PROSPECTUS
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.
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CONTENTS
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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
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DECEMBER 31, 1998 (REPRINTED JANUARY 29, 1999)
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
. Federated Stock Trust
[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 ten years.
The `y' axis reflects the "% Total Return" beginning with "-10%" and increasing
in increments of 10% up to 40%.
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 ten 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 or bottom of each respective bar, for the calendar years 1989 through 1998.
The percentages noted are: 13.13, -4.99, 29.04, 11.94, 12.49, -0.45, 35.63,
21.17, 34.42, and 17.26.]
Within the period shown in the Chart, the Fund's highest quarterly return was
16.48% (quarter ended December 31, 1998). Its lowest quarterly return was -
15.58% (quarter ended September 30, 1990).
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>
Fund S&P 500 LGIFA
Index
<S> <C> <C> <C>
1 Year 17.26% 28.15% 15.61%
5 Years 20.86% 23.98% 18.35%
10 Years 16.24% 19.15% 15.53%
</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>
CAPTION>
Shareholder Fees
Fees Paid Directly From Your Investment
<S> <C>
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......................................... None
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)....................................... None
(as a percentage of offering price)
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%
- -----------------------------------------------------------------------------------------------------------------------------------
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.
Waiver of Fund expenses................................................................................................ 0.11%
Total Actual Annual Fund Operating Expenses (after waivers)............................................................ 0.96%
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.
</TABLE>
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:
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1 3 5 10
Year Years Years 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.
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<CAPTION>
Average Daily Advisory Fee as a
Net Assets Percentage of Average
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.
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<CAPTION>
Year Ended October 31 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Net Asset Value, $ 39.90 $ 34.38 $ 30.66 $ 26.33 $ 26.40
Beginning of Period
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)
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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
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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% --
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Supplemental Data:
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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%
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</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 or
Principal
Amount Value
<S> <C> <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
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TOTAL 60,716,538
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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
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TOTAL 76,655,812
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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
-----------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------
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
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 AGREEMENTS1.9%
$27,700,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 27,700,000
10.30/1988, due 11/2/1998 (at amortized cost)
-----------------------------------------------------------------------------------
/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>
<CAPTION>
Assets:
<S> <C> <C>
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 divided by 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>
<CAPTION>
Investment Income:
<S> <C> <C>
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, 148,484,465 216,054,303
as computed for federal tax purposes)
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 bvelieve 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
[LOGO OF FEDERATED]
Federated
Stock Trust
DECEMBER 31, 1998
(REPRINTED JANUARY 29, 1999)
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information
about the Fund's investments is contained in the Fund's annual and semi-annual
reports to shareholders as they become available. The annual report discusses
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year. To obtain the SAI, the annual
report, semi-annual report 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.
[LOGO of FEDERATED]
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 (1/99)
[LOGO of FEDERATED]
WORLD-CLASS INVESTMENT MANAGER [SM]
FEDERATED STOCK TRUST
DECEMBER 31, 1998
(REPRINTED JANUARY 29, 1999)
