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. 29 .............. X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 24 ............................ 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)
X on December 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
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:
filed the Notice required by that Rule on ; or
-- --------------
intends to file the Notice required by that Rule on or about
; or
------------
X 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 three 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 Growth Strategies Fund. The portfolios are 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) Gemeral Information; (1-3)
Investment Information; (1-3) Investment
Objective; (1-3) Investment Policies; (1-
3) Investment Limitations; (1-3)
Performance Information; (1)Portfolio
Turnover.
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(a),(b),(c)-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) Tax Information; (1-3)
Federal Income Tax; (1-3) State and Local
Taxes; (1(a)) Other Classes of Shares.
Item 7. Purchase of Securities Being
Offered..................(1-3) Net Asset Value; (1-3) Investing in
the Fund; (1(a),(b),(c)-3) How to
Purchase Shares; (1(a))What Shares Cost;
(1(a),(b),(c)-3) Investing in Class A
Shares; (1(a),(b),(c)-3) Investing in
Class B Shares; (1(a),(b),(c)-3)
Investing in Class C Shares; (1-3)
Special Purchase Features; (1-3) Exchange
Privilege (1-3)
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; (1)
Massachusetts Partnership Law.
Item 13. Investment Objectives and
Policies.................(1-3) Investment Objective and Policies.
Item 14. Management of the Fund...(1-3) Federated Equity Funds Management.
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)
Other Services (2-3) Administrative
Services; (2-3) 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; (1-3) Appendix.
Item 23. Financial Statements.....(1) Incorporated by reference to the
Annual Report to Shareholders of
Federated Growth Strategies Fund dated
October 31, 1995, pursuant to Rule 411
under the Securities Act of 1933. (File
No.811-4017).
- --------------------------------------------------------------------------------
FEDERATED GROWTH STRATEGIES 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 Growth Strategies Fund (the "Fund") represent interests
in a diversified portfolio of Federated Equity Funds (the "Trust"), an open-end
management investment company (a mutual fund). The Fund seeks appreciation of
capital by investing primarily in equity securities of companies with prospects
for above-average growth in earnings and dividends.
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 CLASS A SHARES, CLASS B SHARES OR CLASS C
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information 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 December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- --------------------------------------------------
GENERAL INFORMATION 7
- --------------------------------------------------
INVESTMENT INFORMATION 8
- --------------------------------------------------
Investment Objective 8
Investment Policies 8
Investment Limitations 11
NET ASSET VALUE 12
- --------------------------------------------------
INVESTING IN THE FUND 12
- --------------------------------------------------
HOW TO PURCHASE SHARES 13
- --------------------------------------------------
Investing in Class A Shares 13
Reducing or Eliminating the Sales
Charge 14
Investing in Class B Shares 16
Investing in Class C Shares 16
Special Purchase Features 17
EXCHANGE PRIVILEGE 17
- --------------------------------------------------
HOW TO REDEEM SHARES 19
- --------------------------------------------------
Special Redemption Features 21
Contingent Deferred Sales Charge 21
Elimination of Contingent Deferred
Sales Charge 22
ACCOUNT AND SHARE INFORMATION 23
- --------------------------------------------------
TRUST INFORMATION 23
- --------------------------------------------------
Management of the Trust 23
Distribution of Shares 25
Administration of the Fund 26
Expenses of the Fund and Class A
Shares, Class B Shares, and Class C
Shares 27
BROKERAGE TRANSACTIONS 28
- --------------------------------------------------
SHAREHOLDER INFORMATION 28
- --------------------------------------------------
Voting Rights 28
TAX INFORMATION 28
- --------------------------------------------------
Federal Income Tax 28
State and Local Taxes 29
PERFORMANCE INFORMATION 29
- --------------------------------------------------
ADDRESSES 30
- --------------------------------------------------
</TABLE>
I
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... 5.50%
Maximum Sales Charge 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)................................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None
Exchange Fee..................................................................................... None
<CAPTION>
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee................................................................................... 0.75%
12b-1 Fee........................................................................................ None
Total Other Expenses............................................................................. 0.36%
Shareholder Services Fee (after waiver) (2)......................................... 0.10%
Total Class A Shares Operating Expenses (3).............................................. 1.11%
</TABLE>
(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge
and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1% for redemptions made within
one year full of purchase. For a more complete description see "Contingent
Deferred Sales Charge".
(2) The maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 1.10% for the fiscal year ended October 31, 1995 and would
have been 1.26% absent the voluntary waiver of a portion of the shareholder
services fee.
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.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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................................................. $71 $88 $113 $183
You would pay the following expenses on the same investment,
assuming no redemption........................................... $66 $88 $113 $183
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None
Maximum Sales Charge 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)................................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None
Exchange Fee..................................................................................... None
<CAPTION>
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee................................................................................... 0.75%
12b-1 Fee........................................................................................ 0.75%
Total Other Expenses............................................................................. 0.51%
Shareholder Services Fee............................................................ 0.25%
Total Class B Shares Operating Expenses (2)(3)........................................... 2.01%
</TABLE>
(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge".)
(2) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 2.04% for the fiscal year ended October 31, 1995.
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.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------ ---------- -----------
<S> <C> <C>
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............................ $77 $ 107
You would pay the following expenses on the same investment, assuming no
redemption.......................................................................... $20 $ 63
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None
Maximum Sales Charge 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)................................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None
Exchange Fee..................................................................................... None
<CAPTION>
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee................................................................................... 0.75%
12b-1 Fee........................................................................................ 0.75%
Total Other Expenses............................................................................. 0.51%
Shareholder Services Fee............................................................ 0.25%
Total Class C Operating Expenses (2)..................................................... 2.01%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. (See "Contingent Deferred Sales Charge".)
(2) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 2.05% for the fiscal year ended October 31, 1995.
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.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
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............................ $31 $63
You would pay the following expenses on the same investment, assuming no
redemption.......................................................................... $20 $63
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
3
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated December 12, 1995, on the Fund's
financial statements for the year ended October 31, 1995, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained free of
charge.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988(a)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.28 $23.92 $21.16 $21.58 $16.78 $20.99 $17.18 $16.93
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.24 0.21 0.20 0.33 0.57 0.75 0.59 0.09
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments 5.64 (2.18) 2.96 0.45 5.97 (2.69) 3.80 1.08
- ---------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations 5.88 (1.97) 3.16 0.78 6.54 (1.94) 4.39 1.17
- ---------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.26) (0.19) (0.23) (0.33) (0.61) (0.79) (0.52) (0.15)
- ----------------------------------------
Distributions from net realized gain
on investment transactions (0.68) (0.48) (0.17) (0.87) (1.13) (1.48) (0.06) (0.77)
- ---------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.94) (0.67) (0.40) (1.20) (1.74) (2.27) (0.58) (0.92)
- ---------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $26.22 $21.28 $23.92 $21.16 $21.58 $16.78 $20.99 $17.18
- ---------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN (b) 29.03% (8.43%) 15.06% 3.93% 41.54% (10.41%) 25.87% 6.95%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 1.10% 0.99% 0.96% 1.01% 1.01% 1.01% 1.01% 1.00%*
- ----------------------------------------
Net investment income 1.05% 0.89% 0.90% 1.54% 2.88% 4.00% 2.99% 1.30%*
- ----------------------------------------
Expense waiver/ reimbursement (c) 0.16% -- -- -- 0.10% 0.22% 0.14% 0.60%*
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $249,110 $320,630 $460,811 $391,655 $275,561 $138,407 $134,735 $104,146
- ----------------------------------------
Portfolio turnover 125% 59% 57% 46% 54% 67% 79% 24%
- ----------------------------------------
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1988 1987 1986
------- ------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.67 $16.03 $11.66
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.25 0.28 0.27
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments (0.23) 2.40 4.46
- ---------------------------------------- ------- ------- ----------
Total from investment operations 0.02 2.68 4.73
- ---------------------------------------- ------- ------- ----------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.20) (0.26) (0.29)
- ----------------------------------------
Distributions from net realized gain
on investment transactions (0.56) (0.78) (0.07)
- ---------------------------------------- ------- ------- ----------
Total distributions (0.76) (1.04) (0.36)
- ---------------------------------------- ------- ------- ----------
NET ASSET VALUE, END OF PERIOD $16.93 $17.67 $16.03
- ---------------------------------------- ------- ------- ----------
------- ------- ----------
TOTAL RETURN (b) 0.50% 17.55% 41.58%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 1.00% 1.00% 1.00%
- ----------------------------------------
Net investment income 1.39% 1.78% 2.35%
- ----------------------------------------
Expense waiver/ reimbursement (c) 0.15% 0.18% 0.50%
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $102,395 $134,657 $47,318
- ----------------------------------------
Portfolio turnover 88% 66% 42%
- ----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) For the five months ended October 31, 1988, the Fund changed its fiscal
year-end from May 31 to October 31.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1995, which can be obtained free of charge.
4
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated December 12, 1995, on the Fund's
financial statements for the year ended October 31, 1995, and on the following
table for the period presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained free of
charge.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1995(a)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.51
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income (0.02)
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.74
- -------------------------------------------------------------------- ------------
Total from investment operations 0.72
- -------------------------------------------------------------------- ------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income --
- --------------------------------------------------------------------
Distributions from net realized gain on investment transactions --
- -------------------------------------------------------------------- ------------
Total distributions --
- -------------------------------------------------------------------- ------------
NET ASSET VALUE, END OF PERIOD $ 26.23
- -------------------------------------------------------------------- ------------
------------
TOTAL RETURN (b) 2.82%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 2.04*
- --------------------------------------------------------------------
Net investment income (0.66%)*
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,345
- --------------------------------------------------------------------
Portfolio turnover 125%
- --------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 15, 1995 (date of initial
public offering) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1995, which can be obtained free of charge.
5
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated December 12, 1995, on the Fund's
financial statements for the year ended October 31, 1995, and on the following
table for the period presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained free of
charge.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1995(a)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.51
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income (0.02)
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.73
- -------------------------------------------------------------------- ------------
Total from investment operations 0.71
- -------------------------------------------------------------------- ------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income --
- --------------------------------------------------------------------
Distributions from net realized gain on investment transactions --
- -------------------------------------------------------------------- ------------
Total distributions --
- -------------------------------------------------------------------- ------------
NET ASSET VALUE, END OF PERIOD $ 26.22
- -------------------------------------------------------------------- ------------
------------
TOTAL RETURN (b) 2.78%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 2.05%*
- --------------------------------------------------------------------
Net investment income (0.71%)*
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 57
- --------------------------------------------------------------------
Portfolio turnover 125%
- --------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 15, 1995 (date of initial
public offering) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1995, which can be obtained free of charge.
6
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 17, 1984 under the name "Federated Growth Trust." The Trust
later changed its name to "Federated Equity Funds." The Trust's address is
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Declaration
of Trust permits the Trust to offer separate series of shares of beneficial
interest representing interests in separate portfolios of securities. As of the
date of this prospectus, the Board of Trustees (the "Trustees") has established
three classes of shares for the Fund, known as Class A Shares, Class B Shares,
and Class C Shares (individually and collectively as the context requires,
"Shares"). Shares of the Fund are designed for individuals and institutions
seeking appreciation of capital by investing primarily in equity securities of
companies with prospects for above-average growth in earnings and dividends.
For information on how to purchase Shares of the Fund, 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.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge 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 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."
In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Information regarding the exchange privilege offered with respect to the Fund
and certain other funds for which affiliates of Federated Investors serve as
investment adviser or principal underwriter (the "Federated Funds") can be found
under "Exchange Privilege."
Federated Management is the investment adviser (the "Adviser") to the Fund and
receives compensation for its services. The Adviser's address is Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty Funds."
7
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is appreciation of capital. 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 Fund pursues this investment objective by investing primarily in equity
securities of companies with prospects for above-average growth in earnings and
dividends. Unless indicated otherwise, the investment policies of the Fund may
be changed by the Board of Trustees without the approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in equity securities of
companies selected by the investment adviser on the basis of traditional
research techniques, including assessment of earnings and dividend growth
prospects and of the risk and volatility of each company's business. The Fund
generally invests in companies with market capitalization of $100,000,000 or
more. The Fund may invest in common and preferred stocks, corporate bonds,
debentures, notes, warrants, and put and call options on stocks.
SECURITIES OF FOREIGN ISSUERS AND RISK CONSIDERATIONS. The Fund may invest in
the securities of foreign issuers which are freely traded on United States
securities exchanges or in the over-the-counter market in the form of depository
receipts. Securities of a foreign issuer may present greater risks in the form
of nationalization, confiscation, domestic marketability, or other national or
international restrictions. As a matter of practice, the Fund will not invest in
the securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial.
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
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
8
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 nonconvertible 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 investment
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 investment 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 investment 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.
The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.
RESTRICTED SECURITIES. The Fund may acquire securities which are subject to
legal or contractual delays, restrictions, and costs on resale. Because of time
limitations, the Fund might not be able to dispose of these securities at
reasonable prices or at times advantageous to the Fund. The Fund intends to
limit the purchase of restricted securities which have not been determined by
the Trustees to be liquid, together with other securities considered to be
illiquid, including repurchase agreements providing for settlement in more than
seven days after notice, to not more than 15% of its net assets.
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 purchase prices. Accordingly,
the Fund may pay more or less than the market value of the securities on the
settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
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.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, prevailing market conditions warrant, the Fund may, for
temporary defensive purposes, invest in:
- short-term money market instruments;
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities; and
9
- repurchase agreements.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price. 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.
PUT AND CALL OPTIONS. The Fund may purchase put options on stocks. These
options will be used only as a hedge to attempt to protect securities which the
Fund holds against decreases in value. The Fund may purchase these put options
as long as they are listed on a recognized options exchange and the underlying
stocks are held in its portfolio.
The Fund may also write call options on securities either held in its portfolio,
or 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 call options which the Fund writes and sells must be listed on a recognized
options exchange. Writing of calls by the Fund is intended to generate income
for the Fund and, thereby, protect against price movements in particular
securities in the Fund's portfolio.
RISKS. Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange which may or may not exist for any
particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the securities
underlying an option. The inability to close options also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio.
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
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral 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.
EQUITY INVESTMENT RISK CONSIDERATIONS. 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.
10
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its 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 Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund may borrow up to
one-third of the value of its net assets;
- sell securities short except, under strict limitations, the Fund 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; or
- invest more than 5% of its total assets in securities of one issuer
(except cash and cash items, repurchase agreements, and U.S. government
obligations) or acquire more than 10% of any class of voting securities of
any one issuer.
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 changes
in these limitations become effective.
The Fund will not:
- purchase securities of other investment companies, except in open market
transactions limited to not more than 10% of its total assets, or except
as part of a merger, consolidation, or other acquisition;
- invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations and in equity
securities of any issuer which are not readily marketable;
- commit more than 5% of its total assets to premiums on open put option
positions; or
- invest more than 5% of its net assets in warrants.
11
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, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
The Fund offers investors three classes of Shares that carry sales charges 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
charge of 5.50% at the time of purchase. Certain purchases of Class A Shares are
not subject to a sales charge. See "Investing in Class A Shares." 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 charges. See "Reducing or Eliminating the Sales Charge." Class
A Shares have no conversion feature.
CLASS B SHARES. Class B Shares are sold without an initial sales charge, 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 12b-1 fee
while Class A Shares do not bear such a fee. 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 expense
ratio and pay lower dividends than Class A Shares due to the 12b-1 fee.
CLASS C SHARES. Class C Shares are sold without an initial sales charge, 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
12
time the investment is made, but will have a higher expense ratio and pay lower
dividends than Class A Shares due to the 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. 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 charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS
A PERCENTAGE DEALER CONCESSION
SALES CHARGE AS OF NET AS A PERCENTAGE OF
A PERCENTAGE AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION OF OFFERING PRICE INVESTED PRICE
- ----------------------------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
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% 0.00% 0.25%*
</TABLE>
* See sub-section entitled "Dealer Concession."
No sales charge is imposed for Class A Shares purchased through bank trust
departments, investment advisers 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 to shareholders designated as Liberty Life Members. However,
investors who purchase Shares through a trust department, investment adviser, or
retirement plan may be charged an additional service fee by the institution.
Additionally, no sales charge is imposed for Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee or fees for
services.
13
DEALER CONCESSION. For sales of Class A Shares, a dealer will normally receive
up to 90% of the applicable sales charge. Any portion of the sales charge 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 charge 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 charge; 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 charge 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 charge 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.
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. State
securities laws may require certain financial institutions such as depository
institutions to register as dealers.
REDUCING OR ELIMINATING THE SALES CHARGE. The sales charge can be reduced or
eliminated on the purchase of Class A Shares through:
- quantity discounts and accumulated purchases;
- concurrent purchases;
- signing a 13-month letter of intent;
- using the reinvestment privilege; or
- purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge 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 charge. In
addition, the sales charge, 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.
14
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 charge on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales charge 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 charge after it
confirms the purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of Class A
Shares of two or more funds in the Federated Funds, the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in one of the Class A Shares in the Federated Funds with a sales charge,
and $20,000 in this Fund, the sales charge would be reduced.
To receive this sales charge 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 charge
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 charge may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge 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 charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any 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 charge.
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
charge. 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 charge, with the proceeds from the
15
redemption of shares of an unaffiliated investment company that were purchased
or sold with a sales charge 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 charge,
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 fifteenth of the month eight full years after
the purchase date, except as noted below, and may 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 charge, 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
16
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 charge must be received within three
business days following the order. Payment for purchases on which no sales
charge 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; Attn: 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 charge, 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 Federated Funds, as listed herein, at
net asset value. Neither the Fund nor any
17
of the funds in the Federated Funds imposes any additional fees on exchanges.
Shareholders in certain other Federated Funds may exchange their shares in the
Federated Funds for Class A Shares.
CLASS B SHARES. Class B shareholders may exchange all or some of their Shares
for Class B Shares of other funds in the Federated Funds. (Not all funds in the
Federated Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Federated
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 Federated
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 Federated Funds, as listed herein, at
net asset value without a contingent deferred sales charge. (Not all funds in
the Federated Funds currently offer Class C Shares. Contact your financial
institution regarding the availability of other Class C Shares in the Federated
Funds.) To the extent that a shareholder exchanges Shares for Class C Shares in
other funds in the Federated 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."
The Fund has exchange privileges with the following Federated Funds:
American Leaders Fund, Inc.; Capital Growth Fund (Class A Shares and Class C
Shares only); Federated Bond Fund; Federated Small Cap Strategies Fund; Fund for
U.S. Government Securities, Inc.; Federated International Equity Fund; Federated
International Income Fund; 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.; Limited Term Fund
(Class A Shares only); Limited Term Municipal Fund (Class A Shares only);
Michigan Intermediate Municipal Trust (Class A Shares only); Pennsylvania
Municipal Income Fund (Class A Shares only); Strategic Income Fund; Tax-Free
Instruments Trust (Class A Shares only); and, World Utility Fund.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from any sales charges on future purchases in and exchanges between
the Class A Shares of any funds in the Federated Funds, as long as they maintain
a $500 balance in one of the Federated Funds.
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
18
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 Federated
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 Federated 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, North Quincy, Massachusetts 02171.
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 8600, Boston, Massachusetts
02266-8600 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.
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
19
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 received 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 insured mail with the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures 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.
20
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 charge, 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 charge 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:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
- ----------------------- -----------------------
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and
thereafter 0%
</TABLE>
21
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.
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 Federated 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 Federated Funds.
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
22
Act of 1940, as amended, or retirement plans where the third party administrator
has entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Trustees reserve the
right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Services Company maintains a Share account for each shareholder. Share
certificates are not issued unless requested in writing to Federated Services
Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
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 charge, 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 Fund 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
23
for the shareholders. An Executive Committee of the Board of Trustees handles
the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to
0.75 of 1% of the Fund's average daily net assets. The fee paid by the Fund,
while higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. Under the investment advisory contract, which provides for the
voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the Fund of
any expenses incurred by shareholders who use the transfer agent's subaccounting
facilities. The Adviser can terminate this voluntary waiver at any time in its
sole discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized
on April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) Shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund 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.
James E. Grefenstette has been the Fund's portfolio manager since December 1994.
Mr. Grefenstette joined Federated Investors in 1992 and has been an Assistant
Vice President of the Fund's investment adviser since October 1994. Mr.
Grefenstette served as an investment analyst of the Adviser from 1992 to 1994.
Mr. Grefenstette served as a credit analyst at Westinghouse Credit Corporation
from 1990 until 1992, and served as a bond trader and an Investment Officer at
Pittsburgh National Bank from 1987 to 1990. Mr. Grefenstette received his
M.S.I.A. from Carnegie Mellon University.
Peter R. Anderson has been the Fund's portfolio manager since August 1994. 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.
24
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 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. 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.
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.
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES. Under a distribution plan adopted in accordance with Investment
Company Act Rule 12b-1 (the "Distribution Plan"), Class B Shares and Class C
Shares will pay a fee to the distributor in an amount computed at an annual rate
of .75% 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. For 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 support services pursuant to the 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
25
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 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 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 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.
SUPPLEMENTAL 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 certain qualified retirement 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,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing 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
Fund's investment 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
26
annual rate which relates to the average aggregate daily net assets of all
Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<C> <S>
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
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
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 portfolio 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 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 Class A Shares, Class B Shares, and Class C 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 allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Trust's Distribution Plan and fees for Shareholder Services. However, the
Trustees reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares and Class C Shares as they deem appropriate
("Class Expenses"). In any case, 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, and 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, and
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 related solely
to Class A Shares, Class B Shares, or Class C Shares.
27
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 of December 1, 1995, Kevin M. Boyd, Austin, Texas, owned 42.90% of
the Class C voting securities of the Fund and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters as presented for a vote of shareholders.
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.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, 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
28
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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, 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 charge 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. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
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.
29
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Federated Equity Funds
Federated Growth Strategies
Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Custodian
State Street Bank and Trust
Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- --------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing
Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Center
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
</TABLE>
30
- --------------------------------------------------------------------------------
FEDERATED GROWTH
STRATEGIES 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
December 31, 1995
[FEDERATED SECURITIES CORP. LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 314172107
Cusip 314172206
Cusip 314172305
G01228-01 (12/95) [RECYCLED PAPER LOGO]
RECYCLED
PAPER
- --------------------------------------------------------------------------------
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
CLASS A SHARES
PROSPECTUS
The Class A Shares of Federated Growth Strategies Fund (the "Fund") represent
interests in a diversified portfolio of Federated Equity Funds (the "Trust"), an
open-end management investment company (a mutual fund). The Fund seeks
appreciation of capital by investing primarily in equity securities of companies
with prospects for above-average growth in earnings and dividends.
THE CLASS A 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 CLASS A SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Class A Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, and Class C Shares dated December 31, 1995, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information, 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 December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES 2
- --------------------------------------------------
GENERAL INFORMATION 3
- --------------------------------------------------
INVESTMENT INFORMATION 3
- --------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 7
NET ASSET VALUE 7
- --------------------------------------------------
HOW TO PURCHASE SHARES 8
- --------------------------------------------------
What Shares Cost 8
Reducing or Eliminating the Sales
Charge 9
Special Purchase Features 11
EXCHANGE PRIVILEGE 12
- --------------------------------------------------
HOW TO REDEEM SHARES 13
- --------------------------------------------------
Special Redemption Features 14
Contingent Deferred Sales Charge 15
Elimination of Contingent Deferred
Sales Charge 15
ACCOUNT AND SHARE INFORMATION 16
- --------------------------------------------------
TRUST INFORMATION 16
- --------------------------------------------------
Management of the Trust 16
Distribution of Class A Shares 18
Administration of the Fund 18
Expenses of the Fund and Class A
Shares 19
BROKERAGE TRANSACTIONS 19
- --------------------------------------------------
SHAREHOLDER INFORMATION 20
- --------------------------------------------------
Voting Rights 20
TAX INFORMATION 20
- --------------------------------------------------
Federal Income Tax 20
State and Local Taxes 20
PERFORMANCE INFORMATION 21
- --------------------------------------------------
OTHER CLASSES OF SHARES 21
- --------------------------------------------------
ADDRESSES 23
- --------------------------------------------------
</TABLE>
I
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... 5.50%
Maximum Sales Charge 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)................................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None
Exchange Fee..................................................................................... None
<CAPTION>
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee................................................................................... 0.75%
12b-1 Fee........................................................................................ None
Total Other Expenses............................................................................. 0.36%
Shareholder Services Fee (after waiver) (2)......................................... 0.10%
Total Class A Shares Operating Expenses (3).............................................. 1.11%
</TABLE>
(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge
and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of 0.50 of 1% for redemptions made within
one full year of purchase. For a more complete description see "Contingent
Deferred Sales Charge".
(2) The maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending October 31, 1996. The total operating
expenses were 1.10% for the fiscal year ended October 31, 1995 and would
have been 1.26% absent the voluntary waiver of a portion of the shareholder
services fee.
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 "How to Purchase Shares" and "Trust Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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................................................. $71 $88 $113 $183
You would pay the following expenses on the same investment,
assuming no redemption........................................... $66 $88 $113 $183
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated December 12, 1995, on the Fund's
financial statements for the year ended October 31, 1995, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained free of
charge.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988(a)
- ---------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78 $ 20.99 $ 17.18 $ 16.93
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.24 0.21 0.20 0.33 0.57 0.75 0.59 0.09
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments 5.64 (2.18) 2.96 0.45 5.97 (2.69) 3.80 1.08
- ---------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 5.88 (1.97) 3.16 0.78 6.54 (1.94) 4.39 1.17
- ---------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.26) (0.19) (0.23) (0.33) (0.61) (0.79) (0.52) (0.15)
- ----------------------------------------
Distributions from net realized gain
on investment transactions (0.68) (0.48) (0.17) (0.87) (1.13) (1.48) (0.06) (0.77)
- ---------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.94) (0.67) (0.40) (1.20) (1.74) (2.27) (0.58) (0.92)
- ---------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 26.22 $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78 $ 20.99 $ 17.18
- ---------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN (b) 29.03% (8.43%) 15.06% 3.93% 41.54% (10.41%) 25.87% 6.95%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 1.10% 0.99% 0.96% 1.01% 1.01% 1.01% 1.01% 1.00%*
- ----------------------------------------
Net investment income 1.05% 0.89% 0.90% 1.54% 2.88% 4.00% 2.99% 1.30%*
- ----------------------------------------
Expense waiver/reimbursement (c) 0.16% -- -- -- 0.10% 0.22% 0.14% 0.60%*
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $249,110 $320,630 $460,811 $391,655 $275,561 $138,407 $134,735 $104,146
- ----------------------------------------
Portfolio turnover 125% 59% 57% 46% 54% 67% 79% 24%
- ----------------------------------------
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1988 1987 1986
- ---------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.67 $ 16.03 $ 11.66
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.25 0.28 0.27
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments (0.23) 2.40 4.46
- ---------------------------------------- -------- -------- --------
Total from investment operations 0.02 2.68 4.73
- ---------------------------------------- -------- -------- --------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.20) (0.26) (0.29)
- ----------------------------------------
Distributions from net realized gain
on investment transactions (0.56) (0.78) (0.07)
- ---------------------------------------- -------- -------- --------
Total distributions (0.76) (1.04) (0.36)
- ---------------------------------------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 16.93 $ 17.67 $ 16.03
- ---------------------------------------- -------- -------- --------
-------- -------- --------
TOTAL RETURN (b) 0.50% 17.55% 41.58%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 1.00% 1.00% 1.00%
- ----------------------------------------
Net investment income 1.39% 1.78% 2.35%
- ----------------------------------------
Expense waiver/reimbursement (c) 0.15% 0.18% 0.50%
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $102,395 $134,657 $47,318
- ----------------------------------------
Portfolio turnover 88% 66% 42%
- ----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) For the five months ended October 31, 1988, the Fund changed its fiscal
year-end from May 31 to October 31.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1995, which can be obtained free of charge.
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 17, 1984 under the name "Federated Growth Trust." The Trust
later changed its name to "Federated Equity Funds." The Trust's address is
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Declaration
of Trust permits the Trust to offer separate series of shares of beneficial
interest representing interests in separate portfolios of securities. As of the
date of this prospectus, the Board of Trustees (the "Trustees") has established
three classes of shares for the Fund, known as Class A Shares, Class B Shares,
and Class C Shares. This prospectus relates only to the Class A Shares (the
"Shares") of the Fund.
Shares of the Fund are designed for individuals and institutions seeking
appreciation of capital by investing primarily in equity securities of companies
with prospects for above-average growth in earnings and dividends.
For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500.
However, the minimum initial investment for a retirement account is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
In general, Class A Shares are sold at net asset value plus an applicable sales
charge 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."
In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
The Fund's current net asset value and offering price can be found in the mutual
fund section of local newspapers under "Federated Liberty Funds."
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is appreciation of capital. 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 Fund pursues this investment objective by investing primarily in equity
securities of companies with prospects for above-average growth in earnings and
dividends. Unless indicated otherwise, the investment policies of the Fund may
be changed by the Board of Trustees without the approval of shareholders.
Shareholders will be notified before any material changes in these policies
become effective.
3
ACCEPTABLE INVESTMENTS. The Fund invests primarily in equity securities of
companies selected by the investment adviser on the basis of traditional
research techniques, including assessment of earnings and dividend growth
prospects and of the risk and volatility of each company's business. The Fund
generally invests in companies with market capitalization of $100,000,000 or
more. The Fund may invest in common and preferred stocks, corporate bonds,
debentures, notes, warrants, and put and call options on stocks.
SECURITIES OF FOREIGN ISSUERS AND RISK CONSIDERATIONS. The Fund may invest in
the securities of foreign issuers which are freely traded on United States
securities exchanges or in the over-the-counter market in the form of depository
receipts. Securities of a foreign issuer may present greater risks in the form
of nationalization, confiscation, domestic marketability, or other national or
international restrictions. As a matter of practice, the Fund will not invest in
the securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial.
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
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 nonconvertible 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 investment
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 investment 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 investment 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.
4
The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.
RESTRICTED SECURITIES. The Fund may acquire securities which are subject to
legal or contractual delays, restrictions, and costs on resale. Because of time
limitations, the Fund might not be able to dispose of these securities at
reasonable prices or at times advantageous to the Fund. The Fund intends to
limit the purchase of restricted securities which have not been determined by
the Trustees to be liquid, together with other securities considered to be
illiquid, including repurchase agreements providing for settlement in more than
seven days after notice, to not more than 15% of its net assets.
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 purchase prices. Accordingly,
the Fund may pay more or less than the market value of the securities on the
settlement date.
The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
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.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, prevailing market conditions warrant, the Fund may, for
temporary defensive purposes, invest in:
- short-term money market instruments;
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities; and
- repurchase agreements.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price. 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.
PUT AND CALL OPTIONS. The Fund may purchase put options on stocks. These
options will be used only as a hedge to attempt to protect securities which the
Fund holds against decreases in value. The Fund may purchase these put options
as long as they are listed on a recognized options exchange and the underlying
stocks are held in its portfolio.
The Fund may also write call options on securities either held in its portfolio,
or 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 call options which the Fund writes and sells must be
5
listed on a recognized options exchange. Writing of calls by the Fund is
intended to generate income for the Fund and, thereby, protect against price
movements in particular securities in the Fund's portfolio.
RISKS. Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange which may or may not exist for any
particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the securities
underlying an option. The inability to close options also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio.
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
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral 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.
EQUITY INVESTMENT RISK CONSIDERATIONS. 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.
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its 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 Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in the Fund's portfolio.
6
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund may borrow up to
one-third of the value of its net assets;
- sell securities short except, under strict limitations, the Fund 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; or
- invest more than 5% of its total assets in securities of one issuer
(except cash and cash items, repurchase agreements, and U.S. government
obligations) or acquire more than 10% of any class of voting securities of
any one issuer.
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 changes
in these limitations become effective.
The Fund will not:
- purchase securities of other investment companies, except in open market
transactions limited to not more than 10% of its total assets, or except
as part of a merger, consolidation, or other acquisition;
- invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations and in equity
securities of any issuer which are not readily marketable;
- commit more than 5% of its total assets to premiums on open put option
positions; or
- invest more than 5% of its net 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 Class A Shares in the market value of
all securities and other assets of the Fund, subtracting the interest of Class A
Shares in the liabilities of the Fund and those attributable to Class A Shares,
and dividing the remainder by the total number of Class A Shares outstanding.
The net asset value for Class A Shares may differ from that of Class B Shares
and Class C Shares 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 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
7
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, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
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. 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.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER
AS A AS A CONCESSION AS A
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OFFERING NET AMOUNT PUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C>
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% 0.00% 0.25%*
</TABLE>
* See sub-section entitled "Dealer Concession."
No sales charge is imposed for Shares purchased through bank trust departments,
investment advisers 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
to shareholders designated as Liberty Life Members. However, investors who
purchase Shares through a trust department, investment adviser, or retirement
plan may be charged an additional service fee by the institution. Additionally,
no sales charge is imposed for Shares purchased through "wrap accounts" or
similar programs, under which clients pay a fee or fees for services.
8
DEALER CONCESSION. For sales of Shares, a dealer will normally receive up to
90% of the applicable sales charge. Any portion of the sales charge 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 charge 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 charge; 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 charge 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 charge 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.
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. State
securities laws may require certain financial institutions such as depository
institutions to register as dealers.
REDUCING OR ELIMINATING THE SALES CHARGE. The sales charge can be reduced or
eliminated on the purchase of Shares through:
- quantity discounts and accumulated purchases;
- concurrent purchases;
- signing a 13-month letter of intent;
- using the reinvestment privilege; or
- purchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine purchases
of 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 charge. In
addition, the sales charge, 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.
9
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
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 charge on
the additional purchase according to the schedule now in effect would be 4.50%,
not 5.50%.
To receive the sales charge 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 Shares are already owned or that purchases are
being combined. The Fund will reduce the sales charge after it confirms the
purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
Class A Shares in the Liberty Family of Funds, the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in one of the other funds in the Federated Funds with a sales charge,
and $20,000 in this Fund, the sales charge would be reduced.
To receive this sales charge 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 charge
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 Federated Funds (excluding money market funds) over
the next 13 months, the sales charge may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a sales
charge 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 charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any 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 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 charge.
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
charge. If the shareholder redeems his Shares in the Fund, there may be tax
consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES. Investors may purchase Shares at net asset value, without a sales
charge, with the proceeds from the
10
redemption of shares of an unaffiliated investment company that were purchased
or sold with a sales charge 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.
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.
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 charge must be received within three
business days following the order. Payment for purchases on which no sales
charge 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; Attn: 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 charge, if applicable.
Shareholders should contact their financial institution or the Fund to
participate in this program.
11
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 shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Federated Funds at net asset value. Neither the Fund nor
any of the funds in the Federated Funds imposes any additional fees on
exchanges. Shareholders in certain other Federated Funds may exchange their
shares in the Federated Funds for Class A Shares.
The Fund has exchange privileges with the following Federated Funds:
American Leaders Fund, Inc.; Capital Growth Fund (Class A Shares and Class C
Shares only); Federated Bond Fund; Federated Small Cap Strategies Fund; Fund for
U.S. Government Securities, Inc.; Federated International Equity Fund; Federated
International Income Fund; 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.; Limited Term Fund
(Class A Shares only); Limited Term Municipal Fund (Class A Shares only);
Michigan Intermediate Municipal Trust (Class A Shares only); Pennsylvania
Municipal Income Fund (Class A Shares only); Strategic Income Fund; Tax-Free
Instruments Trust (Class A Shares only); and, World Utility Fund.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales charges on future purchases in and exchanges between the
Class A Shares of any funds in the Federated Funds, as long as they maintain a
$500 balance in one of the Federated Funds.
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 Federated
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 Federated Funds or
certain Federated 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
12
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, North Quincy, Massachusetts 02171.
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 8600, Boston, Massachusetts
02266-8600 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.
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 received 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
13
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 insured mail with the written request.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures 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
14
participation in this program through his financial institution. Due to the fact
that Shares are sold with a sales charge, it is not advisable for shareholders
to continue to purchase Shares while participating in this program.
CONTINGENT DEFERRED SALES CHARGE
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 charge 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.
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 one
full year from the date of purchase. 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 one full year from the
date of purchase; (3) Shares held for fewer than one full year from the date of
purchase 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.
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
15
through a bank trust department, an investment adviser registered under the
Investment Advisers Act of 1940, as amended, or retirement plans where the third
party administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to the
extent that no payments were advanced for purchases made through such entities.
The Trustees reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
Shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Fund's prospectus
at the time of the purchase of the Shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify Federated Securities Corp. or the transfer agent in
writing that he is entitled to such elimination.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Services Company maintains a Share account for each shareholder. Share
certificates are not issued unless requested in writing to Federated Services
Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
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 charge, 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 required minimum value of $500. This requirement does not apply,
however, if the balance falls below the required minimum value because of
changes in the net asset value of Shares. 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 Fund 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
16
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 the Fund's
investment adviser, Federated Management (the "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
0.75 of 1% of the Fund's average daily net assets. The fee paid by the Fund,
while higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. Under the investment advisory contract, which provides for the
voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily
waive some or all of its fee. This does not include reimbursement to the Fund of
any expenses incurred by shareholders who use the transfer agent's subaccounting
facilities. The Adviser can terminate this voluntary waiver at any time in its
sole discretion. The Adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized
on April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) Shares of Federated Investors are owned by a trust, the
Trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund 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.
James E. Grefenstette has been the Fund's portfolio manager since December 1994.
Mr. Grefenstette joined Federated Investors in 1992 and has been an Assistant
Vice President of the Fund's investment adviser since October 1994. Mr.
Grefenstette served as an investment analyst of the Adviser from 1992 to 1994.
Mr. Grefenstette served as a credit analyst at Westinghouse Credit Corporation
from 1990 until 1992, and served as a bond trader and an Investment Officer at
Pittsburgh National Bank from 1987 to 1990. Mr. Grefenstette received his
M.S.I.A. from Carnegie Mellon University.
Peter R. Anderson has been the Fund's portfolio manager since August 1994. 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.
17
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 CLASS A 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.
SHAREHOLDER SERVICES. 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 up to 0.25 of 1% of the
average daily net asset value of 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.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.
will pay financial institutions, at the time of purchase, an amount equal to .50
of 1% of the net asset value of Shares purchased by their clients or customers
under certain qualified retirement 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, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing 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 Fund's investment 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
18
annual rate which relates to the average aggregate daily net assets of all
Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
------------------ -----------------------------------
<C> <S>
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
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Class A Shares pay their allocable portion of Trust and portfolio
expenses.
The Trust expenses for which holders of Class A 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
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 pay their allocable
portion include, but are not limited to: registering the Fund and Class A 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 allocated specifically to Class A Shares
as a class are fees for Shareholder Services. However, the Trustees reserve the
right to allocate certain other expenses to holders of Class A Shares as they
deem appropriate ("Class Expenses"). In any case, 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; 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; legal fees relating solely to
Class A Shares; and Trustees' fees incurred as a result of issues related solely
to Class A 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
19
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 of December 1, 1995, Kevin M. Boyd, Austin, Texas, owned 42.90% of
the Class C voting securities of the Fund and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
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.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, 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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to
20
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 Class A
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class A 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 Class A Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
A 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 Class A 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 charge 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.
From time to time, advertisements for Class A 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 to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
As of the date of this prospectus, the Fund also offers two other classes of
shares called Class B Shares and Class C Shares. This prospectus relates only to
Class A Shares.
Class B Shares are sold primarily to customers of financial institutions,
subject to a maximum contingent deferred sales charge of 5.50%. The Fund has
also adopted a Distribution Plan whereby the distributor is paid a fee of up to
.75 of 1% and a Shareholder Services fee of up to .25 of 1% of the Class B
Shares' average daily net assets with respect to Class B Shares. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales charge. Class C Shares are distributed
pursuant to a Distribution Plan adopted by the Fund whereby the distributor is
paid a fee of up to .75 of 1%, in addition to a Shareholder Services
21
fee of .25 of 1% of the Class C Shares' average daily net assets. In addition,
Class C Shares may be subject to certain contingent deferred sales charges.
Investments in Class C Shares are subject to a minimum initial investment of
$1,500, unless the investment is in a retirement account, in which case the
minimum investment is $50.
Class A Shares, Class B Shares, and Class C Shares are subject to certain of the
same expenses. Expense differences, however, among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.
To obtain more information and a prospectus for either Class B Shares or Class C
Shares, investors may call 1-800-235-4669 or contact their financial
institution.
22
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Federated Equity Fund
Federated Growth Strategies
Fund
Class A Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Custodian
State Street Bank and Trust
Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- --------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing
Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Center
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
</TABLE>
23
- --------------------------------------------------------------------------------
FEDERATED GROWTH
STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY
FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
CLASS A SHARES
PROSPECTUS
An Open-End, Diversified Management
Investment Company
December 31, 1995
[FEDERATED SECURITIES CORP. LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 314172107
G01228-03 (12/95) [RECYCLED PAPER LOGO]
RECYCLED
PAPER
[THIS PAGE INTENTIONALLY LEFT BLANK]
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
combined prospectus for Class A Shares, Class B Shares, and Class C Shares,
and the stand-alone prospectus for Class A Shares of Federated Growth
Strategies Fund (the "Fund") dated December 31, 1995. This Statement is not
a prospectus itself. You may request a copy of a prospectus or a paper copy
of this Statement of Additional Information, if you have received it
electronically, free of charge by calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES
CORP.
GENERAL INFORMATION ABOUT THE FUND
Fund Administration 15
1 Custodian 15
Transfer Agent 15
INVESTMENT OBJECTIVE AND POLICIES
Independent Auditors 15
1
PURCHASING SHARES 15
Types of Investments 1
Distribution Plan (Class B Shares
Temporary Investments 2
and Class C Shares Only) and
When-Issued and Delayed Delivery
Shareholder Services Agreement
Transactions 2
15
Lending of Portfolio Securities
Conversion to Federal Funds16
2
Purchases by Sales
Repurchase Agreements 3
Representatives, Trustees, and
Reverse Repurchase Agreements
Employees of the Fund 16
3
Portfolio Turnover 3
Investment Limitations 3
FEDERATED EQUITY FUNDS MANAGEMENT
6
Fund Ownership 10
Trustees Compensation 11
Trustee Liability 12
INVESTMENT ADVISORY SERVICES13
Adviser to the Fund 13
Advisory Fees 13
Other Related Services 13
BROKERAGE TRANSACTIONS 13
OTHER SERVICES 15
DETERMINING NET ASSET VALUE16 APPENDIX 20
Determining Market Value of
Securities 16
REDEEMING SHARES 16
Redemption in Kind 17
MASSACHUSETTS PARTNERSHIP LAW
17
EXCHANGING SECURITIES FOR SHARES
17
Tax Consequences 17
TAX STATUS 17
The Fund's Tax Status 17
Shareholders' Tax Status18
TOTAL RETURN 18
YIELD 18
PERFORMANCE COMPARISONS 19
ABOUT FEDERATED INVESTORS20
Mutual Fund Market 20
Institutional 21
Trust Organizations 21
Broker/Dealers and Bank
Broker/Dealer Subsidiaries21
FINANCIAL STATEMENTS 19
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Federated Equity Funds (the "Trust"). The Trust
was established as a Massachusetts business trust under a Declaration of Trust
dated April 17, 1984, under the name "Federated Growth Trust." The Trust later
changed its name to "Federated Equity Funds." The Declaration of Trust permits
the Trust to offer separate series and classes of shares. 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 three
classes of Shares.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is appreciation of capital. The Fund pursues
this investment objective by investing primarily in equity securities of
companies with prospects for above-average growth in earnings and dividends. The
investment objective cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund may invest in common stocks, preferred stocks, corporate bonds,
debentures, notes, warrants, and put options on stocks.
CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest. They may involve equity features such as conversion or
exchange rights, warrants for the acquisition of common stock of the same
or a different issuer, participations based on revenues, sales, or profits,
or the purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).
The corporate debt securities in which the Fund may invest will be rated
investment grade, i.e., Baa or better by Moody's Investors Service, Inc.
("Moody's"), or BBB or better by Standard & Poor's Ratings Group ("S&P") or
Fitch Investors Service, Inc. ("Fitch") (or, if unrated, are deemed to be
of comparable quality by the Fund's investment adviser). It should be noted
that securities receiving the lowest investment grade rating are considered
to have some speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated securities. In the event
that a security which had an eligible rating when purchased is downgraded
below Baa or BBB, the investment adviser will promptly reassess whether
continued holding of the security is consistent with the Fund's objective.
RESTRICTED SECURITIES
The Fund expects that any restricted securities would be acquired either
from institutional investors who originally acquired the securities in
private placements or directly from the issuers of the securities in
private placements. Restricted securities and securities that are not
readily marketable may sell at a discount from the price they would bring
if freely marketable.
PUT AND CALL OPTIONS
The Fund may purchase listed put options on stocks or write covered call
options to protect against price movements in particular securities in its
portfolio and generate income. 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. 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: (1) buy put options which are listed on a recognized
options exchange and which are on securities held in its portfolio; and
(2) sell listed 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 such additional
consideration). The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or expire. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same
series. Although the investment adviser will consider liquidity before
entering into option transactions, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option or at
any particular time. The Fund reserves the right to hedge the portfolio by
buying financial futures and put options on stock index futures and
financial futures.
However, the Fund will not engage in these transactions until (1) an
amendment to its Registration Statement is filed with the Securities and
Exchange Commission and becomes effective; and (2) ten days after a
supplement to the prospectus disclosing this change in policy has been
mailed to the shareholders.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
oinstruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over $100,000,000,
or if the principal amount of the instrument is insured in full by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or the Savings Association Insurance
Fund, which is administered by the FDIC; and
o prime commercial paper (rated A-1 by S&P , Prime-1 by Moody's, or F-1
by Fitch).
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit Banks;
oFederal Home Loan Banks;
oFederal National Mortgage Association;
oStudent Loan Marketing Association; and
oFederal Home Loan Mortgage Corporation.
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.
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.
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. 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 found by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the Board of
Trustees (the "Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 are 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. For the fiscal years ended October 31,
1995, and 1994, the portfolio turnover rates were 125%, and 59%,
respectively.
For the fiscal year ended October 31, 1995, the variation in the Fund's
portfolio turnover rate was due to market sector rotations, investment
transactions, and an increase in the number of redemptions incurred by the
Fund.
INVESTMENT LIMITATIONS
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25%
or more of the value of its total assets would be invested in any one
industry. However, the Fund may at times invest 25% or more of the value of
its total assets in cash or cash items (not including certificates of
deposit), securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or repurchase agreements secured by such
instruments.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities. The Fund reserves the right
to purchase financial futures and put options on stock index futures and on
financial futures.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
the securities of companies whose business involves the purchase or sale of
real estate, or in securities which are secured by real estate or interests
in real estate.
BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions
and may make margin payments in connection with buying financial futures,
put options on stock index futures, and put options on financial futures.
SELLING SHORT
The Fund will not sell securities short unless at all times when a short
position is open, it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for securities of the same issuer as, and equal in amount
to, the securities sold short; and unless not more than 10% of the value of
the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as permitted by its
investment objective and policies, and except that the Fund may borrow
money and engage in reverse repurchase agreements only in amounts up to
one-third of the value of its net 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 where the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any such borrowings (including reverse
repurchase agreements) are outstanding.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities. This
shall not prevent the purchase or holding of corporate or government 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 objective and policies or Declaration of
Trust.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs, although it may purchase the
securities of issuers which invest in or sponsor such programs.
DIVERSIFICATION OF INVESTMENTS
The Fund will not purchase the securities of any issuer (other than
securities of the U.S. government, its agencies, or instrumentalities, or
instruments secured by securities of such issuers, such as repurchase
agreements) if, as a result, more than 5% of the value of its total assets
would be invested in the securities of such issuer or acquire more than 10%
of any class of voting securities of any 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 changes
in these limitations become effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies, except
by purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 10% of the value of its
total assets would be invested in such securities, or except as part of a
merger, consolidation, or other acquisition. (It should be noted that
investment companies incur certain expenses such as management fees and,
therefore, any investment by the Fund in shares of another investment
company would be subject to such duplicate expenses.)
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice and certain restricted
securities not determined by the Trustees to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
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.
PURCHASING PUT OPTIONS
The Fund will not purchase put options on securities unless the securities
are held in the Fund's portfolio and not more than 5% of the value of the
Fund's total assets would be invested in premiums on open put options.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
ACQUIRING SECURITIES
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may invest in up to 10%
of the voting securities of any one issuer and may exercise its voting
powers consistent with the best interests of the Fund. In addition, the
Fund, other companies advised by the Fund's investment adviser, and other
affiliated companies may together buy and hold substantial amounts of
voting stock of a company and may vote together in regard to such company's
affairs. In some such cases, the Fund and its affiliates might collectively
be considered to be in control of such company. In some cases, Trustees and
other persons associated with the Fund and its affiliates might possibly
become directors of companies in which the Fund holds stock.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants. No
more than 2% of the Fund's net assets, to be included within the overall 5%
limit on investments in warrants, may be warrants which are not listed on
the New York or American Stock Exchanges. Warrants acquired in units or
attached to securities may be deemed to be without value for purposes of
this policy.
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 association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
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. The Fund did not borrow money, sell securities short, or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year.
In addition to the limitations set forth above, the Fund will not purchase or
sell real estate limited partnership interests or oil, gas, or other mineral
leases, except that the Fund may purchase or sell securities of companies which
invest in or hold the foregoing.
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, PA
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. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
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, PA
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, MA
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, PA
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, PA
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
Seacliff
562 Bellevue Avenue
Newport, RI
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, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
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, PA
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, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
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, PA
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. and Federated Global 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 Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
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; Vice President, Federated Administrative Services;
Treasurer of some 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;
Blanchard Funds; Blanchard Precious Metals, Inc.; 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.
As of December 1, 1995, no shareholders of record owned 5% or more of the Class
A Shares of the Fund.
As of December 1, 1995, the following shareholders of record owned 5% or more
of the Class B Shares of the Fund: FUBS & Co., for the exclusive benefit of
Dwayne M. Adams, Coral Springs Florida, owned approximately 5,184 shares
(5.90%); FUBS & Co., for the exclusive benefit of Robert S. Dubois, Ft.
Lauderdale, Florida, owned approximately 8,403 shares (9.56%); Donaldson Lufkin
Jenrette Securities Corporation Inc., Jersey City, New Jersey, owned
approximately 18,645 shares (21.21%); and FUBS & Co., for the exclusive benefit
of Basil Sloly, Fort Lauderdale, Florida, owned approximately 4,761 shares
(5.42%).
As of December 1, 1995, the following shareholders of record owned 5% or more of
the Class C Shares of the Fund: State Street Bank & Trust, custodian for the
IRA of Eugene J. Albin, Arcata, California, owned approximately 1,674 shares
(15.17%); Kevin M. Boyd, Austin, Texas, owned approximately 4,734 shares
(42.90%); and Stephens Inc. for the benefit of A/C 78795291, Little Rock,
Arkansas, owned approximately 584 shares (5.29%).
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
Thomas G. Bigley $0 $20,688 for the Trust and
Trustee 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $1472 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
William J. Copeland $1472 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
James E. Dowd $1472 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1342 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1472 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Peter E. Madden $1131 $90,563 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Gregor F. Meyer $1342 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund Complex
John E. Murray $777 $0 for the Trust and
Trustee 69 other investment companies in the Fund Complex
Wesley W. Posvar $1342 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund Complex
Marjorie P. Smuts$1342 $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, 1995.
+The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (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 Trust, the Fund, or any shareholder of
the Fund 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 Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in each prospectus. During the fiscal years ended
October 31, 1995, 1994, and 1993, the Fund's Adviser earned $1,958,826,
$3,112,641, and $3,288,904, respectively.
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 1-1/2% 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.
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: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or its in advising
the Fund and 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. 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. For the fiscal years
ended October 31, 1995, 1994, and 1993, the Fund paid total brokerage
commissions of $1,002,791, $829,771, and $336,988, respectively.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the Fund
may make may also be make by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of , the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
As of October 31, 1995, the Fund owned $4,452,000 of securities of Bank of New
York Co., Inc., $4,541,250 of securities of Citicorp, $2,399,025 of securities
of Lehman Brothers Holdings, Inc., $2,945,600 of securities of Nations Bank
Corp., $5,067,150 of securities of Sunamerica, Inc., and $3,287,550 of
securities of Travelers Group, Inc., all of which are regular broker/dealers
that derive more than 15% of gross revenues from securities-related activities.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee described in each
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Combined Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as, the "Administrators.") For the
fiscal year ended October 31, 1995, Federated Administrative Services earned
$197,711. For the fiscal year ended October 31, 1994, the Administrators
collectively earned $410,620. For the fiscal year ended October 31, 1993,
Federated Administrative Services, Inc., earned $597,926. Dr. Henry J. Gailliot,
an officer of Federated Management, the Adviser to the Fund, 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 the
Administrators.
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
Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600,
serves as transfer 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.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value (plus a sales charge on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in each prospectus under "How To Purchase
Shares."
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) 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 (Class B Shares and Class C Shares only), the
Trustees expect that the 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.
For the fiscal period ending October 31, 1995, the Fund paid shareholder
service fees for Class A Shares, Class B Shares, and Class C Shares in the
amounts of $652,752, $357, and $13, respectively. A portion of the shareholder
service fee for Class A Shares was waived in the amount of $407,139.
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 OF THE FUND
Trustees, employees, and sales representatives of the Fund, Federated
Management, 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 Class A Shares at net asset value
without a sales charge. Shares may also be sold without a sales charge 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.
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 each prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
o according to the last sale price on a national securities exchange, if
available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices and for bonds and other
fixed income securities as determined by an independent pricing service for
unlisted equity securities, the latest bid prices; or
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service or at fair value as
determined in good faith by the Board of Trustees.
Options are valued at the market values established by the exchanges at the
close of option trading unless the Trustees determine in good faith that another
method of valuing option positions is necessary.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in each 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
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To the extent
available, such securities will be readily marketable.
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.
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.
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 of 1986, 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. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund Shares.
TOTAL RETURN
The Fund's average annual total return for Class A Shares for the one-year,
five-year, and ten-year periods ended October 31, 1995, were 21.92%, 13,57%, and
14.09%, respectively.
The Fund's cumulative total return for Class B Shares, for the period from
August 15, 1995 (date of initial public offering), to October 31, 1995, was -
2.67%.
The Fund's cumulative total return for Class C Shares, for the period from
August 15, 1995 (date of initial public offering), to October 31, 1995, was
1.76%.
The average annual total return for each class 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 net asset value per share at the end of the period. The
number of Shares owned at the end of the period is based on the number of Shares
purchased at the beginning of the period with $1,000, less any applicable sales
charge adjusted over the period by any additional Shares, assuming the quarterly
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investment based
on the lesser of the original purchase price or the net asset value of Shares
redeemed.
Cumulative total return reflects Class B Shares' and Class C Shares' total
performance over a specified period of time. This total return assumes and is
reduced by the payment of the maximum sales charge and/or the contingent
deferred sales charge, if applicable. The Class B Shares' and Class C Shares'
total return is representative of only 2-1/2 months of investment activity since
the date of initial public offering.
YIELD
The Fund's yields for Class A Shares, Class B Shares, and Class C Shares for
the thirty-day period ended October 31, 1995 were 0.43%, 0%, and 0%
respectively.
The yield for each class 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 the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the 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.
PERFORMANCE COMPARISONS
The performance of each of the classes 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 any 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.
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 specified
period of time. From time to time, the Fund will quote its Lipper ranking
in the "growth funds" category in advertising and sales literature.
O DOW JONES INDUSTRIAL AVERAGE ("DJIA") is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.
O STANDARD & POOR'S LOW-PRICED INDEX compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and year-to-
date.
O STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500), a
composite index of common stocks in industry, transportation, and financial
and public utility companies, can be used to compare to the total returns
of funds whose portfolios are invested primarily in common stocks. In
addition, the S&P 500 assumes reinvestments of all dividends paid by
stocks listed on its index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in the Standard &
Poor's figures.
O LIPPER GROWTH FUND AVERAGE is an average of the total returns for 580
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 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 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 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 the "growth funds"
category in advertising and sales literature.
O MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc., analyzes price,
yield, risk, and total return for equity and fixed income funds.
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 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 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.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized 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 as it deems appropriate, 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 principles 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 the sales charge on Class A Shares.
ABOUT FEDERATED INVESTORS
Federated Investors 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 Investors has more than 25 years' experience.
As of December 31, 1994, Federated Investors managed 15 equity funds totaling
approximately $4 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated Investors'
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the management
of Federated Investors' 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 Investors 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
* Source: Investment Company Institute
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
FINANCIAL STATEMENTS
The financial statements for the Federated Growth Strategies Fund for the
fiscal year ended October 31, 1995 are incorporated herein by reference to the
Combined Annual Report to Shareholders of Federated Growth Strategies Fund dated
October 31, 1995.
APPENDIX
STANDARD & POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by S&P. 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 effects 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.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy. S&P's may apply a plus
(+) or minus (-) to the above rating classifications to show relative
standing within the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
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.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
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 to be
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.
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 for timely payment only slightly less in degree than issues rated
"F-1+".
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have extremely strong
safety characteristics are denoted with a plus sign (+).
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
capacity for repayment of senior short-term promissory obligations. P-1
repayment capacity will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
Well-established access to a range of financial markets and assured sources
of alternate liquidity.
P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
capacity for repayment of senior short-term debt 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, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Cusip 314172107
Cusip 314172206
Cusip 314172305
G01228-02 (12/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Incorporated by reference to the Annual Report to
Shareholders of Federated Growth Strategies Fund dated October 31, 1995
pursuant to Rule 411 under th e Securities Act of 1933.) (File No. 811-
4017).
(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); (9.)
(5) (i)................Conformed copy of Investment Advisory Contract
on behalf of Federated Growth Trust; (5.)
(ii)................Conformed copy of Investment Advisory Contract
on behalf of Federated Equity Funds, which includes exhibits for
Federated Small Cap Strategies Fund and Federated Capital
Appreciation Fund; (10.)
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)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed August 31, 1995.
(File Nos. 2-91090 and 811-4017)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995.
(File Nos. 2-91090 and 811-4017)
(6) (i)................Conformed copy of Distributor's Contract on
behalf of Federated Growth Trust; (5.)
(ii)................Conformed copy of Distributor's Contract on
behalf of Federated Equity Funds, which includes exhibits for
Federated Small Cap Strategies Fund and Federated Capital
Appreciation Fund; (10.)
(iii)................The Registrant hereby 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 on Form N-1A, 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 responses and exhibits described in Item
24(6) are hereby incorporated by reference.
(10) Conformed copy of the Opinion and Consent of Counsel regarding
legality of shares being registered; (6.)
(11) Conformed copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2.)
(14) Not applicable;
(15) Conformed Copy of Distribution Plan; (10.)
(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; +
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)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 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 December 1, 1995
Shares of Beneficial Interest
(no par value)
Federated Growth Strategies Fund
Class A Shares 8,903
Class B Shares 416
Class C Shares 326
Federated Small Cap Strategies Fund
Class A Shares 342
Class B Shares 320
Class C Shares 308
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, Drew J. Collins, Jonathan C. Conley, and J. Alan Minteer, Senior
Vice Presidents; J. Scott Albrecht, Joseph m. Balestrino, Randall A.
Bauer, David A. Briggs, Kenneth J. Cody, Deborah A. Cunningham, Michael P.
Donnelly, Linda A. Duessel, Mark E. Durbiano, Kathleen M. Foody-Malus,
Thomas M. Franks, Edward C. Gonzales, Timothy E. Keefe, Stephen A. Keen,
Mark S. Kopinski, Jeff A. Kozemchak, Marian R. Marinack, Susan M. Nason,
Mary Jo Ochson, Robert J. Ostrowski, Frederick L. Plautz, Jr., Charles A.
Ritter, James D. Roberge, Frank Semack, William F. Stotz, Sandra L. Weber,
and Christopher H. Wiles, Vice Presidents; Thomas R. Donahue, Treasurer;
and Stephen A. Keen, Secretary. The business address of each of the
Officers of the investment adviser is Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 or 175 Water street, New York, New
York 10038-4965, as applicable. 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: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; BayFunds; The
Biltmore Funds; The Biltmore Municipal Funds; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; 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 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; Federated U.S. Government Securities Fund: 5-10 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;
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; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; RIMCO Monument Funds; SouthTrust Vulcan
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments
Trust; Tower Mutual 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 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, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary
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, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd 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
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
Byron F. Bowman Vice President, Secretary, --
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
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites 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
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
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
H. Joeseph Kenedy 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
Steven A. La Versa 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
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
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
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
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 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Administrative Services
("Administrator")
Federated Management
("Adviser")
Federated Services Company P.O. Box 8600
("Transfer Agent and Dividend Boston, MA 02266-8600
Disbursing Agent")
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 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.
25.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, the Registrant, FEDERATED EQUITY FUNDS
(formerly, Federated Growth Trust), certifies that it meets all of the
requirements for effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and 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 21st day of December, 1995.
FEDERATED EQUITY FUNDS
(formerly, Federated Growth Trust)
BY: /s/ S. Elliott Cohan
S. Elliott Cohan, Assistant Secretary
Attorney in Fact for John F. Donahue
December 21, 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/ S. Elliott Cohan Attorney In Fact December 21, 1995
S. Elliott Cohan 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 (11) under N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF ERNST & YOUNG INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
December 12, 1995, in Post-Effective Amendment Number 29 to the Registration
Statement (Form N-1A No. 2-91090) and the related Annual Report and
Prospectuses of Federated Growth Strategies Fund (formerly, Federated Growth
Trust) dated December 31, 1995.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FEDERATED EQUITY FUNDS and the Deputy
General Counsel of Federated Investors, and each of them, their true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
Securities and Exchange Commission's electronic disclosure system known as
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman December 1, 1995
John F. Donahue (Chief Executive Officer)
/s/ Glen R. Johnson President December 1, 1995
/s/ David M. Taylor Treasurer December 1, 1995
David M. Taylor (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Trustee December 1, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Trustee December 1, 1995
John T. Conroy, Jr.
/s/ Willaim J. Copeland Trustee December 1, 1995
William J. Copeland
SIGNATURES TITLE DATE
/s/ James E. Dowd Trustee December 1, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Trustee December 1, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Trustee December 1, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Trustee December 1, 1995
Peter E. Madden
/s/ Gregor F. Meyer Trustee December 1, 1995
Gregor F. Meyer
/s/ John F. Murray, Jr. Trustee December 1, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Trustee December 1, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee December 1, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 1st day of December, 1995
/s/ Marie M. Hamm
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Federated Equity Funds
Federated Growth Strategies Fund
Class A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 214,807,541
<INVESTMENTS-AT-VALUE> 252,241,217
<RECEIVABLES> 4,308,790
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 256,550,007
<PAYABLE-FOR-SECURITIES> 5,592,077
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 445,660
<TOTAL-LIABILITIES> 6,037,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,711,242
<SHARES-COMMON-STOCK> 9,499,332
<SHARES-COMMON-PRIOR> 15,063,856
<ACCUMULATED-NII-CURRENT> 100,869
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 51,266,162
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,433,997
<NET-ASSETS> 249,109,599
<DIVIDEND-INCOME> 4,084,557
<INTEREST-INCOME> 1,533,321
<OTHER-INCOME> 0
<EXPENSES-NET> 2,881,296
<NET-INVESTMENT-INCOME> 2,736,582
<REALIZED-GAINS-CURRENT> 51,470,307
<APPREC-INCREASE-CURRENT> 8,029,038
<NET-CHANGE-FROM-OPS> 62,235,927
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,142,465
<DISTRIBUTIONS-OF-GAINS> 9,574,950
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,574,020
<NUMBER-OF-SHARES-REDEEMED> 9,466,879
<SHARES-REINVESTED> 328,335
<NET-CHANGE-IN-ASSETS> (12,717,415)
<ACCUMULATED-NII-PRIOR> 508,103
<ACCUMULATED-GAINS-PRIOR> 9,371,740
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,958,826
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,288,435
<AVERAGE-NET-ASSETS> 263,940,004
<PER-SHARE-NAV-BEGIN> 21.280
<PER-SHARE-NII> 0.240
<PER-SHARE-GAIN-APPREC> 5.640
<PER-SHARE-DIVIDEND> 0.260
<PER-SHARE-DISTRIBUTIONS> 0.680
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 26.220
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Federated Equity Funds
Federated Growth Strategies Fund
Class B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 214,807,541
<INVESTMENTS-AT-VALUE> 252,241,217
<RECEIVABLES> 4,308,790
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 256,550,007
<PAYABLE-FOR-SECURITIES> 5,592,077
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 445,660
<TOTAL-LIABILITIES> 6,037,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,711,242
<SHARES-COMMON-STOCK> 51,294
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 100,869
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 51,266,162
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,433,997
<NET-ASSETS> 1,345,476
<DIVIDEND-INCOME> 4,084,557
<INTEREST-INCOME> 1,533,321
<OTHER-INCOME> 0
<EXPENSES-NET> 2,881,296
<NET-INVESTMENT-INCOME> 2,736,582
<REALIZED-GAINS-CURRENT> 51,470,307
<APPREC-INCREASE-CURRENT> 8,029,038
<NET-CHANGE-FROM-OPS> 62,235,927
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63,517
<NUMBER-OF-SHARES-REDEEMED> 12,223
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12,717,415)
<ACCUMULATED-NII-PRIOR> 508,103
<ACCUMULATED-GAINS-PRIOR> 9,371,740
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,958,826
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,288,435
<AVERAGE-NET-ASSETS> 263,940,004
<PER-SHARE-NAV-BEGIN> 25.510
<PER-SHARE-NII> (0.020)
<PER-SHARE-GAIN-APPREC> 0.740
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 26.230
<EXPENSE-RATIO> 2.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Federated Equity Funds
Federated Growth Strategies Fund
Class C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 214,807,541
<INVESTMENTS-AT-VALUE> 252,241,217
<RECEIVABLES> 4,308,790
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 256,550,007
<PAYABLE-FOR-SECURITIES> 5,592,077
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 445,660
<TOTAL-LIABILITIES> 6,037,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,711,242
<SHARES-COMMON-STOCK> 2,181
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 100,869
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 51,266,162
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,433,997
<NET-ASSETS> 57,195
<DIVIDEND-INCOME> 4,084,557
<INTEREST-INCOME> 1,533,321
<OTHER-INCOME> 0
<EXPENSES-NET> 2,881,296
<NET-INVESTMENT-INCOME> 2,736,582
<REALIZED-GAINS-CURRENT> 51,470,307
<APPREC-INCREASE-CURRENT> 8,029,038
<NET-CHANGE-FROM-OPS> 62,235,927
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,756
<NUMBER-OF-SHARES-REDEEMED> 575
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (12,717,415)
<ACCUMULATED-NII-PRIOR> 508,103
<ACCUMULATED-GAINS-PRIOR> 9,371,740
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,958,826
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,288,435
<AVERAGE-NET-ASSETS> 263,940,004
<PER-SHARE-NAV-BEGIN> 25.510
<PER-SHARE-NII> (0.020)
<PER-SHARE-GAIN-APPREC> 0.730
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 26.220
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
