1933 Act File No. 2-91090
1940 Act File No. 811-
4017
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No.
Post-Effective Amendment No. 25 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 X
Amendment No. 21 X
FEDERATED EQUITY FUNDS
(formerly, Federated Growth Trust)
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on _______________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
X 75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of
Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and:
X filed the Notice required by that Rule on December 15,
1994; or
intends to file the Notice required by that Rule on or
about ____________; or
during the most recent fiscal year did not sell any
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2),
need not file the Notice.
Copy to:
Charles H. Morin, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of Federated
Equity Funds (formerly, Federated Growth Trust), which is
comprised of two portfolios: (1) Federated Growth Strategies
Fund consisting of three classes of shares, (a) Class A
Shares, (b) Class B Shares, and (c) Class C Shares; (2)
Federated Small Cap Strategies Fund consisting of three
classes of shares, (a) Class A Shares, (b) Class B Shares,
and (c) Class C Shares; and (3) Federated Capital
Appreciation Fund consisting of three classes of shares, (a)
Class A Shares, (b) Class B Shares, and (c) Class C Shares
relates only to Federated Capital Appreciation Fund and is
comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-3) Cover
Page.
Item 2. Synopsis (1-3) Summary of
Fund Expenses.
Item 3. Condensed Financial
Information (1) Financial
Highlights.
Item 4. General Description of
Registrant (1-3) Synopsis;
(1-3) Liberty Family of Funds;
(1-3) Federated LifeTrack
Program (Class A Shares and
Class C Shares); (1-3)
Investment Information; (1-3)
Investment Objective; (1-3)
Investment Policies; (1-3)
Investment Limitations; (1-3)
Performance Information; (2)
Equity Investment
Considerations; (3) Appendix.
Item 5. Management of the Fund (1-3)
Trust Information; (1-3)
Management of the Trust; (1-3)
Distribution of Shares; (1-3)
Administration of the Fund; (1-
3) Expenses of the Fund and
Class A Shares, Class B
Shares, and Class C Shares; (1-
3) Brokerage Transactions.
Item 6. Capital Stock and Other
Securities (1-2) Account
and Share Information; (1-3)
Shareholder Information; (1-3)
Voting Rights; (1-3)
Massachusetts Partnership Law;
(1-3) Tax Information; (1-3)
Federal Income Tax; (1-3)
Pennsylvania Corporate and
Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered (3a,3b,3c) Portfolio
Turnover; (1-3) Net Asset
Value; (1-3) Investing in the
Fund; (1-3) How to Purchase
Shares; (1-3) Investing in
Class A Shares; (1-3)
Investing in Class B Shares;
(1-3) Investing in Class C
Shares; (1-3) Special Purchase
Features; (1-3) Exchange
Privilege (1-3) Certificates
and Confirmations; (1-3)
Dividends; (1-3) Capital
Gains; (1-3) Accounts with Low
Balances.
Item 8. Redemption or Repurchase (1-3)
How to Redeem Shares; (1-3)
Special Redemption Features;
(1-3) Contingent Deferred
Sales Charge; (1-3)
Elimination of Contingent
Deferred Sales Charge.
Item 9. Pending Legal Proceedings
None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION.
Item 10. Cover Page (1-3) Cover
Page.
Item 11. Table of Contents (1-3)
Table of Contents.
Item 12. General Information and
History (1-3) General
Information About the Fund; (1-
3) About Federated Investors.
Item 13. Investment Objectives and
Policies (1-3) Investment
Objective and Policies.
Item 14. Management of the Fund (1-
3)) Federated Equity Funds
Management (3) Appendix.
Item 15. Control Persons and Principal
Holders of Securities (1-3)
Fund Ownership.
Item 16. Investment Advisory and Other
Services (1-3) Investment
Advisory Services; (1-3))
Administrative Services; (1-3)
Transfer Agent and Dividend
Disbursing Agent; (1-3)
Distribution Plan and
Shareholder Services
Agreement.
Item 17. Brokerage Allocation (1-3)
Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered (1-3) Purchasing
Shares; (1-3) Determining Net
Asset Value; (1-3) Redeeming
Shares; (1-3) Exchanging
Securities for Shares; (3)
Current Distributions.
Item 20. Tax Status (1-3) Tax
Status.
Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data (1-3) Total Return; (1-3)
Yield; (1-3) Performance
Comparisons.
Item 23. Financial Statements (1)
Included in Part B; (2-3) to
be filed by amendment.
Federated Capital Appreciation Fund
(A Portfolio of Federated Equity Funds)
(formerly, Federated Growth Trust)
Class A Shares
Class B Shares
Class C Shares
Combined Prospectus
The shares of Federated Capital Appreciation Fund (the "Fund")
represent interests in a diversified investment portfolio of
Federated Equity Funds, an open-end management investment company (a
mutual fund). The Fund invests primarily in equity securities that
offer opportunities for capital appreciation.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in Class A Shares, Class B Shares, and Class C
Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional
Information for Class A Shares, Class B Shares, and Class C Shares
dated _______________, 1995, with the Securities and Exchange
Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of
Additional Information, which is in paper form only, or a paper copy
of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-235-4669. To obtain
other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Prospectus Dated _____________, 1995
SUMMARY OF FUND EXPENSES 1 TRUST INFORMATION 27
CLASS A SHARES 1 MANAGEMENT OF THE TRUST27
SUMMARY OF FUND EXPENSES 3 DISTRIBUTION OF SHARES 29
CLASS B SHARES 3 ADMINISTRATION OF THE
SUMMARY OF FUND EXPENSES 5 FUND 30
CLASS C SHARES 5 EXPENSES OF THE FUND AND
SYNOPSIS 7 CLASS A
LIBERTY FAMILY OF FUNDS 8 SHARES, CLASS B
FEDERATED LIFETRACK SHARES, AND
PROGRAM CLASS C SHARES 31
(CLASS A SHARES AND BROKERAGE TRANSACTIONS 31
CLASS C SHARES) 9 SHAREHOLDER INFORMATION 31
INVESTMENT INFORMATION 10 VOTING RIGHTS 31
INVESTMENT OBJECTIVE 10 MASSACHUSETTS PARTNERSHIP
INVESTMENT POLICIES 10 LAW 32
PORTFOLIO TURNOVER 15 TAX INFORMATION 32
INVESTMENT LIMITATIONS 16 FEDERAL INCOME TAX 32
NET ASSET VALUE 16 PENNSYLVANIA CORPORATE
INVESTING IN THE FUND 18 AND
HOW TO PURCHASE SHARES 18 PERSONAL PROPERTY
INVESTING IN CLASS A TAXES 32
SHARES 18 PERFORMANCE INFORMATION 33
INVESTING IN CLASS B APPENDIX 34
SHARES 20
INVESTING IN CLASS C
SHARES 21
SPECIAL PURCHASE FEATURES
21
EXCHANGE PRIVILEGE 22
HOW TO REDEEM SHARES 23
SPECIAL REDEMPTION
FEATURES 24
CONTINGENT DEFERRED SALES
CHARGE 25
ELIMINATION OF CONTINGENT
DEFERRED SALES CHARGE
26
ACCOUNT AND SHARE
INFORMATION 27
SUMMARY OF FUND EXPENSES
FEDERATED CAPITAL APPRECIATION FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) ______
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or
redemption proceeds, as applicable) (1) _____
Redemption Fee (as a percentage of amount redeemed, if applicable)
None
Exchange Fee None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)*
Management Fee (after waiver) (2) ___
_%
12b-1 Fee (3) ____%
Total Other Expenses (after expense reimbursement) ____%
Shareholder Services Fee ____%
Total Class A Shares Operating Expenses (4) ___
_%
(1)Class A Shares purchased with the proceeds of a redemption
of shares of an unaffiliated investment company purchased or
redeemed with a sales load and not distributed by Federated
Securities Corp. may be charged a contingent deferred sales
charge of ____ of _____ for redemptions made within one full
year of purchase. See "Contingent Deferred Sales Charge."
(2)The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of the management fee. The
adviser can terminate this anticipated voluntary waiver at
any time at its sole discretion. The maximum management fee
is _____.
(3)The Class A Shares has no present intention of paying or
accruing the 12b-1 fee during the fiscal year ending October
31, 1996. If the Class A Shares were paying or accruing the
12b-1 fee, the Class A Shares would be able to pay up to
_____ of its average daily net assets for the 12b-1 fee.
See "Trust Information."
(4)The Total Class A Shares Operating Expenses are estimated to
be ___% absent the anticipated voluntary waiver of the
management fee and the anticipated voluntary reimbursement
of certain other operating expenses.
*Total Class A Shares Operating Expenses are estimated based on
average expenses expected to be incurred during the period
ending October 31, 1995. During the course of this period,
expenses may be more or less than the average amount shown.
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of
Class A Shares will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see
"Investing in Class A Shares" and "Trust Information." Wire-
transferred redemptions of less than $5,000 may be subject to
additional fees.
EXAMPLE 1 year 3 years
You would pay the following
expenses on a $1,000
investment, assuming (1) 5% annual
return and
(2) redemption at the end of each
time period. $ __ $ __
You would pay the following
expenses on the same
investment, assuming no redemption $ __ $ __
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS
A SHARES' FISCAL YEAR ENDING OCTOBER 31, 1995.
SUMMARY OF FUND EXPENSES
FEDERATED CAPITAL APPRECIATION FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or
redemption proceeds, as applicable) (1) _____
Redemption Fee (as a percentage of amount redeemed, if applicable)
None
Exchange Fee None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)*
Management Fee (after waiver) (2) ___
_%
12b-1 Fee ____%
Total Other Expenses (after expense reimbursement) ____%
Shareholder Services Fee ____%
Total Class B Shares Operating Expenses (3) (4) ___
_%
(1)The contingent deferred sales charge is _____ in the first
year declining to _____ in the sixth year and 0.00%
thereafter. (See "Contingent Deferred Sales Charge.")
(2)The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of the management fee. The
adviser can terminate this anticipated voluntary waiver at
any time at its sole discretion. The maximum management fee
is _____.
(3)Class B Shares convert to Class A Shares (which pay lower
ongoing expenses) approximately eight years after purchase.
(4)The Total Class B Shares Operating Expenses are estimated to
be ____% absent the anticipated voluntary waiver of the
management fee and the anticipated voluntary reimbursement
of certain other operating expenses.
*Total Class B Shares Operating Expenses are estimated based on
average expenses expected to be incurred during the period
ending October 31, 1995. During the course of this period,
expenses may be more or less than the average amount shown.
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of
Class B Shares will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see
"Investing in Class B Shares" and "Trust Information." Wire-
transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted under the rules of the
National Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following
expenses on a $1,000
investment, assuming (1) 5% annual
return and
(2) redemption at the end of each
time period. $ __ $ ___
You would pay the following
expenses on the same
investment, assuming no redemption $ __ $ ___
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE
CLASS B SHARES' FISCAL YEAR ENDING OCTOBER 31, 1995.
SUMMARY OF FUND EXPENSES
FEDERATED CAPITAL APPRECIATION FUND
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or
redemption proceeds, as applicable) (1) _____
Redemption Fee (as a percentage of amount redeemed, if applicable)
None
Exchange Fee None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)*
Management Fee (after waiver) (2) ___
_%
12b-1 Fee ____%
Total Other Expenses (after expense reimbursement) ____%
Shareholder Services Fee ____%
Total Class C Shares Operating Expenses (3) ___
_%
(1)The contingent deferred sales charge assessed is _____ of
the lesser of the original purchase price or the net asset
value of Shares redeemed within one year of their purchase
date. For a more complete description, see "Contingent
Deferred Sales Charge."
(2)The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of the management fee. The
adviser can terminate this anticipated voluntary waiver at
any time at its sole discretion. The maximum management fee
is ______.
(2)The Total Class C Shares Operating Expenses are estimated to
be ____% absent the anticipated voluntary waiver of the
management fee and the anticipated voluntary reimbursement
of certain other operating expenses.
*Total Class C Shares Operating Expenses are estimated based on
average expenses expected to be incurred during the period
ending October 31, 1995. During the course of this period,
expenses may be more or less than the average amount shown.
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of
Class C Shares will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see
"Investing in Class C Shares" and "Trust Information." Wire-
transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted under the rules of the
National Association of Securities Dealers, Inc.
EXAMPLE 1 year 3 years
You would pay the following
expenses on a $1,000
investment, assuming (1) 5% annual
return and
(2) redemption at the end of each
time period. $ __ $ __
You would pay the following
expenses on the same
investment, assuming no redemption $ __ $ __
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE
CLASS C SHARES' FISCAL YEAR ENDING OCTOBER 31, 1995.
SYNOPSIS
Federated Capital Appreciation Fund (the "Fund") is an investment
portfolio of Federated Equity Funds (the "Trust"). The Trust was
established as a business trust under the laws of the Commonwealth
of Massachusetts pursuant to a Declaration of Trust dated April 17,
1984. The Fund was created for the purpose of soliciting the
shareholders of Federated Exchange Fund, Ltd., a California Limited
Partnership, to exchange their partnership interests for shares of
beneficial interest in the Class A Shares of the Fund. Until this
transaction is completed, or until management of the Fund determines
that it will abandon its plan to acquire the assets of Federated
Exchange Fund, Ltd. in a reorganization transaction, shares of the
Fund will not be available for public investment. The Fund's
address is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779.
The Declaration of Trust permits the Trust to offer separate series
of shares of beneficial interest representing interests in separate
portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the
date of this prospectus, the Board of Trustees (the "Trustees") has
established three classes of shares, known as Class A Shares, Class
B Shares, and Class C Shares (referred to as "Shares," individually
and collectively as the context requires).
Shares of the Fund are designed primarily for individuals and
institutions seeking capital appreciation through a professionally
managed, diversified portfolio consisting primarily of equity
securities.
For information on how to purchase the Shares offered by this
prospectus, please refer to "How to Purchase Shares." The minimum
initial investment for Class A Shares is $500. The minimum initial
investment for Class B Shares and Class C Shares is $1,500.
However, the minimum initial investment for a retirement account in
any class is $50. Subsequent investments in any class must be in
amounts of at least $100, except for retirement plans which must be
in amounts of at least $50.
Class A Shares are generally sold at net asset value plus an
applicable sales load and are redeemed at net asset value. However,
a contingent deferred sales charge is imposed under certain
circumstances. For a more complete description, see "How to Redeem
Shares." Class A Shares are sold and redeemed at net asset value
for trust departments, investment advisers, and shareholders who
receive Shares in the reorganization of Federated Exchange Fund,
Ltd., described above.
Class B Shares are sold at net asset value and are redeemed at net
asset value. However, a contingent deferred sales charge is imposed
on certain Shares which are redeemed within six full years of
purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred
sales charge of 1.00% will be charged on assets redeemed within the
first 12 months following purchase. See "How to Redeem Shares."
Additionally, information regarding the exchange privilege offered
with respect to the Fund and certain other funds for which
affiliates of Federated Investors serve as principal underwriter
("Federated Funds") can be found under "Exchange Privilege."
Federated Management is the investment adviser (the "Adviser") to
the Fund and receives compensation for its services. The Adviser's
address is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779.
Investors should be aware of the following general observations. The
Fund may make certain investments and employ certain investment
techniques that involve risks, including investing in convertible
securities and zero coupon convertible securities, entering into
repurchase agreements, investing in when-issued and delayed delivery
securities, lending portfolio securities, the purchasing or writing
of put and call options, the purchasing and selling of financial
futures and options on futures, and investing in restricted and
illiquid securities, foreign securities and high yield corporate
debt obligations. These risks are described under "Investment
Policies."
The Fund's current net asset value and offering price can be found
in the mutual funds section of local newspaper under "Federated
Liberty Funds."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively
known as the Liberty Family of Funds. The other funds in the Liberty
Family of Funds are:
- American Leaders Fund, Inc., providing growth of capital and
income through high-quality stocks;
- Capital Growth Fund, providing appreciation of capital
primarily through equity securities;
- Federated Bond Fund, providing as high a level of current
income as is consistent with the preservation of capital by
investing primarily in a portfolio of investment grade bonds;
- Federated Growth Strategies Fund, providing appreciation of
capital through equity securities of companies with prospects
for above-average growth in earnings and dividends, or of
companies where significant fundamental changes are taking
place;
- Federated Small Cap Strategies Fund, providing appreciation
of capital through common stocks of small and medium sized
companies;
- Fund for U.S. Government Securities, Inc., providing current
income through long-term U.S. government securities;
- International Equity Fund, providing long-term capital
growth and income through international securities;
- International Income Fund, providing a high level of current
income consistent with prudent investment risk through high-
quality debt securities denominated primarily in foreign
currencies;
- Liberty Equity Income Fund, Inc., providing above-average
income and capital appreciation through income producing
equity securities;
- Liberty High Income Bond Fund, Inc., providing high current
income through high-yielding, lower-rated, corporate bonds;
- Liberty Municipal Securities Fund, Inc., providing a high
level of current income exempt from federal regular income
tax through municipal bonds;
- Liberty U.S. Government Money Market Trust, providing
current income consistent with stability of principal through
high-quality U.S. government securities;
- Liberty Utility Fund, Inc., providing current income and
long-term growth of income, primarily through electric, gas,
and communications utilities;
- Limited Term Fund, providing a high level of current income
consistent with minimum fluctuation in principal through
investment grade securities;
- Limited Term Municipal Fund, providing a high level of
current income exempt from federal regular income tax
consistent with the preservation of principal, primarily
limited to municipal securities;
- Michigan Intermediate Municipal Trust, providing current
income exempt from federal regular income tax and personal
income taxes imposed by the state of Michigan and Michigan
municipalities, primarily through Michigan municipal
securities;
- Pennsylvania Municipal Income Fund, providing current income
exempt from federal regular income tax and the personal
income taxes imposed by the Commonwealth of Pennsylvania,
primarily through Pennsylvania municipal securities;
- Strategic Income Fund, providing a high level of current
income, primarily through domestic and foreign corporate debt
obligations;
- Tax-Free Instruments Trust, providing current income
consistent with the stability of principal and exempt from
federal income tax, through high-quality, short-term
municipal securities; and
- World Utility Fund, providing total return primarily through
securities issued by domestic and foreign companies in the
utilities industries.
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Each of the funds may also invest in certain other types of
securities as described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification
for an investor's long-term investment planning. It enables an
investor to meet the challenges of changing market conditions by
offering convenient exchange privileges which give access to various
investment vehicles and by providing the investment services of
proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty
Life Members are exempt from sales loads on future purchases in and
exchanges between the Class A Shares of any funds in the Liberty
Family of Funds, as long as they maintain a $500 balance in one of
the Liberty Funds.
FEDERATED LIFETRACK PROGRAM (CLASS A SHARES AND CLASS C SHARES)
The Fund is also a member of the Federated LifeTrack Program sold
through financial representatives. Federated LifeTrack Program is
an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed
benefit and savings plans. Under Federated LifeTrack Program,
employers or plan trustees may select a group of investment options
to be offered in a plan which also uses Federated LifeTrack Program
for recordkeeping and administrative services. Additional fees are
charged to participating plans for these services. As part of
Federated LifeTrack Program, exchanges may readily be made between
investment options selected by the employer or a plan trustee. For
further information about participating in the Federated LifeTrack
Program, please contact an investment professional or the Fund at
the address referenced in the Synopsis of this prospectus.
The other funds participating in the Federated LifeTrack Program
are: American Leaders Fund, Inc., Automated Cash Management Trust,
Automated Government Cash Reserves, Automated Government Money
Trust, Automated Treasury Cash Reserves, Capital Preservation
Fund, Federated ARMs Fund, Federated Bond Fund, Federated GNMA
Trust, Federated Growth Strategies Fund, Federated High Yield Trust,
Federated Income Trust, Federated Managed Aggressive Growth Fund,
Federated Managed Growth and Income Fund, Federated Managed Growth
Fund, Federated Managed Income Fund, Federated Max Cap Fund,
Federated Mini Cap Fund, Federated Mid Cap Fund, Federated Short-
Term Income Fund, Federated Stock Trust, Federated U.S. Government
Securities Fund 1-3 Years, Federated U.S. Government Securities Fund
2-5 Years, Fortress Utility Fund, Inc., Fund for U.S. Government
Securities, Inc., Intermediate Income Fund, International Equity
Fund, International Income Fund, Liberty Equity Income Fund, Inc.,
Liberty High Income Bond Fund, Inc., Liberty Utility Fund, Inc., and
Stock and Bond Fund, Inc.
With respect to Class A Shares, no sales load is imposed on
purchases made by qualified retirement plans with over $l million
invested in funds participating in the Federated LifeTrack Program.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide capital
appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes
effective.
Acceptable Investments. The Fund attempts to achieve its objectives
by investing at least 65% of its assets in equity securities.
Equity securities include common stocks, preferred stocks, and
securities (including debt securities) that are convertible into
common stocks. The portion of the Fund's total assets invested in
common stocks, preferred stocks, and convertible securities will
vary according to the Fund's assessment of market and economic
conditions and outlook.
The Fund's stock selection emphasizes those common stocks in each
sector that offer significant potential for capital appreciation
based upon factors such as price/cash flow, price/book value, and
projected earnings growth. The Fund may also invest in the
securities of companies involved in mergers or restructuring, and
may invest up to 20% of its total assets in foreign securities.
Common Stock. As described above, the Fund invests primarily in
equity securities. As with other mutual funds that invest primarily
in equity securities, the Fund is subject to market risks. That is,
the possibility exists that common stocks will decline over short or
even extended periods of time, and the United States equity market
tends to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
However, since the Fund invests in growth-oriented equity
securities, there are some additional risk factors associated with
investment in the Fund. Growth-oriented stocks may include issuers
with smaller capitalization. Small and medium capitalization stocks
have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard &
Poor's 500 Index. This is because, among other things, smaller
companies have a lower degree of liquidity in the equity market and
tend to have a greater sensitivity to changing economic conditions.
That is, the stock of small and medium capitalization companies may
decline in price as the price of large company stocks rise, or vice
versa. Therefore, investors should expect that the Fund will be
more volatile than, and may fluctuate independently of, broad market
indices such as the Standard & Poor's 500 Index.
Convertible Securities. Convertible securities are fixed-income
securities which may be exchanged or converted into a predetermined
number of the issuer's underlying common stock at the option of the
holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a
combination of the features of several of these securities. The Fund
invests in convertible bonds rated "B" or higher by Standard &
Poor's Rating Group ("Standard & Poor's"), or Moody's Investors
Service, Inc. ("Moody's") at the time of investment, or if unrated,
of comparable quality. If a convertible bond is rated below "B"
according to the characteristics set forth here after the Fund has
purchased it, the Fund is not required to drop the convertible bond
from the portfolio, but will consider appropriate action. The
investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different
investment objectives.
Convertible bonds and convertible preferred stocks are fixed-income
securities that generally retain the investment characteristics of
fixed-income securities until they have been converted but also
react to movements in the underlying equity securities. The holder
is entitled to receive the fixed-income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise
the conversion privilege. Usable bonds are corporate bonds that can
be used in whole or in part, customarily at full face value, in lieu
of cash to purchase the issuer's common stock. When owned as part of
a unit along with warrants, which are options to buy the common
stock, they function as convertible bonds, except that the warrants
generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and, therefore, have a
claim to assets of the corporation prior to the holders of common
stock in the case of liquidation. However, convertible securities
are generally subordinated to similar nonconvertible securities of
the same company. The interest income and dividends from convertible
bonds and preferred stocks provide a stable stream of income with
generally higher yields than common stocks, but lower than non-
convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in
its portfolio into shares of the underlying common stock in
instances in which, in the Adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund
in achieving its investment objectives. Otherwise, the Fund will
hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Adviser evaluates the investment
characteristics of the convertible security as a fixed-income
instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, the Adviser considers
numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's
management capability and practices.
Zero Coupon Convertible Securities. Zero coupon convertible
securities are debt securities which are issued at a discount to
their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on
zero coupon convertible securities accretes at a stated yield until
the security reaches its face amount at maturity. Zero coupon
convertible securities are convertible into a specific number of
shares of the issuer's common stock. In addition, zero coupon
convertible securities usually have put features that provide the
holder with the opportunity to sell the bonds back to the issuer at
a stated price before maturity. Generally, the prices of zero coupon
convertible securities may be more sensitive to market interest rate
fluctuations than conventional convertible securities.
Federal income tax law requires the holder of a zero coupon
convertible security to recognize income from the security prior to
the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability of federal income
taxes, the Fund will be required to distribute income accrued from
zero coupon convertible securities which it owns, and may have to
sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.
Foreign Securities. The Fund reserves the right to invest up to 20%
of its assets in foreign debt and equity securities. These
securities may be either dollar-denominated or denominated in
foreign currencies. Investments in foreign securities, particularly
those of non-governmental issuers, involve considerations which are
not ordinarily associated with investments in domestic issuers.
These considerations include the possibility of expropriation,
confiscatory taxation, currency fluctuations, the unavailability of
financial information or the difficulty of interpreting financial
information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the
impact of political, social, or diplomatic developments, and the
difficulty of assessing economic trends in foreign countries. It may
also be more difficult to enforce contractual obligations abroad
than would be the case in the United States because of differences
in the legal systems. Transaction costs in foreign securities may be
higher. The Adviser will consider these and other factors before
investing in foreign securities and will not make such investments
unless, in its opinion, such investments will meet the Fund's
standards and objectives.
Foreign Currency Transactions. The Fund may enter into foreign
currency transactions to obtain the necessary currencies to settle
securities transactions. Currency transactions may be conducted
either on a spot or cash basis at prevailing rates or through
forward foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to
protect Fund assets against adverse changes in foreign currency
exchange rates or exchange control regulations. Such changes could
unfavorably affect the value of Fund assets which are denominated in
foreign currencies, such as foreign securities or funds deposited in
foreign banks, as measured in U.S. dollars. Although foreign
currency exchanges may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may
also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain
cases, result in losses to the Fund.
Currency Risks.. To the extent that debt securities
purchased by the Fund are denominated in currencies other
than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of
securities; and net investment income and capital gain, if
any, to be distributed to shareholders by the Fund. If the
value of a foreign currency rises against the U.S. dollar,
the value of the Fund's assets denominated in that currency
will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of the
Fund's assets denominated in that currency will decrease.
Forward Foreign Currency Exchange Contracts. A forward foreign
currency exchange contract ("forward contract") is an obligation to
purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties.
Generally no commission charges or deposits are involved. At the
time the Fund enters into a forward contract, Fund assets with a
value equal to the Fund's obligation under the forward contract are
segregated and are maintained until the contract has been settled.
The Fund will not enter into a forward contract with a term of more
than one year.
The Fund will generally enter into a forward contract to provide the
proper currency to settle a securities transaction at the time the
transaction occurs ("trade date"). The period between trade date
and settlement date will vary between 24 hours and 30 days,
depending upon local custom.
The Fund may also protect against the decline of a particular
foreign currency by entering into a forward contract to sell an
amount of that currency approximating the value of all or a portion
of the Fund's assets denominated in that currency ("hedging"). The
success of this type of short-term hedging strategy is highly
uncertain due to the difficulties of predicting short-term currency
market movements and of precisely matching forward contract amounts
and the constantly changing value of the securities involved.
Although the adviser will consider the likelihood of changes in
currency values when making investment decisions, the adviser
believes that it is important to be able to enter into forward
contracts when it believes the interests of the Fund will be served.
The Fund will not enter into forward contracts for hedging purposes
in a particular currency in an amount in excess of the Fund's assets
denominated in that currency. The Fund will not invest more than
20% of its total assets in forward foreign currency exchange
contracts.
High-Yield Corporate Debt Obligations. The Fund may invest up to 35%
of the value of its total assets in corporate debt obligations that
are not investment grade bonds or are not rated but are determined
by the Adviser to be of comparable quality. Securities which are
rated BBB or lower by Standard & Poor's or Baa or lower by Moody's
either have speculative characteristics or are speculative with
respect to capacity to pay interest and repay principal in
accordance with the terms of the obligations. A description of the
rating categories is contained in the Appendix to this Prospectus.
There is no lower limit with respect to rating categories for
securities in which the Fund may invest.
Corporate debt obligations that are not determined to be investment
grade are high-yield, high-risk bonds, typically subject to greater
market fluctuations and greater risk of loss of income and principal
due to an issuer's default. To a greater extent than investment
grade bonds, lower rated bonds tend to reflect short-term corporate,
economic and market developments, as well as investor perceptions of
the issuer's credit quality. In addition, lower rated bonds may be
more difficult to dispose of or to value than high-rated, lower-
yielding bonds. The Fund does not intend to invest more than 5% of
its assets in corporate debt obligations that are not investment-
grade bonds (excluding securities convertible into equity
securities) during the current fiscal year.
The Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate
and legislative developments.
Put and Call Options. The Fund may purchase put options on its
portfolio securities. These options will be used as a hedge to
attempt to protect securities which the Fund holds against decreases
in value. The Fund may also write call options on all or any portion
of its portfolio to generate income for the Fund. The Fund will
write call options on securities either held in its portfolio or for
which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of
any additional consideration.
The Fund may generally purchase and write over-the-counter options
on portfolio securities in negotiated transactions with the buyers
or writers of the options since options on the portfolio securities
held by the Fund are not traded on an exchange. The Fund purchases
and writes options only with investment dealers and other financial
institutions (such as commercial banks or savings associations)
deemed creditworthy by the Adviser.
Over-the-counter options are two party contracts with price and
terms negotiated between buyer and seller. In contrast, exchange-
traded options are third party contracts with standardized strike
prices and expiration dates and are purchased from a clearing
corporation. Exchange-traded options have a continuous liquid market
while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to
shareholders.
Financial Futures and Options on Futures. The Fund may purchase and
sell financial futures contracts to hedge all or a portion of its
portfolio against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments at a
certain time in the future. The seller of the contract agrees to
make delivery of the type of instrument called for in the contract
and the buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options on
financial futures contracts as a hedge to attempt to protect
securities in its portfolio against decreases in value. When the
Fund writes a call option on a futures contract, it is undertaking
the obligation of selling a futures contract at a fixed price at any
time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the
Fund is entitled (but not obligated) to sell a futures contract at
the fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related
options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid
for related options would exceed 5% of the market value of the
Fund's total assets. When the Fund purchases futures contracts, an
amount of cash and U.S. Treasury securities, equal to the underlying
commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's
custodian (or the broker, if legally permitted) to collateralize the
position and thereby insure that the use of such futures contract is
unleveraged.
Risks. When the Fund uses financial futures and options on
financial futures as hedging devices, much depends on the
ability of the Adviser to predict market conditions based
upon certain economic analysis and factors. There is a risk
that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the
futures contract and any related options to react differently
than the portfolio securities to market changes. In addition,
the Adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in
futures contracts or for options will exist at all times.
Although the Adviser will consider liquidity before entering
into options transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary
market.
Restricted and Illiquid Securities. The Fund may invest up to 10% of
its net assets in restricted securities. This restriction is not
applicable to commercial paper issued under Section 4(2) of the
Securities Act of 1933, as amended. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its
investment objectives and policies but which are subject to
restriction on resale under federal securities law. The Fund will
limit investments in illiquid securities, including certain
restricted securities determined by the Trustees not to be liquid,
non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net
assets.
The Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended. Section 4(2) commercial paper
is restricted as to disposition under federal securities law and is
generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser
must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the Fund
through or with the assistance of the issuer or investment dealers
who make a market in Section 4(2) commercial paper, thus providing
liquidity.
Temporary Investments. The Fund may also invest temporarily, in
amounts of 35% or less of the Fund's assets, in cash and cash items
during times of unusual market conditions to maintain liquidity.
Cash items may include the following short-term obligations:
- commercial paper and Europaper (dollar denominated
commercial paper issued outside the United States);
- instruments of domestic and foreign banks and savings
associations (such as certificates of deposit, demand and
time deposits, savings shares, and bankers' acceptances);
- obligations of the U.S. government or its agencies or
instrumentalities;
- repurchase agreements; and
- other short-term instruments.
Repurchase Agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial
institutions sell U.S. government or other securities to the Fund
and agree at the time of sale to repurchase them at a mutually
agreed upon time and price.
When-Issued and Delayed Delivery Transactions. The Fund may purchase
securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's
failure to complete these transactions may cause the Fund to miss a
price or yield considered to be advantageous. Settlement dates may
be a month or more after entering into these transactions, and the
market values of the securities purchased may vary from the purchase
prices. Accordingly, the Fund may pay more/less than the market
value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement, if the
Adviser deems it appropriate to do so. In addition, the Fund may
enter in transactions to sell its purchase commitments to third
parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Fund
may realize short-term profits or losses upon the sale of such
commitments.
Lending of Portfolio Securities. In order to generate additional
income, the Fund may lend portfolio securities, on a short-term or a
long-term basis, up to one-third of the value of its total assets to
broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the Adviser has
determined are creditworthy under guidelines established by the
Trustees and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and
the Fund may, therefore, lose the opportunity to sell the securities
at a desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Adviser
believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a
particular security may have been held. The Adviser to the Fund does
not anticipate that portfolio turnover will result in adverse tax
consequences. Any such trading will increase the Fund's portfolio
turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a
portfolio instrument for a percentage of its cash value
with an agreement to buy it back on a set date) or pledge
securities except that the Fund may borrow up to one-third
of the value of its total assets and pledge up to 10% of
the value of those assets to secure such borrowings;
- sell securities short except, under strict limitations, it
may maintain open short positions so long as not more than
10% of the value of its net assets is held as collateral
for those positions;
- lend any of its assets except portfolio securities up to
one-third of the value of its total assets;
- underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of
1933, as amended, in connection with the sale of restricted
securities which the Fund may purchase pursuant to its
investment objectives, policies, and limitations; or
- with respect to 75% of its total assets, invest more than
5% of the value of its total assets in securities of any
one issuer (other than cash, cash items, or securities
issued or guaranteed by the U.S. government, its agencies,
or instrumentalities, and repurchase agreements
collateralized by such securities) or acquire more than 10%
of any class of voting securities of any one issuer. For
these purposes, the Fund takes all common stock and all
preferred stock of an issuer each as a single class,
regardless of priorities, series, designations, or other
differences.
The above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be
changed by the Trustees without shareholder approval. Shareholders
will be notified before any material change in these limitations
becomes effective.
The Fund will not:
- invest more than 5% of its total assets in securities of
issuers that have records of less than three years of
continuous operations;
- commit more than 5% of the value of its total assets to
premiums on open put option positions; or
- invest more than 5% of its total assets in warrants.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. The net asset value
for Shares is determined by adding the interest of each class of
Shares in the market value of all securities and other assets of the
Fund, subtracting the interest of each class of Shares in the
liabilities of the Fund and those attributable to each class of
Shares, and dividing the remainder by the total number of each class
of Shares outstanding. The net asset value for each class of Shares
may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which
the shareholders of a particular class are entitled.
The net asset value of each class of Shares of the Fund is
determined as of the close of trading (normally 4:00 p.m., Eastern
time) on the New York Stock Exchange, Monday through Friday, except
on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered
for redemption and no orders to purchase Shares are received; or
(iii) the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
INVESTING IN THE FUND
This prospectus offers investors three classes of Shares that carry
sales loads and contingent deferred sales charges in different forms
and amounts and which bear different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load
of 5.50% at the time of purchase. As a result, Class A Shares are
not subject to any charges when they are redeemed (except for
special programs offered under "Purchases with Proceeds From
Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales loads. See
"Reducing or Eliminating the Sales Load." Class A Shares have no
conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are
subject to a contingent deferred sales charge of up to 5.50% if
redeemed within six full years following purchase. Class B Shares
also bear a higher 12b-1 fee than Class A Shares. Class B Shares
will automatically convert into Class A Shares, based on relative
net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion) will have a
higher expense ratio and pay lower dividends than Class A Shares due
to the higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are
subject to a 1.00% contingent deferred sales charge on assets
redeemed within the first 12 months following purchase. Class C
Shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made, but
will have a higher expense ratio and pay lower dividends than Class
A Shares due to the higher 12b-1 fee. Class C Shares have no
conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock
Exchange is open. Shares of the Fund may be purchased, as described
below, either through a financial institution (such as a bank or
broker/dealer which has a sales agreement with the distributor) or
by wire or by check directly to the Fund, with a minimum initial
investment of $500 for Class A Shares and $1,500 for Class B Shares
and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for
retirement plans is only $50. (Financial institutions may impose
different minimum investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may, from
time to time, offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any
purchase request. An account must be established at a financial
institution or by completing, signing, and returning the new account
form available from the Fund before Shares can be purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined
after an order is received, plus a sales load as follows:
Sales Load as Sales
Load as Dealer Concession as
a Percentage of a
Percentage of a Percentage of
Amount of Transaction Public Offering Price Net Amount
Invested Public Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,0004.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90%
3.25%
$250,000 but less than $500,000 2.50% 2.56%
2.25%
$500,000 but less than $1 million 2.00% 2.04%
1.80%
$1 million or greater 0.00% 0.00% 0.25%*
*See sub-section entitled "Dealer Concession."
No sales load is imposed for Class A Shares purchased through bank
trust departments, investment advisers registered under the
Investment Advisers Act of 1940, as amended, retirement plans where
the third party administrator has entered into certain arrangements
with Federated Securities Corp. or its affiliates, to "wrap
accounts" or similar programs for the benefit of clients of
financial institutions under which clients pay fees to such
financial institutions, or to shareholders designated as Liberty
Life Members. However, investors who purchase Shares through a
trust department, investment adviser, wrap account, or retirement
plan may be charged an additional service fee by that institution.
In addition, shareholders who received Class A Shares through the
exchange of interests in Federated Exchange Fund, Ltd. through the
tax-free reorganization of the partnership may purchase Class A
Shares without the imposition of a sales charge.
No sales load is imposed on purchases made by retirement plans with
over $1 million invested in funds available through the Federated
LifeTrack Program.
Dealer Concession. For sales of Class A Shares, a dealer will
normally receive up to 90% of the applicable sales load. Any portion
of the sales load which is not paid to a dealer will be retained by
the distributor. However, the distributor, may offer to pay dealers
up to 100% of the sales load retained by it. Such payments may take
the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some
instances, these incentives will be made available only to dealers
whose employees have sold or may sell a significant amount of
Shares. On purchases of $1 million or more, the investor pays no
sales load; however, the distributor will make twelve monthly
payments to the dealer totaling 0.25% of the public offering price
over the first year following the purchase. Such payments are based
on the original purchase price of Shares outstanding at each month
end.
The sales load for Shares sold other than through registered
broker/dealers will be retained by Federated Securities Corp.
Federated Securities Corp. may pay fees to banks out of the sales
load in exchange for sales and/or administrative services performed
on behalf of the bank's customers in connection with the initiation
of customer accounts and purchases of Shares.
Until further notice, the entire amount of the applicable sales load
will be reallowed to dealers. In addition, the distributor will pay
dealers additional bonus payments in an amount equal to 0.50 of
1.00% of the public offering price of the Shares sold.
Subaccounting Services. Institutions are encouraged to open single
master accounts. However, certain institutions may wish to use the
transfer agent's subaccounting system to minimize their internal
recordkeeping requirements. The transfer agent charges a fee based
on the level of subaccounting services rendered. Institutions
holding Shares in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or
in addition to normal trust or agency account fees. They may also
charge fees for other services provided which may be related to the
ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution
with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
Reducing or Eliminating the Sales Load
The sales load can be reduced or eliminated on the purchase of Class
A Shares through:
- - quantity discounts and accumulated purchases;
- - concurrent purchases;
- - signing a 13-month letter of intent;
- - using the reinvestment privilege; or
- - purchases with proceeds from redemptions of unaffiliated investment
company shares.
Quantity Discounts and Accumulated Purchases. As shown in the table
above, larger purchases reduce the sales load paid. The Fund will
combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales load. In addition, the sales
load, if applicable, is reduced for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Class A Shares is made, the Fund will
consider the previous purchases still invested in the Fund. For
example, if a shareholder already owns Class A Shares having a
current value at the public offering price of $30,000 and he
purchases $20,000 more at the current public offering price, the
sales load on the additional purchase according to the schedule now
in effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must
be notified by the shareholder in writing or by his financial
institution at the time the purchase is made that Class A Shares are
already owned or that purchases are being combined. The Fund will
reduce the sales load after it confirms the purchases.
Concurrent Purchases. For purposes of qualifying for a sales load
reduction, a shareholder has the privilege of combining concurrent
purchases of two or more funds in the Liberty Family of Funds, the
purchase price of which includes a sales load. For example, if a
shareholder concurrently invested $30,000 in one of the other funds
in the Liberty Family of Funds with a sales load, and $20,000 in
this Fund, the sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial
institution at the time the concurrent purchases are made. The Fund
will reduce the sales load after it confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least
$50,000 of shares of the funds in the Liberty Family of Funds
(excluding money market funds) over the next 13 months, the sales
load may be reduced by signing a letter of intent to that effect.
This letter of intent includes a provision for a sales load
adjustment depending on the amount actually purchased within the 13-
month period and a provision for the custodian to hold up to 5.50%
of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The Shares held in escrow in the shareholder's account will be
released upon fulfillment of the letter of intent or the end of the
13-month period, whichever comes first. If the amount specified in
the letter of intent is not purchased, an appropriate number of
escrowed Shares may be redeemed in order to realize the difference
in the sales load.
While this letter of intent will not obligate the shareholder to
purchase Shares, each purchase during the period will be at the
sales load applicable to the total amount intended to be purchased.
At the time a letter of intent is established, current balances in
accounts in any Class A Shares of any fund in the Liberty Family of
Funds, excluding money market accounts, will be aggregated to
provide a purchase credit towards fulfillment of the letter of
intent. Prior trade prices will not be adjusted.
Reinvestment Privilege. If Class A Shares in the Fund have been
redeemed, the shareholder has the privilege, within 120 days to
reinvest the redemption proceeds at the next-determined net asset
value without any sales load. Federated Securities Corp. must be
notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales load.
If the shareholder redeems his Class A Shares in the Fund, there may
be tax consequences.
Purchases with Proceeds from Redemptions of Unaffiliated Investment
Companies. Investors may purchase Class A Shares at net asset
value, without a sales load, with the proceeds from the redemption
of shares of an unaffiliated investment company that were purchased
or sold with a sales load or commission and were not distributed by
Federated Securities Corp. The purchase must be made within 60 days
of the redemption, and Federated Securities Corp. must be notified
by the investor in writing, or by his financial institution, at the
time the purchase is made. From time to time, the Fund may offer
dealers a payment of .50 of 1.00% for Shares purchased under this
program. If Shares are purchased in this manner, Fund purchases will
be subject to a contingent deferred sales charge for one year from
the date of purchase. Shareholders will be notified prior to the
implementation of any special offering, as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined
after an order is received. While Class B Shares are sold without an
initial sales load, under certain circumstances described under
"Contingent Deferred Sales Charge - Class B Shares," a contingent
deferred sales charge may be applied by the distributor at the time
Class B Shares are redeemed.
Conversion of Class B Shares. Class B Shares will automatically
convert into Class A Shares on or around the end of the month eight
full years after the purchase date, except as noted below, and will
no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of
the relative net asset values per share, without the imposition of
any sales load, fee or other charge. Class B Shares acquired by
exchange from Class B Shares of another fund in the Liberty Family
of Funds will convert into Class A Shares based on the time of the
initial purchase. For purposes of conversion to Class A Shares,
Shares purchased through the reinvestment of dividends and
distributions paid on Class B Shares will be considered to be held
in a separate sub-account. Each time any Class B Shares in the
shareholder's account (other than those in the sub-account) convert
to Class A Shares, an equal pro rata portion of the Class B Shares
in the sub-account will also convert to Class A Shares. The
conversion of Class B Shares to Class A Shares is subject to the
continuing availability of a ruling from the Internal Revenue
Service or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if
such ruling or opinion is not available. In such event, Class B
Shares would continue to be subject to higher expenses than Class A
Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be
invested in Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an
order is received. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months
following purchase. For a complete description of this charge see
"Contingent Deferred Sales Charge - Class C Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. An investor may
call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through
a financial institution are considered received when the Fund is
notified of the purchase order or when payment is converted into
federal funds. Purchase orders through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m.
(Eastern time) in order for Shares to be purchased at that day's
price. Purchase orders through other financial institutions must be
received by the financial institution and transmitted to the Fund
before 4:00 p.m. (Eastern time) in order for Shares to be purchased
at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions
may charge additional fees for their services.
The financial institution which maintains investor accounts in Class
B Shares or Class C Shares with the Fund must do so on a fully
disclosed basis unless it accounts for share ownership periods used
in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to
financial institutions may be subject to reclaim by the distributor
for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not
account for share ownership periods.
PURCHASING SHARES BY WIRE. Once an account has been established,
Shares may be purchased by wire by calling the Fund. All information
needed will be taken over the telephone, and the order is considered
received immediately. Payment for purchases which are subject to a
sales load must be received within three business days following the
order. Payment for purchases on which no sales load is imposed must
be received before 3:00 p.m. (Eastern time) on the next business day
following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund
Number); Account Number; Trade Date and Order Number; Group Number
or Dealer Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.
PURCHASING SHARES BY CHECK. Once an account has been established,
Shares may be purchased by sending a check made payable to the name
of the Fund (designate class of Shares and account number) to:
Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by
check is converted into federal funds (normally the business day
after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. Once a Fund account has been opened,
shareholders may add to their investment on a regular basis in a
minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking
account at an Automated Clearing House ("ACH") member and invested
in the Fund at the net asset value next determined after an order is
received by the Fund, plus the sales load, if applicable.
Shareholders should contact their financial institution or the Fund
to participate in this program.
RETIREMENT PLANS. Fund Shares can be purchased as an investment for
retirement plans or IRA accounts. For further details, contact the
Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES. Class A shareholders may exchange all or some of
their Shares for Class A Shares of other funds in the Liberty Family
of Funds at net asset value. Shareholders of Class A Shares may also
exchange into certain other Federated Funds (as defined in the
"Synopsis" of this prospectus) which are sold with a sales load
different from that of the Fund's or with no sales load, and which
are advised by subsidiaries or affiliates of Federated Investors.
These exchanges are made at net asset value plus the difference
between the Fund's sales load already paid and any sales load of the
Federated Fund into which the Shares are to be exchanged, if higher.
Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Shareholders in certain
other Federated Funds may exchange their shares in the Federated
Funds for Class A Shares. Participants in a retirement plan under
the Federated LifeTrack Program may exchange all or some of their
Shares for Class A Shares of other funds offered under the plan at
net asset value.
CLASS B SHARES. Class B shareholders may exchange all or some of
their Shares for Class B Shares of other funds in the Liberty Family
of Funds. (Not all funds in the Liberty Family of Funds currently
offer Class B Shares. Contact your financial institution regarding
the availability of other Class B Shares in the Liberty Family of
Funds). Exchanges are made at net asset value without being assessed
a contingent deferred sales charge on the exchanged Shares. To the
extent that a shareholder exchanges Shares for Class B Shares in
other funds in the Liberty Family of Funds, the time for which the
exchanged-for Shares are to be held will be added to the time for
which exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see "Contingent
Deferred Sales Charge."
CLASS C SHARES. Class C shareholders may exchange all or some of
their Shares for Class C Shares in other funds in the Liberty Family
of Funds at net asset value without a contingent deferred sales
charge. (Not all funds in the Liberty Family of Funds currently
offer Class C Shares. Contact your financial institution regarding
the availability of other Class C Shares in the Liberty Family of
Funds.) Participants in a retirement plan under Federated LifeTrack
Program may exchange some or all of their Shares for Class C Shares
of other funds offered under their plan at net asset value without a
contingent deferred sales charge. To the extent that a shareholder
exchanges Shares for Class C Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to
be held will be added to the time for which exchanged-from Shares
were held for purposes of satisfying the applicable holding period.
For more information, see "Contingent Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value equal to the minimum investment requirements of the fund
into which the exchange is being made. Before the exchange, the
shareholder must receive a prospectus of the fund for which the
exchange is being made.
This privilege is available to shareholders resident in any state in
which the Shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, Shares submitted for
exchange are redeemed and proceeds invested in the same class of
Shares of the other fund. The exchange privilege may be modified or
terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for
the Liberty Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for
federal income tax purposes. Depending upon the circumstances, a
capital gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds may be
given in writing or by telephone. Written instructions may require a
signature guarantee. Shareholders of the Fund may have difficulty in
making exchanges by telephone through brokers and other financial
institutions during times of drastic economic or market changes. If
a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail to Federated Services Company,
500 Victory Road - 2nd Floor, Quincy, Massachusetts 02171.
Instructions for exchanges for retirement plans participating in the
Federated LifeTrack Program should be given to the plan
administrator.
Telephone Instructions. Telephone instructions made by the investor
may be carried out only if a telephone authorization form completed
by the investor is on file with the Fund. If the instructions are
given by a broker, a telephone authorization form completed by the
broker must be on file with the Fund. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have
identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone
but must be forwarded to Federated Services Company, P.O. Box 8000,
Boston, Massachusetts 02266-8000 and deposited to the shareholder's
account before being exchanged. Telephone exchange instructions are
recorded and will be binding upon the shareholder. Such instructions
will be processed as of 4:00 p.m. (Eastern time) and must be
received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will begin receiving
dividends the following business day. This privilege may be modified
or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund
receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Redemption requests
must be received in proper form and can be made as described below.
Redemptions of Shares held through retirement plans participating in
the Federated LifeTrack Program will be governed by the
requirements of the respective plans.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares of the
Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset
value, less any applicable contingent deferred sales charge next
determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for Shares to be redeemed
at that day's net asset value. Redemption requests through other
financial institutions (such as banks) must be received by the
financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net
asset value. The financial institution is responsible for promptly
submitting redemption requests and providing proper written
redemption instructions. Customary fees and commissions may be
charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Shares may be redeemed in any amount
by calling the Fund provided the Fund has a properly completed
authorization form. These forms can be obtained from Federated
Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the
shareholder's account at a domestic commercial bank that is a member
of the Federal Reserve System. The minimum amount for a wire
transfer is $1,000. Proceeds from redeemed Shares purchased by check
or through ACH will not be wired until that method of payment has
cleared.
Telephone instructions will be recorded. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. In the event of
drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by
mailing a written request to: Federated Services Company, Fund Name,
Fund Class, P.O. Box 8600, Boston, Massachusetts 02266-8600.
The written request should state: Fund Name and the Class
designation; the account name as registered with the Fund; the
account number; and the number of Shares to be redeemed or the
dollar amount requested. All owners of the account must sign the
request exactly as the Shares are registered. It is recommended that
any share certificates be sent by registered or certified mail with
the written request.
If you are requesting a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption
payable to a third party, then all signatures appearing on the
written request must be guaranteed by a bank which is a member of
the Federal Deposit Insurance Corporation, a trust company, a member
firm of a domestic stock exchange, or any other "eligible guarantor
institution," as defined by the Securities and Exchange Act of 1934,
as amended. The Fund does not accept signatures guaranteed by a
notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect
in the future to limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Fund and its
transfer agent reserve the right to amend these standards at any
time without notice.
Normally, a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
written redemption request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM. Shareholders who desire to receive
payments of a predetermined amount not less than $100 may take
advantage of the Systematic Withdrawal Program. Under this program,
Shares are redeemed to provide for periodic withdrawal payments in
an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to
Shares, and the fluctuation of the net asset value of Shares
redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation
in this program through his financial institution. Due to the fact
that Class A Shares are sold with a sales load, it is not advisable
for shareholders to continue to purchase Class A Shares while
participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge
upon redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the
proceeds of a redemption of Shares of an unaffiliated investment
company purchased or redeemed with a sales load and not distributed
by Federated Securities Corp. may be charged a contingent deferred
sales charge of .50 of 1.00% for redemptions made within one full
year of purchase. Any applicable contingent deferred sales charge
will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts
within six full years of the purchase date of those Shares will be
charged a contingent deferred sales charge by the Fund's
distributor. Any applicable contingent deferred sales charge will be
imposed on the lesser of the net asset value of the redeemed Shares
at the time of purchase or the net asset value of the redeemed
Shares at the time of redemption in accordance with the following
schedule:
Year of Redemption Contingent Deferred
After Purchase Sales Charge
First...............................................................
.................. 5.50%
Second..............................................................
.............. 4.75%
Third...............................................................
................ 4%
Fourth..............................................................
............... 3%
Fifth...............................................................
.................. 2%
Sixth...............................................................
................. 1%
Seventh and
thereafter................................................. 0%
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts
within one full year of the purchase date of those Shares will be
charged a contingent deferred sales charge by the Fund's distributor
of 1.00%. Any applicable contingent deferred sales charge will be
imposed on the lesser of the net asset value of the redeemed Shares
at the time of purchase or the net asset value of the redeemed
Shares at the time of redemption. No contingent deferred sales
charge will be charged for redemptions of Class C Shares from the
Federated LifeTrack Program.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be
retained by the distributor. The contingent deferred sales charge
will not be imposed with respect to: (1) Shares acquired through the
reinvestment of dividends or distributions of long-term capital
gains; and (2) Shares held for more than six full years from the
date of purchase with respect to Class B Shares and one full year
from the date of purchase with respect to Class C Shares and
applicable Class A Shares. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge. In computing the
amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1)
Shares acquired through the reinvestment of dividends and long-term
capital gains; (2) Shares held for more than six full years from the
date of purchase with respect to Class B Shares and one full year
from the date of purchase with respect to Class C Shares and
applicable Class A Shares; (3) Shares held for fewer than six years
with respect to Class B Shares and one full year from the date of
purchase with respect to Class C Shares and applicable Class A
Shares on a first-in, first-out basis. A contingent deferred sales
charge is not assessed in connection with an exchange of Fund Shares
for Shares of other funds in the Liberty Family of Funds in the same
class (see "Exchange Privilege"). Any contingent deferred sales
charge imposed at the time the exchanged for Shares are redeemed is
calculated as if the shareholder had held the Shares from the date
on which he became a shareholder of the exchanged-from Shares.
Moreover, the contingent deferred sales charge will be eliminated
with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge will not be charged in connection
with exchanges of Shares for Class A Shares in other Liberty Family
Funds or Federated LifeTrack Program funds or redemptions from the
Federated LifeTrack Program.
The contingent deferred sales charge will be eliminated with respect
to the following redemptions: (1) redemptions following the death or
disability, as defined in Section 72(m)(7) of the Internal Revenue
Code of 1986, as amended, of a shareholder; (2) redemptions
representing minimum required distributions from an Individual
Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the
Fund of Shares in shareholder accounts that do not comply with the
minimum balance requirements. No contingent deferred sales charge
will be imposed on redemptions of Shares held by Trustees, employees
and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial
institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the
age of 21 of the aforementioned persons. Finally, no contingent
deferred sales charge will be imposed on the redemption of Shares
originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940, as
amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or
its affiliates, or any other financial institution, to the extent
that no payments were advanced for purchases made through such
entities. The Trustees reserve the right to discontinue elimination
of the contingent deferred sales charge. Shareholders will be
notified of such elimination. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales
charge eliminated as provided in the Fund's prospectus at the time
of the purchase of the Shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales
charge, the shareholder must notify Federated Securities Corp. or
the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains
a share account for each shareholder. Share certificates are not
issued unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to
each shareholder. Confirmations are sent to report dividends paid.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders
invested in the Fund on the record date. Dividends and distributions
are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date net asset value without a
sales load, unless shareholders request cash payments on the new
account form or by contacting the transfer agent. All shareholders
on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after
the record date, those Shares are not entitled to that quarter's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Fund may redeem Shares in any account, except retirement plans, and
pay the proceeds to the shareholder if the account balance falls
below the Class A Share required minimum value of $500 or the
required minimum value of $1,500 for Class B Shares and Class C
Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net
asset value of the respective Share Class. Before Shares are
redeemed to close an account, the shareholder is notified in writing
and allowed 30 days to purchase additional Shares to meet the
minimum requirement.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
Board of Trustees. The Trust is managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs
and for exercising all the Trust's powers except those reserved for
the shareholders. An Executive Committee of the Board of Trustees
handles the Board's responsibilities between meetings of the Board.
Investment Adviser. Investment decisions for the Fund are made by
Federated Management, the Fund's investment adviser, subject to
direction by the Trustees. The Adviser continually conducts
investment research and supervision for the Fund and is responsible
for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
Advisory Fees. The Adviser receives an annual investment
advisory fee equal to .75 of 1% of the Fund's average daily
net assets. The fee paid by the Fund, while higher than the
advisory fees paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar
objectives and policies. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain
operating expenses. The Adviser can terminate this voluntary
waiver at any time at its sole discretion. The Adviser has
also undertaken to reimburse the Fund for operating expenses
in excess of limitations established by certain states.
Adviser's Background. Federated Management, a Delaware
business trust organized on April 11, 1989, is a registered
investment adviser under the Investment Advisers Act of 1940,
as amended. It is a subsidiary of Federated Investors. All of
the Class A (voting) shares of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue,
Chairman and Trustee of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated
Investors serve as investment advisers to a number of
investment companies and private accounts. Certain other
subsidiaries also provide administrative services to a number
of investment companies. With over $72 billion invested
across more than 260 funds under management and/or
administration by its subsidiaries, as of December 31, 1994,
Federated Investors is one of the largest investment managers
in the United States. With more than 1,750 employees,
Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work
in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated
funds for their clients.
J. Thomas Madden has been the Fund's portfolio manager since
the Fund inception date. Mr. Madden joined Federated
Investors in 1977, and is an Executive Vice President of the
Adviser. Mr. Madden oversees portfolio management for the
Adviser in the domestic equity, high yield, and asset
allocation areas, and contributes to the formation of
investment strategy at Federated. Mr. Madden is a Chartered
Financial Analyst and received his M.B.A. in Finance from the
Darden School, University of Virginia.
Peter R. Anderson has been the Fund's portfolio manager since
the Fund inception date. Mr. Anderson joined Federated
Investors in 1972 as, and is presently, a Senior Vice
President of the Fund's investment adviser. Mr. Anderson is
a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.
Timothy E. Keefe has been the Fund's portfolio manager since
the Fund inception date. Mr. Keefe joined Federated
Investors in 1987, and has been an Assistant Vice President
of the Adviser since 1993. Mr. Keefe served as an Investment
Analyst of the Adviser from 1991 until 1993, and from 1987
until 1991, he acted as a Marketing Representative in the
Broker Dealer Department. Mr. Keefe is a Chartered Financial
Analyst and received his M.B.A. in Business Administration
from the University of Pittsburgh.
Both the Trust and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests
of shareholders ahead of the employees' own interest. Among other
things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase
or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less
than sixty days. Violations of the codes are subject to review by the
Board of Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares
of the Fund. Federated Securities Corp. is located at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. It is a
Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 5.5% of the net
asset value of Class B Shares purchased by their clients or
customers. These payments will be made directly by the distributor
from its assets, and will not be made from the assets of the Fund.
Dealers may voluntarily waive receipt of all or any portion of these
payments. The distributor may pay a portion of the distribution fee
discussed below to financial institutions that waive all or any
portion of the advance payments.
The distributor may offer to pay financial institutions an amount
equal to 1% of the net asset value of Class C Shares purchased by
their clients or customers at the time of purchase (except for
participants in the Federated LifeTrack Program). These payments
will be made directly by the distributor from its assets, and will
not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will
result in the waiver by the Fund of the otherwise applicable
contingent deferred sales charge.
Distribution Plan and Shareholder Services. Under a distribution
plan adopted in accordance with Investment Company Act Rule 12b-1
(the "Distribution Plan"), the distributor may be paid a fee in an
amount computed at an annual rate of up to .25% for Class A Shares
and up to .75% for Class B Shares and Class C Shares of the average
daily net assets of each class of Shares to finance any activity
which is principally intended to result in the sale of Shares
subject to the Distribution Plan. The Fund does not currently make
payments to the distributor or charge a fee under the Distribution
Plan for Class A Shares, and shareholders of Class A Shares will be
notified if the Fund intends to charge a fee under the Distribution
Plan. For Class A Shares and Class C Shares, the distributor may
select financial institutions such as banks, fiduciaries, custodians
for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents
for their clients or customers. With respect to Class B Shares,
because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75% of each class of Shares'
average daily net assets, it will take the distributor a number of
years to recoup the expenses it has incurred for its sales services
and distribution-related services pursuant to the Distribution Plan.
The Distribution Plan is a compensation type plan. As such, the
Fund makes no payments to the distributor except as described above.
Therefore, the Fund does not pay for unreimbursed expenses of the
distributor, including amounts expended by the distributor in excess
of amounts received by it from the Fund, interest, carrying, or
other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may
be able to recover such amounts or may earn a profit from future
payments made by Shares under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, under which the Fund may make payments of up to
0.25 of 1% of the average daily net asset value of Class A Shares,
Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder
accounts ("Shareholder Services"). Under the Shareholder Services
Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive
fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated
Shareholder Services.
In addition to payments made pursuant to the Distribution Plan and
the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of
sales services, distribution-related support services, or
shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or savings association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act
is deemed to prohibit depository institutions from acting in the
capacities described above or should Congress relax current
restrictions on depository institutions, the Trustees will consider
appropriate changes in the services.
State securities laws governing the ability of depository
institutions to act as underwriters or distributors of securities
may differ from interpretations given to the Glass-Steagall Act and,
therefore, banks and financial institutions may be required to
register as dealers pursuant to state laws.
Other Payments to Financial Institutions. Federated Securities Corp.
will pay financial institutions, at the time of purchase of Class A
Shares, an amount equal to .50 of 1% of the net asset value of Class
A Shares purchased by their clients or customers under the Federated
LifeTrack Program or by certain qualified plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim
from the financial institution should the assets leave the program
within 12 months after purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and
Class C Shares, in addition to payments made pursuant to the
Distribution Plan and Shareholder Services Agreement, Federated
Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include
sponsoring sales, educational and training seminars for their
employees, providing sales literature, and engineering computer
software programs that emphasize the attributes of the Fund. Such
assistance will be predicated upon the amount of Shares the
financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed
by the Adviser or its affiliates.
ADMINISTRATION OF THE FUND
Administrative Services. Federated Administrative Services, a
subsidiary of Federated Investors, provides administrative personnel
and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the
average aggregate daily net assets of all Federated Funds as
specified below:
Average Aggregate Daily Net
Assets
Maximum Administrative Fee of the Federated Funds
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750
million
The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class
of Shares. Federated Administrative Services may choose voluntarily
to waive a portion of its fee.
Custodian. State Street Bank and Trust Company, P.O. Box 8600,
Boston, Massachusetts 02266-8600, is custodian for the securities
and cash of the Fund.
Transfer Agent and Dividend Disbursing Agent. Federated Services
Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing
agent for the Fund.
Independent Auditors. The independent auditors for the Fund are
Ernst & Young LLP, One Oxford Centre, Pittsburgh, Pennsylvania
15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND
CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay
their allocable portion of Trust and Fund expenses.
The Trust expenses for which holders of Class A Shares, Class B
Shares, and Class C Shares pay their allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state
securities authorities; Trustees fees; auditors' fees, the cost of
meetings of the Trustees; legal fees of the Trust; association
membership dues; and such non-recurring and extraordinary items as
may arise from time to time.
The Fund expenses for which holders of Class A Shares, Class B
Shares, and Class C Shares pay their allocable portion include, but
are not limited to: registering the Fund and shares of the Fund;
investment advisory services; taxes and commissions; custodian fees;
insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, the only expenses which are allocable specifically to
Class A Shares, Class B Shares, and Class C Shares as classes are
expenses under the Trust's Distribution Plan and fees for
Shareholder Services. However, the Trustees reserve the right to
allocate certain other expenses to holders of Class A Shares, Class
B Shares, and Class C Shares as they deem appropriate (the "Class
Expenses"). In any case, the Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer
agent as attributable to holders of Class A Shares, Class B Shares,
or Class C Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel
and services as required to support holders of Class A Shares, Class
B Shares, or Class C Shares; legal fees relating solely to Class A
Shares, Class B Shares, or Class C Shares; and Trustees fees
incurred as a result of issues relating solely to Class A Shares,
Class B Shares, or Class C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale
of portfolio instruments, the Adviser looks for prompt execution of
the order at a favorable price. In working with dealers, the Adviser
will generally utilize those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of
the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration
to those firms which have sold or are selling Shares of the Fund and
other funds distributed by Federated Securities Corp. The Adviser
makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Trustees.
SHAREHOLDER 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 each Fund or class in the Trust have equal voting rights,
except that in matters affecting only a particular Fund or class,
only Shares of that Fund or class are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought
only for certain changes in the Trust's or the Fund's operation and
for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting of shareholders shall be called
by the Trustees upon the written request of shareholders owning at
least 10% of the Trust's outstanding shares of all series entitled
to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally
liable as partners under Massachusetts law for obligations of the
Trust. To protect its shareholders, the Trust has filed legal
documents with Massachusetts that expressly disclaim the liability
of its shareholders for acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter
into or sign.
In the unlikely event a shareholder is held personally liable for
the Trust's obligations, the Trust is required to use its property
to protect or compensate the shareholder. On request, the Trust
will defend any claim made and pay any judgment against a
shareholder for any act or obligation of the Trust. Therefore,
financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify
shareholders and pay judgments against them.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal
income tax purposes so that income (including capital gains) and
losses realized by the Trust's other portfolios will not be combined
for tax purposes with those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal
income tax on any dividends and other distributions, including
capital gains distributions, received. This applies whether
dividends and distributions are received in cash or as additional
Shares. Distributions representing long-term capital gains, if any,
will be taxable to shareholders as long-term capital gains no matter
how long the shareholders have held the Shares. No federal income
tax is due on any dividends earned in an IRA or qualified retirement
plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the
Trust:
- the Trust is not subject to Pennsylvania corporate or
personal property taxes; and
- Trust shares may be subject to personal property taxes
imposed by counties, municipalities, and school
districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to
such taxes if owned directly by residents of those
jurisdictions.
Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield
for each class of Shares.
Total return represents the change, over a specific period of time,
in the value of an investment in each class of Shares after
reinvesting all income and capital gains distributions. It is
calculated by dividing that change by the initial investment and is
expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net
investment income per share (as defined by the Securities and
Exchange Commission) earned by each class of Shares over a thirty-
day period by the maximum offering price per share of each class on
the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may
not correlate to the dividends or other distributions paid to
shareholders.
The performance information reflects the effect of non-recurring
charges, such as the maximum sales load or contingent deferred sales
charges, which, if excluded, would increase the total return and
yield.
Total return and yield will be calculated separately for Class A
Shares, Class B Shares, and Class C Shares. Because Class A Shares
may be subject to lower Rule 12b-1 fees, the yield for Class A
Shares, for the same period, may exceed that of Class B Shares and
Class C Shares.
Because Class A Shares are subject to a higher maximum sales load,
the total return for Class B Shares and Class C Shares, for the same
period, may exceed that of Class A Shares. Depending on the dollar
amount invested, and the time period for which any particular class
of Shares is held, the total return for any particular class may
exceed that of another.
From time to time, advertisements for Class A Shares, Class B
Shares, and Class C Shares of the Fund may refer to ratings,
rankings, and other information in certain financial publications
and/or compare the performance of Class A Shares, Class B Shares,
and Class C Shares to certain indices.
APPENDIX
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to
the credit quality of the security being rated. However, the ratings
are general and are not absolute standards of quality or guarantees
as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of fixed income
securities in which the Fund invests should be continuously reviewed
and that individual analysts give different weightings to the
various factors involved in credit analysis. A rating is not a
recommendation to purchase, sell, or hold a security, because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from more
than one service, each rating is evaluated independently. Ratings
are based on current information furnished by the issuer or obtained
by the rating services from other sources that they consider
reliable. Ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of such information, or for
other reasons.
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's Ratings Group. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in
small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB - Debt rated "BB" has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments. The "BB" rating category is
also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB" rating.
B - Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and repay
principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BB" or "BB" rating.
CCC -Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The "CCC" rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B" rating.
CC - The rating "CC" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" debt rating.
C - The rating "C" typically is applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC " debt
rating. The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
CI - The rating "CI" is reserved for income bonds on which no
interest is being paid.
D - Debt rated "D" is in payment default. The "D" rating category
is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA - Bonds which are rated AAA are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds which are rated AA are judged to be of high quality by
all standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
AAA securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in AAA securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds which are rated BAA are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
BA - Bonds which are rated BA are judged to have speculative
elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
CAA - Bonds which are rated CAA are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
CA - Bonds which are rated CA represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-
term debt of these issuers is generally rated "F-1+."
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal
is considered strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment.
The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB - Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its debt
service requirements.
B - Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of the
issue.
CCC - Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC - Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C - Bonds are in imminent default in payment of interest or
principal.
DDD, DD, AND D - Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued
on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D"' represents the
lowest potential for recovery.
Exhibit 4(iii) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
FEDERATED EQUITY FUNDS
FEDERATED CAPITAL APPRECIATION STRATEGIES FUND
CLASS A SHARES
PORTFOLIO
Number Shares
_____ _____
Account No. Alpha Code Organized Under theSee Reverse Side
For
Laws of the CommonwealthCertain Definit
ions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP (not yet available)
Fully Paid and Non-Assessable Shares of Beneficial Interest of
FEDERATED CAPITAL APPRECIATION STRATEGIES FUND-CLASS A SHARES of
FEDERATED EQUITY FUNDS hereafter called the "Trust,"
transferable on the books of the Trust by the owner, in person
or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-
Laws of the Trust, and all amendments thereto, all of which the
holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate
to be signed in its name by its proper officers and to be sealed
with its Seal.
Dated: FEDERATED EQUITY FUNDS
Seal
1984
Massachusetts
/s/ David M. Taylor
/s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF
GIFT MIN ACT-...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minor)
JT TEN - as joint tenants with right
of under Uniform Gifts to Minors
survivorship and not as tenants
Act.............................
in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received__________ hereby sell, assign, and
transfer unto
Please insert social security or other
identifying number of assignee
______________________________________
________________________________________________________________
_____________
(Please print or typewrite name and address, including zip code,
of assignee)
________________________________________________________________
_____________
________________________________________________________________
_____________
________________________________________________________________
______ shares
of beneficial interest represented by the within Certificate,
and do hereby irrevocably constitute and appoint
__________________________________________
_______________________________________________________________
_Attorney
to transfer the said shares on the books of the within named
Trust with full power of substitution in the premises.
Dated______________________
NOTICE:___________________________
___
The signature to this assignment
must correspond with the name as
written upon the face of the
certificate in every particular,
without alteration or enlargement
or any change whatever.
All persons dealing with FEDERATED EQUITY FUNDS, a Massachusetts
business trust, must look solely to the Trust property for the
enforcement of any claim against the Trust, as the Trustees,
officers, agents or shareholders of the Trust assume no personal
liability whatsoever for obligations entered into on behalf of
the Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch
border.
B. The number in the upper left-hand corner and the number
of shares in the upper right-hand corner are outlined by
octagonal boxes.
C. The cusip number in the middle right-hand area of the
page is boxed.
D. The Massachusetts corporate seal appears in the bottom
middle of the page.
Page Two
The social security or other identifying number of the
assignee appears in a box in the top-third upper-left area of
the page.
FEDERATED EQUITY FUNDS
FEDERATED CAPITAL APPRECIATION STRATEGIES FUND
CLASS B SHARES
PORTFOLIO
Number Shares
_____ _____
Account No. Alpha Code Organized Under theSee Reverse Side
For
Laws of the CommonwealthCertain Definit
ions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP (not yet available)
Fully Paid and Non-Assessable Shares of Beneficial Interest of
FEDERATED CAPITAL APPRECIATION STRATEGIES FUND-CLASS B SHARES of
FEDERATED EQUITY FUNDS hereafter called the "Trust,"
transferable on the books of the Trust by the owner, in person
or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-
Laws of the Trust, and all amendments thereto, all of which the
holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate
to be signed in its name by its proper officers and to be sealed
with its Seal.
Dated: FEDERATED EQUITY FUNDS
Seal
1984
Massachusetts
/s/ David M. Taylor
/s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF
GIFT MIN ACT-...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minor)
JT TEN - as joint tenants with right
of under Uniform Gifts to Minors
survivorship and not as tenants
Act.............................
in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received__________ hereby sell, assign, and
transfer unto
Please insert social security or other
identifying number of assignee
______________________________________
________________________________________________________________
_____________
(Please print or typewrite name and address, including zip code,
of assignee)
________________________________________________________________
_____________
________________________________________________________________
_____________
________________________________________________________________
______ shares
of beneficial interest represented by the within Certificate,
and do hereby irrevocably constitute and appoint
__________________________________________
_______________________________________________________________
_Attorney
to transfer the said shares on the books of the within named
Trust with full power of substitution in the premises.
Dated______________________
NOTICE:___________________________
___
The signature to this assignment
must correspond with the name as
written upon the face of the
certificate in every particular,
without alteration or enlargement
or any change whatever.
All persons dealing with FEDERATED EQUITY FUNDS, a Massachusetts
business trust, must look solely to the Trust property for the
enforcement of any claim against the Trust, as the Trustees,
officers, agents or shareholders of the Trust assume no personal
liability whatsoever for obligations entered into on behalf of
the Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch
border.
B. The number in the upper left-hand corner and the number
of shares in the upper right-hand corner are outlined by
octagonal boxes.
C. The cusip number in the middle right-hand area of the
page is boxed.
D. The Massachusetts corporate seal appears in the bottom
middle of the page.
Page Two
The social security or other identifying number of the
assignee appears in a box in the top-third upper-left area of
the page.
FEDERATED EQUITY FUNDS
FEDERATED CAPITAL APPRECIATION STRATEGIES FUND
CLASS C SHARES
PORTFOLIO
Number Shares
_____ _____
Account No. Alpha Code Organized Under theSee Reverse Side
For
Laws of the CommonwealthCertain Definit
ions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP (not yet available)
Fully Paid and Non-Assessable Shares of Beneficial Interest of
FEDERATED CAPITAL APPRECIATION STRATEGIES FUND-CLASS C SHARES of
FEDERATED EQUITY FUNDS hereafter called the "Trust,"
transferable on the books of the Trust by the owner, in person
or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-
Laws of the Trust, and all amendments thereto, all of which the
holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate
to be signed in its name by its proper officers and to be sealed
with its Seal.
Dated: FEDERATED EQUITY FUNDS
Seal
1984
Massachusetts
/s/ David M. Taylor
/s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF
GIFT MIN ACT-...Custodian...
TEN ENT - as tenants by the entireties
(Cust) (Minor)
JT TEN - as joint tenants with right
of under Uniform Gifts to Minors
survivorship and not as tenants
Act.............................
in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received__________ hereby sell, assign, and
transfer unto
Please insert social security or other
identifying number of assignee
______________________________________
________________________________________________________________
_____________
(Please print or typewrite name and address, including zip code,
of assignee)
________________________________________________________________
_____________
________________________________________________________________
_____________
________________________________________________________________
______ shares
of beneficial interest represented by the within Certificate,
and do hereby irrevocably constitute and appoint
__________________________________________
_______________________________________________________________
_Attorney
to transfer the said shares on the books of the within named
Trust with full power of substitution in the premises.
Dated______________________
NOTICE:___________________________
___
The signature to this assignment
must correspond with the name as
written upon the face of the
certificate in every particular,
without alteration or enlargement
or any change whatever.
All persons dealing with FEDERATED EQUITY FUNDS, a Massachusetts
business trust, must look solely to the Trust property for the
enforcement of any claim against the Trust, as the Trustees,
officers, agents or shareholders of the Trust assume no personal
liability whatsoever for obligations entered into on behalf of
the Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch
border.
B. The number in the upper left-hand corner and the number
of shares in the upper right-hand corner are outlined by
octagonal boxes.
C. The cusip number in the middle right-hand area of the
page is boxed.
D. The Massachusetts corporate seal appears in the bottom
middle of the page.
Page Two
The social security or other identifying number of the
assignee appears in a box in the top-third upper-left area of
the page.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Federated Growth Trust
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Apr-30-1995
<INVESTMENTS-AT-COST> 212,255,603
<INVESTMENTS-AT-VALUE> 241,136,610
<RECEIVABLES> 8,599,863
<ASSETS-OTHER> 1,566
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249,738,039
<PAYABLE-FOR-SECURITIES> 4,521,080
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 458,485
<TOTAL-LIABILITIES> 4,979,565
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,012,364
<SHARES-COMMON-STOCK> 11,013,517
<SHARES-COMMON-PRIOR> 15,063,856
<ACCUMULATED-NII-CURRENT> 215,923
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,649,180
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,881,007
<NET-ASSETS> 244,758,474
<DIVIDEND-INCOME> 2,541,115
<INTEREST-INCOME> 937,542
<OTHER-INCOME> 0
<EXPENSES-NET> 1,477,037
<NET-INVESTMENT-INCOME> 2,001,620
<REALIZED-GAINS-CURRENT> 18,852,390
<APPREC-INCREASE-CURRENT> (523,952)
<NET-CHANGE-FROM-OPS> 20,330,058
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,293,801
<DISTRIBUTIONS-OF-GAINS> 9,574,950
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,150,039
<NUMBER-OF-SHARES-REDEEMED> 5,510,530
<SHARES-REINVESTED> 310,152
<NET-CHANGE-IN-ASSETS> 75,871,274
<ACCUMULATED-NII-PRIOR> 508,103
<ACCUMULATED-GAINS-PRIOR> 9,371,740
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,014,850
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,477,037
<AVERAGE-NET-ASSETS> 275,828,575
<PER-SHARE-NAV-BEGIN> 21.280
<PER-SHARE-NII> 0.160
<PER-SHARE-GAIN-APPREC> 1.630
<PER-SHARE-DIVIDEND> 0.170
<PER-SHARE-DISTRIBUTIONS> 0.680
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 22.220
<EXPENSE-RATIO> 109
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
