records, limited product or
service base, limited access to capital and may be more likely to fail than
larger, more established companies.
FIXED INCOME SECURITIES INVESTMENT RISKS
Bond Market Risk
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Credit Risk
Credit risk is the possibility that an issuer will default (the issuer fails to
repay interest and principal when due). If an issuer defaults, the Fund will
lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating service's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. In the case of unrated securities, the Fund must rely entirely
upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of the security and
the yield of a U.S. Treasury security with a comparable maturity (the "spread")
measures the additional interest received for taking risk. Spreads may increase
generally in response to adverse economic or market conditions. A security's
spread may also increase if the security's rating is lowered, or the security is
perceived to have an increased credit risk. An increase in the spread will cause
the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or disrupt management of the Fund's portfolio .
Call Risk
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a "call") at a price below it's current market price. An
increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks,
or other less favorable characteristics.
Liquidity Risks
Fixed income securities that have noninvestment grade credit ratings, have not
been rated or that are not widely held may trade less frequently than more
widely held securities. This limits trading opportunities, making it more
difficult to sell or buy the security at a favorable price or time. In
response, the Fund may have to lower the price, sell other securities, or give
up an investment opportunity, any of which could have a negative effect on its
performance. Infrequent trading may also lead to greater price volatility.
Liquidity risk refers to the possibility that the Fund may not be able to sell a
security or close out a derivative contract when it wants to. If this happens,
the Fund will be required to continue to hold the security or keep the position
open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than exchange-
traded contracts.
Risks Associated with Noninvestment Grade Securities
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their prices
are more volatile, their values are more negatively impacted by economic
downturns, and their trading market may be more limited.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment policies or limitations described
below without approval of shareholders, unless indicated otherwise.
Stocks
At least 80% of the Fund's portfolio will be invested in common stocks, unless
it is in a defensive position.
Illiquid Securities
Management will limit the amount of repurchase agreements with maturities in
excess of seven days and other illiquid securities to not more than 10% of the
Fund's assets.
Buying on Margin
The Fund will not purchase any securities on margin, except for such credits as
are necessary for the clearance of transactions.
Selling Short
The Fund will not make short sales of securities.
Borrowing Money
The Fund 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 Fund 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 Fund.
Pledging Assets
The Fund will not pledge, mortgage or hypothecate its assets, except that, to
secure permitted borrowings, it may pledge securities having a market value at
the time of pledge not exceeding 10% of the value of the Fund's total assets.
Investing in Commodities or Minerals
The Fund will not purchase or sell commodities, commodity contracts, oil, gas,
or other mineral exploration or development programs.
Investing in Real Estate
The Fund will not purchase or sell real estate, but this shall not prevent the
Fund from investing in municipal bonds secured by real estate or interest
therein.
Underwriting
The Fund 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 Fund 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 Investment Companies
The Fund 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
the open market, is part of a plan of merger or consolidation.
Diversification of Investments
The Fund 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 Fund will not write, purchase or sell puts, calls, straddles or spreads or
any combinations thereof.
Investing in Issuers whose Securities are Owned by Officers of the Fund
The Fund will not purchase or retain the securities of any issuer other than the
securities of the Fund, if, to the Fund's knowledge, those officers and Trustees
of the Fund, 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 Fund will not invest more than 25% of the value of its total assets in one
industry.
Acquiring Securities
The Fund may not acquire more than 10% of the voting securities of any one
issuer.
Investing in New Issuers
The Fund may not invest more than 5% of the value of the total assets of the
Fund 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 Fund may not invest in securities of a company for the purpose of exercising
control or management. However, the Fund will acquire no more than 10% of the
voting securities of an issuer and may exercise its voting power in the Fund's
best interest. From time to time the Fund, 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 Fund 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 Fund might possibly become directors of
companies in which the Fund holds stock.
Issuing Senior Securities
The Fund will not issue senior securities except as permitted by its investment
objective, policies and limitations.
Restricted Securities
The Fund 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 Fund be required to make any changes
in its portfolio holdings.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
. for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
. in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
. for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
. for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
. for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according
to the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of
valuing such investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed
at times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
What do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services may select
others to perform these services for their customers and may pay them fees.
Exchanging Securities For Shares
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Fund's outstanding
shares entitled to vote.
As of December 8, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Charles Schwab & Co.,
Inc., San Francisco, CA, owned approximately 2,528,250 shares (6.09%) and
National Financial Services (for the exclusive benefit of its customer), New
York, NY, owned approximately 2,648,191 shares (6.38%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code (Code) applicable to regulated investment companies. If these
requirements are not met, it will not receive the special tax treatment and will
pay federal income tax.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birthdate, present position(s) held with the Fund,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Fund for its most recent
fiscal year, and the total compensation received from the Federated Fund Complex
for the most recent calendar year. The Federated Fund Complex is comprised of 56
investment companies, whose investment advisers are affiliated with the Fund's
Adviser.
As of October 9, 1998, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
Name Total
Birthdate Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past 5 Years From Trust and Fund Complex
<S> <C> <C> <C>
John F. Donahue#*## Chief Executive Officer and Director or $ 0 $0 for the
Birthdate: July 28, Trustee of the Federated Fund Complex. Trust and
1924 Chairman and Director, Federated Investors, 56 other
Federated Investors Inc.; Chairman and Trustee, Federated investment
Tower Advisers, Federated Management, and Federated companies
1001 Liberty Avenue Research; Chairman and Director, Federated in the Fund
Pittsburgh, PA Research Corp., and Federated Global Research Complex
CHAIRMAN AND TRUSTEE Corp.; Chairman, Passport Research, Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund $1,869.36 $111,222 for the
Birthdate: February Complex; Director, Member of Executive Trust and
3, 1934 Committee, Children's Hospital of Pittsburgh; 56 other
15 Old Timber Trail formerly: Senior Partner, Ernst & Young LLP; investment
Pittsburgh, PA Director, MED 3000 Group, Inc.; Director, companies
TRUSTEE Member of Executive Committee, University of in the Fund
Pittsburgh. Complex
John T. Conroy, Jr. Director or Trustee of the Federated Fund $2,056.61 $122,362 for the
Birthdate: June 23, Complex; President, Investment Properties Trust and
1937 Corporation; Senior Vice President, John R. 56 other
Wood/IPC Commercial Wood and Associates, Inc., Realtors; Partner investment
Dept. or Trustee in private real estate ventures in companies
John R. Wood Southwest Florida; formerly: President, in the Fund
Associates, Inc. Naples Property Management, Inc. and Complex
Realtors Northgate Village Development Corporation.
3255 Tamiami Trial
North Naples, FL
TRUSTEE
Nicholas Constantakis Director or Trustee of the Federated Fund $1,412.44 $0 for the
Birthdate: September Complex; formerly: Partner, Andersen Trust and
3, 1939 Worldwide SC. 36 other
175 Woodshire Drive investment
Pittsburgh, PA companies
TRUSTEE in the Fund
Complex
William J. Copeland Director or Trustee of the Federated Fund $2,056.61 $122,362 for the
Birthdate: July 4, Complex; Director and Member of the Executive Trust and
1918 Committee, Michael Baker, Inc.; formerly: 56 other
One PNC Plaza-23rd Vice Chairman and Director, PNC Bank, N.A., investment
Floor and PNC Bank Corp.; Director, Ryan Homes, Inc. companies
Pittsburgh, PA in the Fund
TRUSTEE Retired: Director, United Refinery; Director, Complex
Forbes Fund; Chairman, Pittsburgh Foundation;
Chairman, Pittsburgh Civic Light Opera.
James E. Dowd, Esq. Director or Trustee of the Federated Fund $2,056.61 $122,362 for the
Birthdate: May 18, Complex; Attorney-at-law; Director, The Trust and
1922 Emerging Germany Fund, Inc. 56 other
571 Hayward Mill Road investment
Concord, MA Retired: President, Boston Stock Exchange, companies
TRUSTEE Inc.; Regional Administrator, United States in the Fund
Securities and Exchange Commission. Complex
Lawrence D. Ellis, Director or Trustee of the Federated Fund $1,869.36 $111,222 for the
M.D.* Complex; Professor of Medicine, University of Trust and
Birthdate: October Pittsburgh; Medical Director, University of 56 other
11, 1932 Pittsburgh Medical Center Downtown; investment
3471 Fifth Avenue Hematologist, Oncologist, and Internist, companies
Suite 1111 Presbyterian and Montefiore Hospitals; in the Fund
Pittsburgh, PA Member, National Board of Trustees, Leukemia Complex
TRUSTEE Society of America.
Edward L. Flaherty, Director or Trustee of the Federated Fund $2,056.61 $122,362 for the
Jr., Esq. # Complex; Attorney, of Counsel, Miller, Ament, Trust and
Birthdate: June 18, Henny & Kochuba; Director, Eat'N Park 56 other
1924 Restaurants, Inc.; formerly: Counsel, Horizon investment
Miller, Ament, Henny Financial, F.A., Western Region; Partner, companies
& Kochuba Meyer and Flaherty. in the Fund
205 Ross Street Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund $1,869.36 $111,222 for the
Birthdate: March 16, Complex; formerly: Representative, Trust and
1942 Commonwealth of Massachusetts General Court; 56 other
One Royal Palm Way President, State Street Bank and Trust investment
100 Royal Palm Way Company and State Street Corporation. companies
Palm Beach, FL in the Fund
TRUSTEE Retired: Director, VISA USA and VISA Complex
International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation.
John E. Murray, Jr., Director or Trustee of the Federated Fund $1,869.36 $111,222 for the
J.D., S.J.D. Complex; President, Law Professor, Duquesne Trust and
Birthdate: December University; Consulting Partner, Mollica & 56 other
20, 1932 Murray. investment
President, Duquesne companies
University Retired: Dean and Professor of Law, in the Fund
Pittsburgh, PA University of Pittsburgh School of Law; Dean Complex
TRUSTEE and Professor of Law, Villanova University
School of Law.
Wesley W. Posvar Director or Trustee of the Federated Fund $1,869.36 $111,222 for the
Birthdate: September Complex; President, World Society of Trust and
14, 1925 Ekistics, Athens; Professor, International 56 other
1202 Cathedral of Politics; Management Consultant; Trustee, investment
Learning Carnegie Endowment for International Peace, companies
University of RAND Corporation, Online Computer Library in the Fund
Pittsburgh Center, Inc., National Defense University and Complex
Pittsburgh, PA U.S. Space Foundation; President Emeritus,
TRUSTEE University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental
Policy and Technology, Federal Emergency
Management Advisory Board and Czech
Management Center, Prague.
Retired: Professor, United States Military
Academy; Professor, United States Air Force
Academy.
Marjorie P. Smuts Director or Trustee of the Federated Fund $1,869.36 $111,222 for the
Birthdate: June 21, Complex; Public Trust and
1935 Relations/Marketing/Conference Planning. 56 other
4905 Bayard Street investment
Pittsburgh, PA Retired: National Spokesperson, Aluminum companies
TRUSTEE Company of America; business owner. in the Fund
Complex
Glen R. Johnson Trustee, Federated Investors, Inc.; staff $ 0 $0 for the
Birthdate: May 2, 1929 member, Federated Securities Corp. Trust and
Federated Investors 8 other
Tower investment
1001 Liberty Avenue companies
Pittsburgh, PA in the Fund
PRESIDENT Complex
J. Christopher President or Executive Vice President of the $ 0 $0 for the
Donahue## Federated Fund Complex; Director or Trustee Trust and
Birthdate: April 11, of some of the Funds in the Federated Fund 18 other
1949 Complex; President and Director, Federated investment
Federated Investors Investors, Inc.; President and Trustee, companies
Tower Federated Advisers, Federated Management, and in the Trust
1001 Liberty Avenue Federated Research; President and Director, Complex
Pittsburgh, PA Federated Research Corp. and Federated Global
EXECUTIVE VICE Research Corp.; President, Passport Research,
PRESIDENT Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Edward C.
Gonzales Trustee or Director of some of the Funds in the $ 0 $0 for the
Birthdate: October 22, Federated Fund Complex; President, Executive Trust and
1930 Vice President and Treasurer of some of the Funds 1 other investment
Federated Investors in the Federated Fund Complex; Vice Chairman, companies
Tower Federated Investors, Inc.; Vice President, in the Fund Complex
1001 Liberty Avenue Federated Advisers, Federated Management, Federated
Pittsburgh, PA Research, Federated Research Corp., Federated
EXECUTIVE VICE Global Research Corp. and Passport Research, Ltd.;
PRESIDENT Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.
John W. McGonigle Executive Vice President and Secretary of the $ 0 $0 for the Trust and
Birthdate: October 26, Federated Fund Complex; Executive Vice President, 56 other investment
1938 Secretary, and Director, Federated Investors, Inc.; in the Fund Complex
Federated Investors Trustee, Federated Advisers, Federated companies
Tower Management, and Federated Research; Director,
1001 Liberty Avenue Federated Research Corp. and Federated Global
Pittsburgh, PA Research Corp.; Director, Federated Services
EXECUTIVE VICE Company; Director, Federated Securities Corp.
PRESIDENT AND
SECRETARY
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $ 0 $0 for the
Birthdate: June 17, President - Funds Financial Services Division, Trust and
1954 Federated Investors, Inc.; Formerly: various 56 other investment
Federated Investors management positions within Funds Financial Services companies
Tower Division of Federated Investors, Inc. in the Fund Complex
1001 Liberty Avenue
Pittsburgh, PA
TREASURER
Richard B. Fisher President or Vice President of some of the Funds $ 0 $0 for the
Birthdate: May 17, in the Federated Fund Complex; Director or Trustee Trust and
1923 of some of the Funds in the Federated Fund Complex; 56 other investment
Federated Investors Executive Vice President, Federated Investors, Inc.; companies
Tower Chairman and Director, Federated Securities Corp. in the Fund Complex
1001 Liberty Avenue
Pittsburgh, PA
VICE PRESIDENT
J. Thomas Madden Chief Investment Officer of this Fund and various $ 0 $0 for the
Birthdate: October 22, other Funds in the Federated Fund Complex; Executive Trust and
1945 Vice President, Federated Investment Counseling, 12 other investment
Federated Investors Federated Global Research Corp., Federated companies
Tower Advisers, Federated Management, Federated Research, in the Fund Complex
1001 Liberty Avenue and Passport Research, Ltd.; Vice President,
Pittsburgh, PA Federated Investors, Inc.; Formerly: Executive Vice
CHIEF INVESTMENT President and Senior Vice President, Federated
OFFICER Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers, Federated
Management, Federated Research, and Passport
Research, Ltd.
Michael P. Donnelly Senior Portfolio Manager and Vice President of two $ 0 $0 for the
Birthdate: November 26, investment companies in the Federated Fund Complex; Trust and
1961 Vice President, Federated Investment Counseling, 1 other investment
Federated Investors Federated Advisers, Federated Global Research company
Tower Corp., Federated Management, Federated Research, in the Fund Complex
1001 Liberty Avenue Federated Research Corp. and Passport Research, Ltd.;
Pittsburgh, PA Registered Representative, Federated Securities Corp.
SENIOR PORTFOLIO Formerly: Assistant Vice President Federated Advisers,
MANAGER/VICE Federated Management, Federated Research, Federated
PRESIDENT Research Corp. and Passport Research, Ltd.
</TABLE>
## Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Fund, or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.
The Adviser must waive the portion of its advisory fee that increases the Fund's
aggregate annual operating expenses above 1.00% of its average daily net assets.
The Fund's operating expenses include the advisory fee but exclude interest,
taxes, brokerage commissions, expenses of registering the Fund and its shares
under federal and state laws, expenses of withholding taxes, and extraordinary
expenses.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
For the fiscal year ended October 31, 1998, the Fund's adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $6,756,211,031 for which
the Fund paid $1,417,358 in brokerage commissions.
On October 31, 1998, the Fund owned securities of the following regular
broker/dealers: $10,153,094 of securities of Bear, Stearns & Co., Inc., and
$14,568,750 of securities of Morgan Stanley, Dean Witter, Discover Co.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year ended October 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fee Earned $9,348,739 $7,175,722 $5,368,592
Advisory Fee Reduction $ 0 $ 0 $ 0
Brokerage Commissions $1,417,358 $1,735,722 $1,132,666
Administrative Fee $1,033,896 $ 766,339 $ 559,347
Shareholder Services Fee $3,427,708 NA NA
</TABLE>
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and ten-year periods ended October 31,
1998.
Yield given for the 30-day period ended October 31, 1998.
<TABLE>
<CAPTION>
30-Day Period 1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return NA 16.40% 19.11% 15.40%
- ------------------------------------------------------------------------------------------------
Yield 0.93% NA NA NA
- ------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $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 NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the 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 Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
. references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
. charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
. discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
. information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Dow Jones Industrial Average (DJIA)
Represents share prices of selected blue-chip industrial corporations. The DJIA
indicates daily changes in the average price of stock of these corporations.
Because it represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
Lipper Analytical Services, Inc.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time.
Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
Municipal Funds
In the municipal sector, as of December 31, 1997, Federated managed 11 bond
funds with approximately $2.1 billion in assets and 22 money market funds with
approximately $10.9 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
Equity Funds
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1997, Federated managed 29 equity funds totaling approximately
$11.7 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
Corporate Bond Funds
In the corporate bond sector, as of December 31, 1997, Federated managed 11
money market funds and 16 bond funds with assets approximating $17.1 billion and
$5.6 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 22 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a market totaling
more than $200 billion.
Government Funds
In the government sector, as of December 31, 1997, Federated manages 9 mortgage-
backed, 6 government/ agency and 18 government money market mutual funds, with
assets approximating $5.9 billion, $1.5 billion and $35 billion, respectively.
Federated trades approximately $400 million in U.S. government and mortgage-
backed securities daily and places approximately $23 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $36 billion in government funds within these
maturity ranges.
Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime and 22 municipal with assets
approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -
William D. Dawson, III; and global equities and fixed income - Henry A.
Frantzen. The Chief Investment Officers are Executive Vice Presidents of the
Federated advisory companies.
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 $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
FEDERATED CLIENTS OVERVIEW
Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. 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 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, Broker/Dealer Sales Division, Federated Securities Corp.
Addresses
FEDERATED STOCK TRUST
Federated Investors Fund
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 Public Accountants
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
APPENDIX
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Federated Stock Trust as of the
calendar year-end for each of 10
years.
The `y' axis reflects the "% Total Return" beginning with "-5.00" and
increasing in increments of 5.00% up to 40.00%.
The `x' axis represents calculation periods for the last ten calendar years
of the Fund, beginning with the earliest year. The light gray shaded chart
features 10 distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentage for the Fund for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1988 through 1997, The percentages noted are: 12.69%, 13.13%,
- -4.99%, 29.04%, 11.94%, 12.49%, -0.45%, 35.63%, 21.17% and 34.42%, respectively.
