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, 1999.
Obtain the prospectus and the Annual Report's Management Discussion & Analysis
without charge by calling 1-800-341-7400.
December 31, 1999
(REVISED MARCH 28, 2000)
Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
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 (3/00)
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. The Fund's investment adviser is Federated Investment Management Company
(Adviser).
Effective March 31, 1999, Federated Management, former Adviser to the Fund,
became Federated Investment Management Company (formerly, Federated Advisers).
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.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. 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 may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings 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 issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
The Fund may also treat such redeemable preferred stock as a fixed income
security.
Real Estate Investment Trusts (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 equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must 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. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. 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. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. 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. Agency securities are
generally regarded as having low credit risks, 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 risks, it does
not reduce the interest rate 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 securities. The Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)
securities. This means that the issuer might not make payments on subordinated
securities while continuing to make payments on senior securities. In
addition, in the event of bankruptcy, holders of senior securities may receive
amounts otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities notes,
also permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
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 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.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate 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.
AMERICAN DEPOSITARY RECEIPTS
American Depositary Receipts represent interests in underlying securities issued
by a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. 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. Moreover, the Fund invests primarily in the ADRs of companies with
significant operations within the U.S.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States 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
United States. Depositary receipts involve many of the same risks of investing
directly in foreign securities, including currency risks and risks of foreign
investing.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the 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
the Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will 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 risks.
Investing in 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.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment
and delivery of the securities 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 buy 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 so that the market values of the securities bought may vary
from the purchase prices. Therefore, delayed delivery transactions create
interest rate risks for the Fund. Delayed delivery transactions also involve
credit risks in the event of a counterparty default.
Inter-fund Borrowing and Lending Arrangements
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
EQUITY SECURITIES INVESTMENT RISKS
Liquidity Risks
. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security when it wants to. If this happens, the Fund will be
required to continue to hold the security, and the Fund could incur losses.
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 its outstanding shares by the current market price per share.
. Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.
FIXED INCOME SECURITIES INVESTMENT RISKS
Interest Rate Risks
. Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.
. 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 Risks
. Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or 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, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, 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 a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for 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 prevent the Fund from selling or buying
other securities to implement its investment strategy.
Call Risks
. Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its 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
. Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade
or are not widely held.
. These features may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
. Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security when it wants to. If this happens, the Fund will be
required to continue to hold the security, and the Fund could incur losses.
Risks Associated with Noninvestment Grade Securities
. Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide growth of income and capital.
The investment objective may not be changed by the Fund's Trustees without
shareholder approval.
INVESTMENT LIMITATIONS
Diversification
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
Underwriting
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
Lending
The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests.
Concentration
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
For purposes of this restriction, the term concentration has the meaning set
forth in the 1940 Act, any rule or order thereunder, or any SEC staff
interpretation thereof. Government securities and municipal securities will not
be deemed to constitute an industry. To conform to the current view of the SEC
staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration limitation
tests as long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be deemed to
constitute investment in an industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of the Fund's total
assets in any one industry will constitute `concentration.'
The above limitations cannot be changed by the Board of Trustees (Board) unless
authorized by the "vote of a majority of its outstanding voting securities," as
defined by the Investment Company Act. The following limitations, however, may
be changed by the Board without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
Purchases on Margin
The Fund will not purchase securities on margin, provided that the
Fund may obtain short-term credits necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin deposits
in connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
Investing in 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.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in connection
with any permissible borrowing or to collateral arrangements in connection with
permissible activities.
Illiquid Securities
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate, 15% of the Fund's net
assets.
Restricted Securities
The Trust may invest in restricted securities. Restricted securities are any
securities in which the Trust may invest pursuant to its investment objective
and policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid, the Trust will limit their purchase, together
with other illiquid securities, to 15% of its net assets.
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 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.
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.) 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 Company 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 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 Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.
In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Fund will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Fund 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 Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares.
As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Charles Schwab & Co.,
Inc., San Francisco, CA, owned approximately 2,762,441 Shares (5.81%) and
National Financial Services (for the exclusive benefit of its customers), New
York, NY, owned approximately 6,185,333 Shares (13.02%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive 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, birth date, present position(s) held with the Fund's,
principal occupations for the past five years and positions held prior to the
past five years, 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 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of December 3, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
Name
Birth
Date
Address
Position With Fund Principal
Occupations
for Past Five
Years
<S>
<C>
John F. Donahue*+# Chief Executive Officer and Director or
Trustee
Birth Date: July 28, 1924 of the Federated Fund Complex, Chairman and
Director,
Federated Investors Tower Federated Investors, Inc.; Chairman and
Trustee,
1001 Liberty Avenue Federated Investment Management Company;
Chairman
Pittsburgh, PA and Director, Federated Investment Counseling
and
CHAIRMAN AND TRUSTEE Federated Global Investment Management
Corp.;
Chairman, Passport Research,
Ltd.
Thomas G. Bigley Director or Trustee of the Federated Fund
Complex; Director, Member
Birth Date: February 3, 1934 of Executive Committee, Children's Hospital
of Pittsburgh; Director,
15 Old Timber Trail Robroy Industries, Inc. (coated steel
conduits/computer storage
Pittsburgh, PA equipment); formerly: Senior Partner, Ernst &
Young LLP; Director,
TRUSTEE MED 3000 Group, Inc. (physician practice
management); Director,
Member of Executive Committee, University of
Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund
Complex; President,
Birth Date: June 23, 1937 Investment Properties Corporation; Senior
Vice President, John R.
Grubb & Ellis/Investment Wood and Associates, Inc., Realtors; Partner
or Trustee in private
Properties Corporation real estate ventures in Southwest Florida;
formerly: President,
3201 Tamiami Trail North Naples Property Management, Inc. and
Northgate Village Development
Naples, FL
Corporation.
TRUSTEE
Nicholas P. Constantakis Director or Trustee of the Federated Fund
Complex; Director, Michael
Birth Date: September 3, 1939 Baker Corporation (engineering, construction,
operations and
175 Woodshire Drive technical services); formerly: Partner,
Andersen Worldwide SC.
Pittsburgh,
PA
TRUSTEE
John F. Cunningham Director or Trustee of some of the Federated
Fund Complex; Chairman,
Birth Date: March 5, 1943 President and Chief Executive Officer,
Cunningham & Co., Inc.
353 El Brillo Way (strategic business consulting) ; Trustee
Associate, Boston College;
Palm Beach, FL Director, Iperia Corp.
(communications/software); formerly: Director,
TRUSTEE Redgate Communications and EMC Corporation (computer storage systems).
Previous Positions: Chairman of the Board and
Chief Executive
Officer, Computer Consoles, Inc.; President
and Chief Operating
Officer, Wang Laboratories; Director, First
National Bank of Boston;
Director, Apollo Computer,
Inc.
Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund
Complex; Professor of
Birth Date: October 11, 1932 Medicine, University of Pittsburgh; Medical
Director, University of
3471 Fifth Avenue Pittsburgh Medical Center - Downtown;
Hematologist, Oncologist, and
Suite 1111 Internist, University of Pittsburgh Medical
Center; Member, National
Pittsburgh, PA Board of Trustees, Leukemia Society of
America.
TRUSTEE
Peter E. Madden Director or Trustee of the Federated Fund
Complex; formerly:
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts
General Court;
One Royal Palm Way President, State Street Bank and Trust
Company and State Street
100 Royal Palm Way
Corporation.
Palm Beach,
FL
TRUSTEE Previous Positions: Director, VISA USA and
VISA International;
Chairman and Director, Massachusetts Bankers
Association; Director,
Depository Trust Corporation; Director, The
Boston Stock Exchange.
Charles F. Mansfield, Jr. Director or Trustee of some of the Federated
Fund Complex; Executive
Birth Date: April 10, 1945 Vice President, Legal and External Affairs,
Dugan Valva Contess, Inc.
80 South Road (marketing, communications, technology and
consulting).; formerly
Westhampton Beach, NY Management
Consultant.
TRUSTEE
Previous Positions: Chief Executive Officer,
PBTC International Bank;
Partner, Arthur Young & Company (now Ernst &
Young LLP); Chief
Financial Officer of Retail Banking Sector,
Chase Manhattan Bank;
Senior Vice President, Marine Midland Bank;
Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of
Business, Hofstra
University.
John E. Murray, Jr., J.D., S.J.D.# Director or Trustee of the Federated Fund
Complex; President, Law
Birth Date: December 20, 1932 Professor, Duquesne University; Consulting
Partner, Mollica & Murray;
President, Duquesne University Director, Michael Baker Corp. (engineering,
construction, operations
Pittsburgh, PA and technical
services).
TRUSTEE Previous Positions: Dean and Professor of
Law, University of
Pittsburgh School of Law; Dean and Professor
of Law, Villanova
University School of
Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund
Complex; Public
Birth Date: June 21, 1935 Relations/Marketing/Conference
Planning.
4905 Bayard
Street
Pittsburgh, PA Previous Positions: National Spokesperson,
Aluminum Company of
TRUSTEE America; television producer; business
owner.
John S. Walsh Director or Trustee of some of the Federated
Fund Complex; President
Birth Date: November 28, 1957 and Director, Heat Wagon, Inc. (manufacturer
of construction
2007 Sherwood Drive temporary heaters); President and Director,
Manufacturers Products,
Valparaiso, IN Inc. (distributor of portable construction
heaters); President,
TRUSTEE Portable Heater Parts, a division of
Manufacturers Products, Inc.;
Director, Walsh & Kelly, Inc. (heavy highway
contractor); formerly:
Vice President, Walsh & Kelly,
Inc.
Glen R. Johnson Staff member, Federated Securities
Corp.
Birth Date: May 2,
1929
Federated Investors
Tower
1001 Liberty
Avenue
Pittsburgh,
PA
PRESIDENT
J. Christopher Donahue+* President or Executive Vice President of the
Federated Fund Complex;
Birth Date: April 11, 1949 Director or Trustee of some of the Funds in
the Federated Fund
Federated Investors Tower Complex; President, Chief Executive Officer
and Director, Federated
1001 Liberty Avenue Investors, Inc.; President and Trustee,
Federated Investment
Pittsburgh, PA Management Company; President and Trustee,
Federated Investment
EXECUTIVE VICE PRESIDENT AND TRUSTEE Counseling; President and Director, Federated
Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services
Company.
Edward C. Gonzales Trustee or Director of some of the Funds in
the Federated Fund
Birth Date: October 22, 1930 Complex; President, Executive Vice President
and Treasurer of some of
Federated Investors Tower the Funds in the Federated Fund Complex; Vice
Chairman, Federated
1001 Liberty Avenue Investors, Inc.; Vice President, Federated
Investment Management
Pittsburgh, PA Company and Federated Investment Counseling,
Federated Global
EXECUTIVE VICE PRESIDENT Investment Management Corp. and Passport
Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee,
Federated Shareholder Services
Company.
John W. McGonigle Executive Vice President and Secretary of the
Federated Fund Complex;
Birth Date: October 26, 1938 Executive Vice President, Secretary and
Director, Federated
Federated Investors Tower Investors, Inc.; Trustee, Federated
Investment Management Company and
1001 Liberty Avenue Federated Investment Counseling; Director,
Federated Global
Pittsburgh, PA Investment Management Corp, Federated
Services Company and Federated
EXECUTIVE VICE PRESIDENT and Securities
Corp.
SECRETARY
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice
President - Funds
Birth Date: June 17, 1954 Financial Services Division, Federated
Investors, Inc.; formerly:
Federated Investors Tower various management positions within Funds Financial
Services Division 1001 Liberty Avenue of Federated Investors, Inc.
Pittsburgh,
PA
TREASURER
Richard B. Fisher President or Vice President of some of the
Funds in the Federated
Birth Date: May 17, 1923 Fund Complex; Director or Trustee of some of
the Funds in the
Federated Investors Tower Federated Fund Complex; Executive Vice
President, Federated
1001 Liberty Avenue Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Pittsburgh,
PA
VICE
PRESIDENT
J. Thomas Madden Chief Investment Officer of this Fund and
various other Funds in the
Birth Date: October 22, 1945 Federated Fund Complex; Executive Vice
President, Federated
Federated Investors Tower Investment Counseling, Federated Global
Investment Management Corp.,
1001 Liberty Avenue Federated Investment Management Company and
Passport Research, Ltd.;
Pittsburgh, PA Vice President, Federated Investors, Inc.;
formerly: Executive Vice
CHIEF INVESTMENT OFFICER President and Senior Vice President,
Federated Investment Counseling
Institutional Portfolio Management Services
Division; Senior Vice
President, Federated Investment Management
Company and Passport
Research,
Ltd.
Michael P. Donnelly Michael P. Donnelly has been the Fund's
Portfolio Manager since
Birth Date: November 26, 1961 November 1997. He is Vice President of the
Fund. Mr. Donnelly
Federated Investors Tower joined Federated in 1989 as an Investment
Analyst. He served as a
1001 Liberty Avenue Portfolio Manager from 1994 to 1998 and
became a Senior Portfolio
Pittsburgh, PA Manager in 1998. He was a Vice President of
the Fund's Adviser from
VICE PRESIDENT 1994 to 1999. In May 1999, Mr. Donnelly
became a Senior Vice
President of the Fund's Adviser. Mr.
Donnelly is a Chartered
Financial Analyst and received his
M.B.A.
from the University of
Virginia.
<CAPTION>
Name Aggregate Total
Birth Date Compensation Compensation
Address From Fund From the Fund
Position With Fund and Fund Complex
<S> <C> <C>
John F. Donahue*+# $ 0 $0 for the
Birth Date: July 28, 1924 Fund and
Federated Investors Tower 54 other investment
companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
CHAIRMAN AND TRUSTEE
Thomas G. Bigley $1,925.13 $113,860.22 for the
Birth Date: February 3, 1934 Fund and
15 Old Timber Trail 54 other investment
companies
Pittsburgh, PA in the Fund Complex
TRUSTEE
John T. Conroy, Jr. $1,925.13 $125,264.48 for the
Birth Date: June 23, 1937 Fund and
Grubb & Ellis/Investment 54 other investment
companies
Properties Corporation in the Fund Complex
3201 Tamiami Trail North
Naples, FL
TRUSTEE
Nicholas P. Constantakis $1,925.13 $47,958.02 for the
Birth Date: September 3, 1939 Fund and
175 Woodshire Drive 29 other investment
companies
Pittsburgh, PA in the Fund Complex
TRUSTEE
John F. Cunningham $1,439.67 $0 for the
Birth Date: March 5, 1943 Fund and
353 El Brillo Way 46 other investment
companies
Palm Beach, FL in the Fund Complex
TRUSTEE
Lawrence D. Ellis, M.D.* $1,925.13 $113,860.22 for the
Birth Date: October 11, 1932 Fund and
3471 Fifth Avenue 54 other investment
companies
Suite 1111 in the Fund Complex
Pittsburgh, PA
TRUSTEE
Peter E. Madden $1,758.13 $113,860.22 for the
Birth Date: March 16, 1942 Fund and
One Royal Palm Way 54 other investment
companies
100 Royal Palm Way in the Fund Complex
Palm Beach, FL
TRUSTEE
Charles F. Mansfield, Jr. $ 0 $0 for the Fund and
Birth Date: April 10, 1945 50 other investment
companies
80 South Road in the Fund Complex
Westhampton Beach, NY
TRUSTEE
John E. Murray, Jr., J.D., S.J.D.# $2,069.32 $113,860.22 for the
Birth Date: December 20, 1932 Fund and
President, Duquesne University 54 other investment
companies
Pittsburgh, PA in the Fund Complex
TRUSTEE
Marjorie P. Smuts $1,925.13 $113,860.22 for the
Birth Date: June 21, 1935 Fund and
4905 Bayard Street 54 other investment
companies
Pittsburgh, PA in the Fund Complex
TRUSTEE
John S. Walsh $ 509.72 $0 for the
Birth Date: November 28, 1957 Fund and
2007 Sherwood Drive 48 other investment
companies
Valparaiso, IN in the Fund Complex
TRUSTEE
Glen R. Johnson $ 0 $0 for the
Birth Date: May 2, 1929 Fund and
Federated Investors Tower 8 other investment
companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
PRESIDENT
J. Christopher Donahue+* $ 0 $0 for the
Birth Date: April 11, 1949 Fund and
Federated Investors Tower 16 other investment
companies
1001 Liberty Avenue in the Fund Complex
Pittsburgh, PA
EXECUTIVE VICE PRESIDENT
AND TRUSTEE
Edward C. Gonzales $ 0 $0 for
the
Birth Date: October 22, 1930 Fund
and
Federated Investors Tower 1 other investment
company
1001 Liberty Avenue in the Fund
Complex
Pittsburgh, PA
EXECUTIVE VICE PRESIDENT
John W. McGonigle $ 0 $0 for
the
Birth Date: October 26, 1938 Fund
and
Federated Investors Tower 54 other investment
company
1001 Liberty Avenue in the Fund
Complex
Pittsburgh, PA
EXECUTIVE VICE PRESIDENT and
SECRETARY
Richard J. Thomas $ 0 $0 for
the
Birth Date: June 17, 1954 Fund
and
Federated Investors Tower 54 other investment
company
1001 Liberty Avenue in the Fund
Complex
Pittsburgh, PA
TREASURER
Richard B. Fisher $ 0 $0 for
the
Birth Date: May 17, 1923 Fund
and
Federated Investors Tower 6 other investment
company
1001 Liberty Avenue in the Fund
Complex
Pittsburgh, PA
VICE PRESIDENT
J. Thomas Madden $ 0 $0 for
the
Birth Date: October 22, 1945 Fund
and
Federated Investors Tower 12 other investment
company
1001 Liberty Avenue in the Fund
Complex
Pittsburgh, PA
CHIEF INVESTMENT OFFICER
Michael P. Donnelly $ 0 $0 for
the
Birth Date: November 26, 1961 Fund
and
Federated Investors Tower 1 other investment
company
1001 Liberty Avenue in the Fund
Complex
Pittsburgh, PA
VICE PRESIDENT
</TABLE>
* An asterisk denotes a TRUSTEE who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Fund.
++Mr. Cunningham became of member of the Board of Trustees on January 1, 1999.
Messrs. Mansfield and Walsh became members of the Board of Trustees on
November 17,1999, respectively. They did not earn any fees for serving the
Fund Complex since these fees are reported as of the end of the last calendar
year.
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.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safegaurds designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.
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 funds that paid directed brokerage commissions, insert the following
paragraph. For the fiscal year ended, October 31, 1999, the Fund's Adviser
directed brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $576,787,866.19 for which
the Fund paid $912,514.76 in brokerage commissions.
If fund owns any securities of its regular broker/dealers or their parents
(top 10 broker/dealers used by fund to purchase portfolio securities -
see Rule 10b-1), this information can be obtained from N-SAR and should
be disclosed as follows: On October 31, 1999 [date of fiscal year-end] ,
the Fund owned securities of the following regular broker/dealers: Bear
Stearns & Cos., Inc. $18,734,000 and Morgan Stanley, Dean Witter & Co.
$24,820,000. [identify issuer name and aggregate dollar amount of debt
and equity securities held by Fund].
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 Auditors
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
For the Year Ended October 31
1999
1998 1997
<S> <C>
<C> <C>
Advisory Fee Earned $10,913,624
$9,348,739 $7,175,722
Advisory Fee Reduction $ 0
$ 0 $ 0
Brokerage Commissions $ 58,562
$1,417,358 $1,735,722
Administrative Fee $ 1,244,700
$1,033,896 $ 766,339
Shareholder Services Fee $
4,126,988 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.
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 are given for the one-year, five-year, and ten-year periods ended
October 31, 1999.
Yield is given for the 30-day period ended October 31, 1999.
<TABLE>
<CAPTION>
30-Day Period 1 Year 5
Years 10 Years
Fund
<S> <C> <C>
<C> <C>
Total Return NA 11.03%
20.55% 15.15%
Yield 1.08% 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 30-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 30-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 Fund; 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:
. Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in offering price over a specific period of
time.
. Dow Jones Industrial Average (DJIA) Represents share prices of selected
blue-chip corporations. The DJIA indicates daily changes in the average price
of stocks these corporations. Because it represents the top corporations of
America, the DJIA's index movements are leading economic indicators for the
stock market as a whole.
. Standard & Poor's Daily Stock Price Index Of 500 Common Stocks (S&P 500) A
composite index of common stocks in industry, transportation, and financial
and public utility companies. Can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. In addition,
the S&P's index assumes reinvestments of all dividends paid by stocks listed
on its index. Taxes due on any of these distributions are not included, nor
are brokerage or other fees calculated in S&P figures.
. 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.
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, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 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 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 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, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 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 $209 billion.
Government Funds
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 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 $43.2 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,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
Federated Clients Overview
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
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 Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
