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1
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. 24 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 20 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
Class A Shares 1
SUMMARY OF FUND EXPENSES 3
Class B Shares 3
SUMMARY OF FUND EXPENSES 5
Class C Shares 5
SYNOPSIS 7
LIBERTY FAMILY OF FUNDS 8
Federated LifeTrack_
Program
(Class A Shares and
Class C Shares) 9
INVESTMENT INFORMATION 10
Investment Objective 10
Investment Policies 10
Portfolio Turnover 15
Investment Limitations 15
NET ASSET VALUE 16
INVESTING IN THE FUND 17
HOW TO PURCHASE SHARES 17
Investing in Class A
Shares 17
Subaccounting Services 18
Investing in Class B
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 SHARES
INFORMATION 26
Management of the Trust 27
Distribution of Shares 28
Administration of the Fund 30
Expenses of the Fund and
Class A
Shares, Class B Shares,
and
Class C Shares 30
Brokerage Transactions 31
SHAREHOLDER INFORMATION 31
Voting Rights 31
Massachusetts Partnership
Law 31
TAX INFORMATION 32
Federal Income Tax 32
Pennsylvania Corporate and
Personal Property
Taxes 32
PERFORMANCE INFORMATION 32
APPENDIX 34
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 "Fund
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 Liberty Center, 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 Advisers 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:
o American Leaders Fund, Inc., providing growth of capital and
income through high-quality stocks;
o Capital Growth Fund, providing appreciation of capital
primarily through equity securities;
o 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;
o 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;
o Federated Small Cap Strategies Fund, providing appreciation of
capital through common stocks of small and medium sized
companies;
o Fund for U.S. Government Securities, Inc., providing current
income through long-term U.S. government securities;
o International Equity Fund, providing long-term capital growth
and income through international securities;
o 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;
o Liberty Equity Income Fund, Inc., providing above-average
income and capital appreciation through income producing equity
securities;
o Liberty High Income Bond Fund, Inc., providing high current
income through high-yielding, lower-rated, corporate bonds;
o Liberty Municipal Securities Fund, Inc., providing a high
level of current income exempt from federal regular income tax
through municipal bonds;
o Liberty U.S. Government Money Market Trust, providing current
income consistent with stability of principal through high-
quality U.S. government securities;
o Liberty Utility Fund, Inc., providing current income and long-
term growth of income, primarily through electric, gas, and
communications utilities;
o Limited Term Fund, providing a high level of current income
consistent with minimum fluctuation in principal through
investment grade securities;
o 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;
o 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;
o 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;
o Strategic Income Fund, providing a high level of current
income, primarily through domestic and foreign corporate debt
obligations;
o 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
o 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 on the inside back
cover 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:
o commercial paper and Europaper (dollar denominated commercial
paper issued outside the United States);
o instruments of domestic and foreign banks and savings
associations (such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances);
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o 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:
o 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;
o 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;
o lend any of its assets except portfolio securities up to one-
third of the value of its total assets;
o 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
o 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:
o invest more than 5% of its total assets in securities of
issuers that have records of less than three years of
continuous operations;
o commit more than 5% of the value of its total assets to
premiums on open put option positions; or
o 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 $100,000 4.50% 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% 0.04% 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:
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o 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. Neither the Fund nor any of the funds in the Liberty
Family of Funds imposes any additional fees on exchanges. 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 SHARES 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 Advisers, 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 Advisers, 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 Advisers 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 paid 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:
o the Trust is not subject to Pennsylvania corporate or
personal property taxes; and
o 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.
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
An Open-End, Diversified
Management Investment Company
______________, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated
Investors
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
<INSERT PRODUCT CODE> (5/95)
FEDERATED CAPITAL APPRECIATION FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
Combined Statement of Additional Information
This Combined Statement of Additional Information should be read
with the combined prospectus for Class A Shares, Class B Shares,
and Class C Shares of Federated Capital Appreciation Fund (the
"Fund"), dated __________, 1995. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write or
call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated ________, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE
FUND 1
INVESTMENT OBJECTIVES AND
POLICIES 1
Convertible Securities 1
Temporary Investments 1
Warrants 2
When-Issued and Delayed
Delivery Transactions 2
Repurchase Agreements 2
Futures and Options
Transactions 2
Foreign Currency
Transactions 4
Restricted and Illiquid
Securities 6
Lending of Portfolio
Securities 6
Reverse Repurchase
Agreements 6
Portfolio Turnover 6
INVESTMENT LIMITATIONS 7
FEDERATED EQUITY FUNDS
MANAGEMENT 8
Fund Ownership 12
Trustees Compensation 12
INVESTMENT ADVISORY SERVICES 13
Adviser to the Fund 13
Advisory Fees 13
Other Related Services 13
ADMINISTRATIVE SERVICES 13
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 13
BROKERAGE TRANSACTIONS 13
PURCHASING SHARES 14
Distribution Plan and
Shareholder Services
Agreement 14
Conversion to Federal Funds 14
Purchases by Sales
Representatives, Trustees,
and Employees 14
Exchanging Securities for
Fund Shares 14
Determining Market Value of
Securities 15
REDEEMING SHARES 16
Redemption in Kind 16
EXCHANGING SECURITIES FOR
SHARES 16
Tax Consequences 16
TAX STATUS 16
The Fund's Tax Status 16
Shareholders' Tax Status 17
TOTAL RETURN 17
YIELD 17
CURRENT DISTRIBUTIONS 18
PERFORMANCE COMPARISONS 18
ABOUT FEDERATED INVESTORS 19
Mutual Fund Market 20
Institutional 20
Trust Organizations 20
Broker/Dealers and Bank
Broker/Dealer
Subsidiaries 20
FINANCIAL STATEMENTS 20
APPENDIX 21
Standard and Poor's Ratings
Group
Commercial Paper Ratings 21
Moody's Investors Service,
Inc.,
Commercial Paper Ratings 21
Fitch Investors Service, Inc.,
Short-Term
Debt Ratings 21
GENERAL INFORMATION ABOUT THE FUND
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 Liberty Center, Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
Shares of the Fund are offered in three classes known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively
referred to as "Shares," as the context may require). This Combined
Statement of Additional Information relates to all classes of Shares of
the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to provide capital appreciation. The
investment objective cannot be changed without approval of shareholders.
CONVERTIBLE SECURITIES
As with all fixed-income securities, various market forces influence the
market value of convertible securities, including changes in the level
of interest rates. As the level of interest rates increases, the market
value of convertible securities may decline and, conversely, as interest
rates decline, the market value of convertible securities may increase.
The unique investment characteristic of convertible securities, the
right to be exchanged for the issuer's common stock, causes the market
value of convertible securities to increase when the underlying common
stock increases. However, since securities prices fluctuate, there can
be no assurance of capital appreciation, and most convertible securities
will not reflect quite as much capital appreciation as their underlying
common stocks. When the underlying common stock is experiencing a
decline, the value of the convertible security tends to decline to a
level approximating the yield-to-maturity basis of straight
nonconvertible debt of similar quality, often called "investment value,"
and may not experience the same decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion
values (I.E., the number of shares of common stock to be received upon
conversion multiplied by the current market price of the stock). This
premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of
capital appreciation due to the conversion privilege. If this
appreciation potential is not realized, the premium may not be
recovered.
TEMPORARY INVESTMENTS
The temporary investments in which the Fund may invest include, but are
not limited to:
o commercial paper rated A-1 or A-2 by Standard & Poor's Ratings
Group, Prime-1 or Prime-2 by Moody's Investors Service, Inc.,
or F-1 or F-2 by Fitch Investors Service, Inc., and Europaper
rated A-1, A-2, Prime-1, or Prime-2. In the case where
commercial paper or Europaper has received different ratings
from different rating services, such commercial paper or
Europaper is an acceptable temporary investment so long as at
least one rating is one of the preceding high-quality ratings
and provided the Fund's investment adviser, Federated Advisers
(the "Adviser"), has determined that such investment presents
minimal credit risks;
o instruments of domestic and foreign banks and savings and
loans if they have capital, surplus, and undivided profits of
over $100,000,000, or if the principal amount of the
instrument is insured by the Federal Deposit Insurance
Corporation. These instruments may include Eurodollar
Certificates of Deposits ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs");
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o other short-term instruments which are not rated but are
determined by the Adviser to be of comparable quality to the
other temporary obligations in which the Fund may invest.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different
risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and
political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign
withholding or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing entity, and
the possible impact of interruptions in the flow of international
currency transactions. Different risks may also exist for ECDs,
ETDs, and Yankee CDs because the banks issuing these instruments,
or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan limitations, examinations,
accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the
Adviser in selecting investments for the Fund.
WARRANTS
Warrants basically are options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants
may have a life ranging from less than a year to twenty years or may be
perpetual. However, warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund will only enter into repurchase agreements
with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Adviser to be creditworthy
pursuant to guidelines established by the Board of Trustees (the
"Trustees").
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write
covered call options on portfolio securities to attempt to increase its
current income.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of security
called for in the contract ("going short") and the buyer who
agrees to take delivery of the security ("going long") at a
certain time in the future.
In the fixed-income securities market, price moves inversely to
interest rates. A rise in rates means a drop in price. Conversely,
a drop in rates means a rise in price. In order to hedge its
holdings of fixed-income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect
itself against the possibility that the prices of its fixed-income
securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in
the future at a predetermined price) to hedge against a decline in
market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date
at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide
on or before a future date whether to assume a short position at
the specified price.
The Fund would purchase put options on futures contracts to
protect portfolio securities against decreases in value resulting
from an anticipated increase in market interest rates. Generally,
if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such
an event, the Fund will normally close out its option by selling
an identical option. If the hedge is successful, the proceeds
received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the
original option plus the decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of
the option) and exercise the option. The Fund would then deliver
the futures contract in return for payment of the strike price. If
the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the
premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may
write listed call options on futures contracts to hedge its
portfolio against an increase in market interest rates. When the
Fund writes a call option on a futures contract, it is undertaking
the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the
life of the option if the option is exercised. As market interest
rates rise, causing the prices of futures to go down, the Fund's
obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's
call option position to increase.
In other words, as the underlying futures price goes down below
the strike price, the buyer of the option has no reason to
exercise the call, so that the Fund keeps the premium received for
the option. This premium can offset the drop in value of the
Fund's fixed-income portfolio which is occurring as interest rates
rise.
Prior to the expiration of a call written by the Fund, or exercise
of it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the
second option will be less than the premium received by the Fund
for the initial option. The net premium income of the Fund will
then offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if,
in the aggregate, the value of the open positions (marked to
market) exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close
out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay
or receive money upon the purchase or sale of a futures contract.
Rather, the Fund is required to deposit an amount of "initial
margin" in cash or U.S. Treasury bills with its custodian (or the
broker, if legally permitted). The nature of initial margin in
futures transactions is different from that of margin in
securities transactions in that futures contract initial margin
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance
bond or good-faith deposit on the contract which is returned to
the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is traded.
Each day the Fund pays or receives cash, called "variation
margin," equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the amount
one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market
its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to
protect against price movements in particular securities in its
portfolio. A put option gives the Fund, in return for a premium,
the right to sell the underlying security to the writer (seller)
at a specified price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income.
As writer of a call option, the Fund has the obligation upon
exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price. The Fund
may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash
in the amount of any additional consideration).
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies
are a function of such factors as supply and demand in the
currency exchange markets, international balances of payments,
governmental intervention, speculation and other economic and
political conditions. Although the Fund values its assets daily
in U.S. dollars, the Fund may not convert its holdings of foreign
currencies to U.S. dollars daily. The Fund may incur conversion
costs when its converts its holdings to another currency. Foreign
exchange dealers may realize a profit on the difference between
the price at which the Fund buy and sell currencies.
The Fund will engage in foreign currency exchange transactions in
connection with their investments in the securities. The Fund
will conduct their foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through forward contracts to
purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange
contracts in order to protect themselves against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and a foreign currency involved in an underlying
transaction. However, forward foreign currency exchange contracts
may limit potential gains which could result from a positive
change in such currency relationships. The Fund's investment
adviser believes that it is important to have the flexibility to
enter into forward foreign currency exchange contracts whenever it
determines that it is in the Fund's best interest to do so. The
Fund will not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when they
would be obligated to deliver an amount of foreign currency in
excess of the value of their portfolio securities or other assets
denominated in that currency or, in the case of a "cross-hedge"
denominated in a currency or currencies that the Fund's investment
adviser believes will tend to be closely correlated with that
currency with regard to price movements. Generally, the Fund will
not enter into a forward foreign currency exchange contract with a
term longer than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise
price on a specified date or during the option period. The owner
of a call option has the right, but not the obligation, to buy the
currency. Conversely, the owner of a put option has the right,
but not the obligation, to sell the currency.
When the option is exercised, the seller (i.e., writer) of the
option is obligated to fulfill the terms of the sold option.
However, either the seller or the buyer may, in the secondary
market, close its position during the option period at any time
prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on
foreign currency generally falls in value if the underlying
currency depreciates in value. Although purchasing a foreign
currency option can protect the Fund against an adverse movement
in the value of a foreign currency, the option will not limit the
movement in the value of such currency. For example, if the Fund
were holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency put to hedge
against a decline in the value of the currency, the Fund would not
have to exercise their put option. Likewise, if the Fund were to
enter into a contract to purchase a security denominated in
foreign currency and, in conjunction with that purchase, were to
purchase a foreign currency call options to hedge against a rise
in value of the currency, and if the value of the currency instead
depreciated between the date of purchase and the settlement date,
the Fund would not have to exercise its call. Instead, the Fund
could acquire in the spot market the amount of foreign currency
needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the
same risks that apply to options generally. In addition, there
are certain additional risks associated with foreign currency
options. The markets in foreign currency options are relatively
new, and the Fund's ability to establish and close out positions
on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write
such options unless and until, in the opinion of the Fund's
investment adviser, the market for them has developed sufficiently
to ensure that the risks in connection with such options are not
greater than the risks in connection with the underlying currency,
there can be no assurance that a liquid secondary market will
exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of
the underlying currency relative to the U.S. dollar. As a result,
the price of the option position may vary with changes in the
value of either or both currencies and may have no relationship to
the investment merits of a foreign security. Because foreign
currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in
the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable
than for round lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations
available through dealers or other market sources be firm or
revised on a timely basis. Available quotation information is
generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller
transactions (I.E., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a
global, around-the-clock market. To the extent that the U.S.
option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in
the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such
contracts, the Fund may be able to achieve many of the same
objectives as they would through the use of forward foreign
currency exchange contracts. The Fund may be able to achieve
these objectives possibly more effectively and at a lower cost by
using futures transactions instead of forward foreign currency
exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS
AND RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures
generally. In addition, there are risks associated with foreign
currency futures contracts and their use as a hedging device
similar to those associated with options on futures currencies, as
described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures
contracts is relatively new. The ability to establish and close
out positions on such options is subject to the maintenance of a
liquid secondary market. To reduce this risk, the Fund will not
purchase or write options on foreign currency futures contracts
unless and until, in the opinion of the Fund's investment adviser,
the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the
risks in connection with transactions in the underlying foreign
currency futures contracts. Compared to the purchase or sale of
foreign currency futures contracts, the purchase of call or put
options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for
the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a
futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures
contract.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under an Securities and Exchange
Commission's Staff position set forth in the adopting release for Rule
144A under the Securities Act of 1933, as amended, (the "Rule"). The
Rule is a non-exclusive, safe harbor for certain secondary market
transactions involving securities subject to restrictions on resale
under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale
under Rule 144A. The Fund believes that the Staff of the Securities and
Exchange Commission has left the question of determining the liquidity
of all restricted securities (eligible for resale under Rule 144A) for
determination of the Trustees. The Trustees consider the following
criteria in determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace
trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker. The
Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at
a time when a sale may be deemed to be disadvantageous, but the ability
to enter into reverse repurchase agreements does not ensure that the
Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked
to market daily and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an
attempt to achieve the Fund's investment objective. 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 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
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 10% of the value of total assets at
the time of the borrowing. Margin deposits for the purchase and
sale of financial futures contracts and related options are not
deemed to be a pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of
1933, as amended, in connection with the sale of restricted
securities which the Fund may purchase pursuant to its investment
objectives, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio
securities up to one-third of the value of its total assets. This
shall not prevent the purchase or holding of corporate bonds,
debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment
objectives and policies.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its
total assets, the Fund will not 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.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total
assets in portfolio instruments of unseasoned issuers, including
their predecessors, that have been in operation for less than
three years.
PURCHASING PUT OPTIONS
The Fund will not commit more than 5% of the value of its total
assets to premiums on open option positions.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its total assets in
warrants. No more than 2% of this 5% may be warrants which are not
listed on the New York or American Stock Exchange.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan association having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund
will not invest in real estate limited partnerships or oil, gas, or
other mineral leases.
FEDERATED EQUITY FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates,
present positions with Federated Equity Funds, and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, Florida
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, Pennsylvania
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, Pennsylvania
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, Pennsylvania
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, Pennsylvania
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty;
Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency,
Inc.; Director, Trustee, or Managing General Partner of the Funds;
formerly, Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
70 Westcliff Road
Westin, Massachusetts
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, Pennsylvania
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, Pennsylvania
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, Pennsylvania
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman,
Czecho Management Center; Director, Trustee, or Managing General Partner
of the Funds; President Emeritus, University of Pittsburgh; founding
Chairman, National Advisory Council for Environmental Policy and
Technology and Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, Pennsylvania
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 22, 1930
Executive Vice President
Federa
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds;
Executive Vice President or President of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 26, 1938
Executive Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors;
Controller, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Senior
Vice President, Federated Shareholder Services; Senior Vice President,
Federated Administrative Services; Treasurer of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of
Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 3-5 Years; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund,
Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The
Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; The Virtus Funds; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue $ 0 $0 for the Trust and
Chairman and Trustee 68 other investment companies in the Fund
Complex
John T. Conroy, Jr. $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
William J. Copeland $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
James E. Dowd $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D. $ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr. $ 1,566 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Peter E. Madden $ 1,419 $90,563 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Gregor F. Meyer $ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
John E. Murray, Jr. $ 0 $0 for the Trust and
Trustee 69 other investment companies in the Fund
Complex
Wesley W. Posvar $ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Marjorie P. Smuts $ 1,419 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended October 31, 1994.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the "Adviser"). It
is a subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1.5% per year of the remaining average
net assets, the Adviser will reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
Adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated
Securities Corp.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Dr. Henry J. Gailliot, an officer of
Federated Advisers, the Fund's investment adviser, holds approximately
20% of the outstanding common stock and serves as a director of
Commercial Data Services, Inc., a company which provides computer
processing services to Federated Administrative Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid to the transfer agent is
based upon the size, type, and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund
or to the Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising certain other accounts. To
the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares
are sold at their net asset value (plus a sales load on Class A Shares
only) on days the New York Stock Exchange is open for business. The
procedure for purchasing Shares of the Fund is explained in the
prospectus under "How to Purchase Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, as appropriate, to
stimulate distribution activities and to cause services to be provided
to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to: marketing efforts;
providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses.
By adopting the Distribution Plan, the Trustees expects that the Class A
Shares, Class B Shares, and Class C Shares of the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them
to federal funds.
PURCHASES BY SALES REPRESENTATIVES, TRUSTEES, AND EMPLOYEES
Trustees, employees, and sales representatives of the Fund, the Adviser,
and Federated Securities Corp., or their affiliates, or any investment
dealer who has a sales agreement with Federated Securities Corp., and
their spouses and children under 21, may buy Shares at net asset value
without a sales load and are not subject to a contingent deferred sales
charge (Class B Shares and Class C Shares only) to the extent the
financial institution through which the Shares are sold agrees to waive
any initial payment to which it might otherwise be entitled. Shares may
also be sold without a sales load to trusts or pension or profit-sharing
plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for
Shares, or they may exchange a combination of convertible securities and
cash for Shares. Any securities to be exchanged must meet the investment
objective and policies of the Fund, must have a readily ascertainable
market value, must be liquid, and must not be subject to restrictions on
resale.
The Fund will prepare a list of securities which are eligible for
acceptance and furnish this list to brokers upon request. The Fund
reserves the right to reject any security, even though it appears on the
list, and the right to amend the list of acceptable securities at any
time without notice to brokers or investors.
An investment broker acting for an investor should forward the
securities in negotiable form with an authorized letter of transmittal
to Federated Securities Corp. Federated Securities Corp. will determine
that transmittal papers are in good order and will forward them to the
Fund's custodian, State Street Bank and Trust Company. The Fund will
notify the broker of its acceptance and valuation of the securities
within five business days of their receipt by State Street Bank and
Trust Company.
The Fund values such securities in the same manner as the Fund values
its portfolio securities. The basis of the exchange will depend upon the
net asset value of Shares on the day the securities are valued. One
Share will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription, conversion, or other rights attached to the securities
become the property of the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for
federal income tax purposes. Depending upon the cost basis of the
securities exchanged for Shares, a gain or loss may be realized by
the investor.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as
follows:
o according to the last sale price on a national securities
exchange, if available, or on the basis of prices provided by
an independent pricing service;
o for most short-term obligations, according to the average of
the last offer to buy and the last offer to sell the security,
as provided by independent pricing services;
o for options traded in the over-the-counter market, according
to the mean between the last bid and the last asked price for
the option as provided by an investment dealer or other
financial institution that deals in the option;
o for short-term obligations with remaining maturities of 60
days or less at the time of purchase, at amortized cost; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices. Pricing services may
consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request. Shareholder redemptions of Shares
may be subject to a contingent deferred sales charge. Redemption
procedures are explained in the prospectus under "How to Redeem Shares."
Although the transfer agent does not charge for telephone redemptions,
it reserves the right to charge a fee for the cost of wire-transferred
redemptions of less than $5,000.
Class B Shares redeemed within one to six years of purchase and Class C
Shares and applicable Class A Shares redeemed within one year of
purchase may be subject to a contingent deferred sales charge. The
amount of the contingent deferred sales charge is based upon the amount
of the administrative fee paid at the time of purchase by the
distributor to the financial institution for services rendered, and the
length of time the investor remains a shareholder in the Fund. Should
financial institutions elect to receive an amount less than the
administrative fee that is stated in the prospectus for servicing a
particular shareholder, the contingent deferred sales charge and/or
holding period for that particular shareholder will be reduced
accordingly.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, as amended, under which the Fund is obligated to
redeem Shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of the respective class's net asset value during any 90-
day period.
Any redemption beyond this amount will also be in cash unless the
Trustees determine that payments should be in kind. In such a case, the
Fund will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way as the Fund determines net
asset value. The portfolio instruments will be selected in a manner
that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
EXCHANGING SECURITIES FOR SHARES
Investors may exchange securities they already own for Shares, or they
may exchange a combination of securities and cash for Shares. An
investor should forward the securities in negotiable form with an
authorized letter of transmittal to Federated Securities Corp. The Fund
will notify the investor of its acceptance and valuation of the
securities within five business days of their receipt by State Street
Bank.
The Fund values securities in the same manner as the Fund values its
assets. The basis of the exchange will depend upon the net asset value
of Shares on the day the securities are valued. One Share of the Fund
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription, or other rights attached to the securities become the
property of the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special
tax treatment afforded to such companies. To qualify for this treatment,
the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The dividends received
deduction for corporations will apply to ordinary income distributions
to the extent the distribution represents amounts that would qualify for
the dividends received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so qualifying.
These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio
securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because
of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such,
whether they are taken in cash or reinvested, and regardless of
the length of time the shareholder has owned the Shares. Any loss
by a shareholder on Shares held for less than six months and sold
after a capital gains distribution will be treated as a long-term
capital loss to the extent of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total returns for shares of Federated Exchange
Fund, Ltd., the predecessor to Class A Shares, for the one-year and five-
year periods ended ________, 1995 and for the period from ____________,
19__ to __________, 1995, were ______, ______, and _____, respectively.
The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would
equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying
the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at
the end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional Shares, assuming a quarterly
reinvestment of all dividends and distributions. Any applicable
contingent deferred sales charge is deducted from the ending value of
the investments based on the lesser of the original purchase price or
the offering price of Shares redeemed.
YIELD
The Fund's yields for shares of Federated Exchange Fund, Ltd., the
predecessor to Class A Shares, was ____%, for the thirty-day period
ended _________, 1995.
The yield for all classes of Shares of the Fund is determined by
dividing the net investment income per Share (as defined by the
Securities and Exchange Commission) earned by any class of Shares over a
thirty-day period by the maximum offering price per Share of any class
of Shares on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by any class
of Shares because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends
or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in any class of Shares, the performance will be reduced for those
shareholders paying those fees.
CURRENT DISTRIBUTIONS
The shares of Federated Exchange Fund, Ltd., the predecessor to Class A
Shares, average net annualized current distributions rate for the thirty
days ended ______, 1995, was______%.
Each class of Shares calculates its current distributions daily based
upon its past twelve months' income dividends and short-term capital
gains distributions per Share divided by its offering price per Share on
that day. Each class of Shares may reduce the time period upon which it
bases its calculation of current distributions if the Adviser believes a
shortened period would be more representative in light of current market
conditions.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
The Fund may compare the performance of equity income funds to other
types of stock funds and indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any index used,
prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price.
The financial publications and/or indices which the Fund uses in
advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into
account any change in net asset value over a specific period
of time. From time to time, the Fund will quote its Lipper
ranking in the convertible securities and fixed income funds
categories in advertising and sales literature.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices
of selected blue-chip industrial corporations as well as
public utility and transportation companies. The DJIA
indicates daily changes in the average price of stocks in any
of its categories. It also reports total sales for each group
of industries. Because it represents the top corporations of
America, the DJIA index is a leading economic indicator for
the stock market as a whole.
o STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500
COMMON STOCKS is a composite index of common stocks in
industry, transportation, and financial and public utility
companies which compares total returns of funds whose
portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestment of
all dividends paid by stocks listed on the index. Taxes due on
any of these distributions are not included, nor are brokerage
or other fees calculated, in the Standard & Poor's figures.
o LIPPER GROWTH FUND AVERAGE is an average of the total returns
for 251 growth funds tracked by Lipper Analytical Services,
Inc., an independent mutual fund rating service.
o LIPPER GROWTH FUND INDEX is an average of the net asset-
valuated total returns for the top 30 growth funds tracked by
Lipper Analytical Services, Inc., an independent mutual fund
rating service.
o STRATEGIC INSIGHT GROWTH FUNDS INDEX consists of mutual funds
that invest in well-established companies primarily for long-
term capital gains rather than current income.
o MORNINGSTAR, INC., an independent rating service, is the
publisher of the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND
VALUES rates more than 1,000 NASDAQ-listed mutual funds of all
types, according to their risk-adjusted returns. The maximum
rating is five stars, and ratings are effective for two weeks.
o VALUE LINE COMPOSITE INDEX consists of approximately 1,700
common equity securities. It is based on a geometric average
of relative price changes of the component stocks and does not
include income.
o VALUE LINE MUTUAL FUND SURVEY, published by Value Line
Publishing, Inc., analyzes price, yield, risk, and total
return for equity and fixed income mutual funds. The highest
rating is One, and ratings are effective for two weeks.
o MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc.,
analyzes price, yield, risk, and total return for equity and
fixed income funds.
o FINANCIAL PUBLICATIONS: The Wall Street Journal, Business
Week, Changing Times, Financial World, Forbes, Fortune, and
Money Magazines, among others--provide performance statistics
over specified time periods.
o CDA MUTUAL FUND REPORT, published by CDA Investment
Technologies, Inc., analyzes price, current yield, risk, total
return, and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
o STRATEGIC INSIGHT MUTUAL FUND RESEARCH AND CONSULTING, ranks
funds in various fund categories by making comparative
calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value
over a specified period of time. From time to time, the Fund
will quote its Strategic Insight ranking in advertising and
sales literature.
In addition, the Fund will, from time to time, use the following
standard convertible securities indices against which it will compare
its performance: Goldman Sachs Convertible 100; Kidder Peabody
Convertible Bond Index; Value Line Convertible Bond Index; and Dow Jones
Utility Index.
The Fund may compare the performance of equity funds to other types of
stock funds and indices.
Advertisements and other sales literature for any class of Shares may
quote total returns which are calculated on nonstandardized base
periods. These total returns also represent the historic change in the
value of an investment in any class of Shares based on quarterly
reinvestment of dividends over a specified period of time.
From time to time, the Fund may advertise the performance of any class
of Shares using charts, graphs, and descriptions, compared to federally
insured bank products, including certificates of deposit and time
deposits, and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales
literature for the Fund may use charts and graphs to illustrate the
principals of dollar-cost averaging and may disclose the amount of
dividends paid by the Fund over certain periods of time.
Advertisements may quote performance information which does not reflect
the effect of a sales load or contingent deferred sales charge, as
applicable.
ABOUT FEDERATED INVESTORS
Federated Investors ("Federated") is dedicated to meeting investor needs
which is reflected in its investment decision making structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment products
that have gained the confidence of thousands of clients and their
customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As
of December 31, 1994, Federated managed 15 equity funds totaling
approximately $4 billion in assets across growth, value, equity income,
international, index, and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative
analysis and features a structured, computer-assisted composite modeling
system that was developed in the 1970s.
In the corporate bond sector, as of December 31, 1994, Federated managed
8 money market funds, 5 investment grade, and 4 high yield bond funds
with assets approximating $7.4 billion, $.9 billion and $.8 billion,
respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 20 years of
experience in the corporate bond sector. In 1972, Federated introduced
one of the first high-yield bond funds in the industry. In 17 years
ending December 1994, Federated's high-yield portfolios experienced a
default rate of just 1.86%, versus 3.10% for the market as a whole. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200
billion.
J. Thomas Madden, Executive Vice President, oversees Federated's equity
and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated's domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds
for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment
and financial advisors. The marketing effort to these institutional
clients is headed by John B. Fisher, President, Institutional Sales
Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major
brokerage firms nationwide--including 200 New York Stock Exchange firms-
-supported by more wholesalers than any other mutual fund distributor.
The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Division.
*source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment.
530461102
530461409
530461201
530461300
<INSERT PRODUCT CODE> (5/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part B - Federated Growth
Strategies Fund), (to be filed by amendment - Federated Small Cap
Strategies Fund and Federated Capital Appreciation Fund);
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant (1);
(2) Copy of By-Laws of the Registrant as amended (1.);
(i) Copy of Amendment No. 2 to By-Laws effective
February 2, 1987 (3.);
(ii) Copy of Amendment No. 3 to By-Laws effective
August 25, 1988 (4.);
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (Federated Small Cap
Strategies Fund) (7.);
(ii) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (Federated Growth
Strategies Fund) (8.);
(iii) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (Federated Capital
Appreciation Fund); +
(5) Conformed copy of Investment Advisory Contract of the
Registrant (5.);
(i) Conformed copy of Exhibit to Investment Advisory
Contract of the Registrant to add Federated Small Cap
Strategies Fund to the present Investment Advisory
Contract; (to be filed by amendment)
(ii) Conformed copy of Exhibit to Investment Advisory
Contract of the Registrant to add Federated Capital
Appreciation Fund to the present Investment Advisory
Contract; (to be filed by amendment)
1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed July 9, 1984. (File Nos. 2-91090 and
811-4017)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed July 21, 1987. (File Nos. 2-91090
and 811-4017)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed December 31, 1988. (File Nos. 2-
91090 and 811-4017)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed October 23, 1989. (File Nos. 2-
91090 and 811-4017)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed June 30, 1995. (File Nos. 2-91090
and 811-4017)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed July 17, 1995. (File Nos. 2-91090
and 811-4017)
+ All exhibits have been filed electronically.
(6) Conformed copy of Distributor's Contract (5.);
(i) Conformed copy of Exhibit to Distributor's Contract of
the Registrant to add Federated Small Cap Strategies
Fund to the present Distributor's Contract; (to be
filed by amendment)
(ii) Conformed copy of Exhibit to Distributor's Contract of
the Registrant to add Federated Capital Appreciation
Fund to the present Distributor's Contract; (to be
filed by amendment)
(iii) The Registrant incorporates the conformed copy of the
specimen Mutual Funds Sales and Service Agreement;
Mutual Funds Service Agreement; and Plan
Trustee/Mutual Funds Service Agreement from Item
24(b)(6) of the Cash Trust Series II Registration
Statement filed with the Commission on July 24, 1995.
(File No. 33-38550 and 811-6269).
(7) Not applicable;
(8) Conformed Copy of the Custodian Agreement of the Registrant;
(6.)
(9) (i) Conformed copy of Shareholder Services Agreement of
the Registrant; (6.)
(ii) Conformed copy of Administrative Services Agreement of
the Registrant; (6.)
(iii) Conformed Copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement; (6.)
(iv) The response and exhibits described in Item 24(6)(iii)
are hereby incorporated by reference.
(10) Conformed copy of the Opinion and Consent of Counsel
regarding legality of shares being registered; (6.)
(11) Not applicable;
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding (2);
(14) Not applicable;
(15) Conformed Copy of Distribution Plan; (7.)
(16) Copy of Schedule for Computation of Fund Performance Data
for Federated Growth Trust, the predecessor to
Federated Growth Strategies Fund;(6.)
(17) Copy of Financial Data Schedules; +
(18) Multiple Class Plan; (to be filed by amendment)
(19) Conformed copy of Power of Attorney (7.).
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed February 28, 1985. (File Nos. 2-
91090 and 811-4017)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed October 23, 1989. (File Nos. 2-
91090 and 811-4017)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 29, 1994. (File Nos. 2-
91090 and 811-4017)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed June 30, 1995. (File Nos. 2-91090
and 811-4017)
+ All exhibits have been filed electronically.
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of June 2, 1995
Shares of Beneficial Interest
(no par value)
Federated Growth Fund
Class A Shares 10,580
Class B Shares (not effective)
Class C Shares (not effective)
Federated Small Company Growth Fund
Class A Shares (not effective)
Class B Shares (not effective)
Class C Shares (not effective)
Number of Record Holders
Title of Class as of August 10, 1995
Shares of Beneficial Interest
(no par value)
Federated Capital Appreciation Fund
Class A Shares (not effective)
Class B Shares (not effective)
Class C Shares (not effective)
Item 27. Indemnification: (1.)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser,
see the section entitled "Trust Information - Management of the
Trust" in Part A. The affiliations with the Registrant of four of
the Trustees and one of the Officers of the investment adviser are
included in Part B of this Registration Statement under "Federated
Equity Funds Management - Officers and Trustees." The remaining
Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal occupation
is: Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107 West
Market Street, Georgetown, Delaware 19947.
1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed July 9, 1984. (File Nos. 2-91090 and
811-4017)
The remaining Officers of the investment adviser are: William D.
Dawson, Henry A. Frantzen, J. Thomas Madden, and Mark L. Mallon,
Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, and J. Alan Minteer,
Senior Vice Presidents; J. Scott Albrecht, Randall A. Bauer, David
A. Briggs, Jonathan C. Conley, Deborah A. Cunningham, Michael P.
Donnelly, Mark E. Durbiano, Kathleen M. Foody-Malus, Thomas M.
Franks, Edward C. Gonzales, Jeff A. Kozemchak, Marian R. Marinack,
John W. McGonigle, Susan M. Nason, Mary Jo Ochson. Robert J.
Ostrowski, Frederick L. Plautz, Jr., Charles A. Ritter, James D.
Roberge, Sandra L. Weber, and Christopher H. Wiles, Vice
Presidents; Edward C. Gonzales, Treasurer; and John W. McGonigle,
Secretary. The business address of each of the Officers of the
investment adviser is Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of
a majority of the investment advisers to the Funds listed in Part
B of this Registration Statement.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; BayFunds; The Biltmore
Funds; The Biltmore Municipal Funds; California Municipal
Cash Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated
U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 3-5 Years;First Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fountain Square Funds; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Insurance Management
Series; Intermediate Municipal Trust; International Series
Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds;
Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds;
SouthTrust Vulcan Funds; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Tower Mutual Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; Vision Fiduciary
Funds, Inc.; Vision Group of Funds, Inc.; and World
Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, and Treasurer, President
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Executive Vice
Federated Investors Tower President, and Assistant President and
Pittsburgh, PA 15222-3779 Secretary, Federated Secretary
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph L. Epstein Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Stephen A. LaVersa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940, as amended, and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
Registrant Federated Investors Tower
Federated Services Company Pittsburgh, PA 15222-3779
("Transfer Agent and Dividend
Disbursing Agent)
Federated Administrative Services
("Administrator")
Federated Management
("Adviser")
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment on
behalf of Federated Small Cap Strategies Fund, using financial
statements for Federated Small Cap Strategies Fund, which need not
be certified, within four to six months from the effective date of
this Post-Effective Amendment No. 21.
Registrant hereby undertakes to file a post-effective amendment on
behalf of Federated Capital Appreciation Fund, using financial
statements for Federated Capital Appreciation Fund, which need not
be certified, within four to six months from the effective date of
Post-Effective Amendment No. 24.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, FEDERATED EQUITY FUNDS (formerly, Federated Growth Trust),
has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 10th day of
August, 1995.
FEDERATED EQUITY FUNDS
(formerly, Federated Growth Trust)
BY: /s/ Robert C. Rosselot
Robert C. Rosselot, Assistant Secretary
Attorney in Fact for John F. Donahue
August 10, 1995
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to its Registration Statement has been signed
below by the following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Robert C. Rosselot Attorney In Fact August 10, 1995
Robert C. Rosselot For the Persons
ASSISTANT SECRETARY Listed Below
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Executive Vice President
David M. Taylor* Treasurer (Principal Financial
and Accounting Officer)
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 4(iii) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
FEDERATED EQUITY FUNDS
FEDERATED CAPITAL APPRECIATION FUND
CLASS A SHARES
PORTFOLIO
Number Shares
_____ _____
Account No. Alpha Code Organized Under the See Reverse Side For
Laws of the Commonwealth Certain Definitions
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 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 FUND
CLASS B SHARES
PORTFOLIO
Number Shares
_____ _____
Account No. Alpha Code Organized Under the See Reverse Side For
Laws of the Commonwealth Certain Definitions
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 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 FUND
CLASS C SHARES
PORTFOLIO
Number Shares
_____ _____
Account No. Alpha Code Organized Under the See Reverse Side For
Laws of the Commonwealth Certain Definitions
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 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
<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>
