<PAGE>
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 THESE 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 Combined Statement of Additional Information dated
August 15, 1995 with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information, which is in paper form only, or a paper copy of this
prospectus, if you have received your prospectus electronically, free of charge
by calling 1-800-235-4669. To obtain other information or to make inquiries
about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated August 15, 1995
<PAGE>
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TABLE OF CONTENTS
Summary of Fund Expenses.......................................................1
Financial Highlights...........................................................4
Synopsis.......................................................................5
Liberty Family of Funds........................................................6
Federated LifeTrack Program
(Class A Shares and Class C Shares).......................................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.................................................14
Investing in Class B Shares.................................................16
Investing in Class C Shares.................................................17
Special Purchase Features...................................................18
Exchange Privilege............................................................18
How To Redeem Shares..........................................................20
Special Redemption Features.................................................21
Contingent Deferred Sales Charge............................................22
Elimination of Contingent
Deferred Sales Charge....................................................23
Account and Share Information.................................................24
Trust Information.............................................................25
Management of the Trust.....................................................25
Distribution of Shares......................................................26
Administration of the Fund..................................................28
Expenses of the Fund and Class A Shares,
Class B Shares, and Class C Shares.......................................28
Brokerage Transactions......................................................29
Shareholder Information.......................................................30
Voting Rights...............................................................30
Massachusetts Partnership Law...............................................30
Tax Information...............................................................31
Federal Income Tax..........................................................31
Pennsylvania Corporate and Personal
Property Taxes...........................................................31
Performance Information.......................................................32
<PAGE>
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SUMMARY OF FUND EXPENSES
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................................... 5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)..................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................................................................................. 0.75%
12b-1 Fee....................................................................................................... None
Total Other Expenses............................................................................................ 0.31%
Shareholder Services Fee (after waiver) (2)...................................................... 0.09%
Total Class A Shares Operating Expenses (3)............................................................ 1.06%
</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 load 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. See "Contingent Deferred Sales Charge."
(2) The maximum shareholder services fee is 0.25%.
(3) The Total Class A Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending October 31, 1995. The Total
Class A Shares Operating Expenses were 0.99% for the fiscal year ended
October 31, 1994.
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.......................................... $70 $87 $110 $177
You would pay the following expenses on the same investment, assuming no
redemption.............................................................. $65 $87 $110 $177
</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.
<PAGE>
--------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)..................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee.................................................................................................. 0.75%
12b-1 Fee....................................................................................................... 0.75%
Total Other Expenses............................................................................................ 0.47%
Shareholder Services Fee......................................................................... 0.25%
Total Class B Shares Operating Expenses (2)............................................................ 1.97%
</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.
* Total Class B Shares Operating Expenses in the table above are estimated based
on average expenses expected to be incurred during the period ending October
31, 1995. During the course of this period, expenses may be more or less than
the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Trust Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<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 $106
You would pay the following expenses on the same investment, assuming no redemption............... $20 $ 62
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS B SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1995.
<PAGE>
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SUMMARY OF FUND EXPENSES
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)..................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee.................................................................................................. 0.75%
12b-1 Fee....................................................................................................... 0.75%
Total Other Expenses............................................................................................ 0.47%
Shareholder Services Fee......................................................................... 0.25%
Total Class C Shares Operating Expenses................................................................ 1.97%
</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. For a more complete description, see
"Contingent Deferred Sales Charge."
* Total Class C Shares Operating Expenses in the table above are estimated based
on average expenses expected to be incurred during the period ending October
31, 1995. During the course of this period, expenses may be more or less than
the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Trust Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<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....................................................... $30 $62
You would pay the following expenses on the same investment, assuming no redemption............... $20 $62
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS C SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1995.
<PAGE>
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FINANCIAL HIGHLIGHTS
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 25 of the Combined Statement of Additional Information. The Financial
Highlights presented below are historical information for shares of Federated
Growth Trust, which were the predecessor to Class A Shares of Federated Growth
Strategies Fund.
<TABLE>
<CAPTION>
Six Months
Ended April Year
30, Period Ended Ended May
1995 Year Ended October 31, October 31, 31,
(unaudited) 1994 1993 1992 1991 1990 1989 1988(a) 1988
<S> <C> <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 $ 17.67
-----------------------
INCOME FROM INVESTMENT
OPERATIONS
-----------------------
Net investment income 0.16 0.21 0.20 0.33 0.57 0.75 0.59 0.09 0.25
-----------------------
Net realized and
unrealized gain (loss)
on investments 1.63 (2.18) 2.96 0.45 5.97 (2.69) 3.80 1.08 (0.23)
----------------------- ----- --------- --------- --------- --------- --------- --------- ----- ---------
Total from investment
operations 1.79 (1.97) 3.16 0.78 6.54 (1.94) 4.39 1.17 0.02
-----------------------
LESS DISTRIBUTIONS
-----------------------
Distributions from net
investment income (0.17) (0.19) (0.23) (0.33) (0.61) (0.79) (0.52) (0.15) (0.20)
-----------------------
Distributions from net
realized gain on
investment
transactions (0.68) (0.48) (0.17) (0.87) (1.13) (1.48) (0.06) (0.77) (0.56)
----------------------- ----- --------- --------- --------- --------- --------- --------- ----- ---------
Total distributions (0.85) (0.67) (0.40) (1.20) (1.74) (2.27) (0.58) (0.92) (0.76)
----------------------- ----- --------- --------- --------- --------- --------- --------- ----- ---------
NET ASSET VALUE, END OF
PERIOD $ 22.22 $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78 $ 20.99 $ 17.18 $ 16.93
----------------------- ----- --------- --------- --------- --------- --------- --------- ----- ---------
TOTAL RETURN (B) 8.97% (8.43%) 15.06% 3.93% 41.54% (10.41%) 25.87% 6.95% 0.50%
-----------------------
RATIOS TO AVERAGE NET
ASSETS
-----------------------
Expenses 1.09%(c) 0.99% 0.96% 1.01% 1.01% 1.01% 1.01% 1.00%(c) 1.00%
-----------------------
Net investment income 1.48%(c) 0.89% 0.90% 1.54% 2.88% 4.00% 2.99% 1.30%(c) 1.39%
-----------------------
Expense waiver/
reimbursement (d) -- -- -- -- 0.10% 0.22% 0.14% 0.60%(c) 0.15%
-----------------------
SUPPLEMENTAL DATA
-----------------------
Net assets, end of
period (000 omitted) $244,758 $320,630 $460,811 $391,655 $275,561 $138,407 $134,735 $104,146 $102,395
-----------------------
Portfolio turnover 67% 59% 57% 46% 54% 67% 79% 24% 88%
-----------------------
<CAPTION>
1987 1986
<S> <C> <C>
Net Asset Value,
beginning of period $ 16.03 $ 11.66
-----------------------
INCOME FROM INVESTMENT
OPERATIONS
-----------------------
Net investment income 0.28 0.27
-----------------------
Net realized and
unrealized gain (loss)
on investments 2.40 4.46
----------------------- --------- ---------
Total from investment
operations 2.68 4.73
-----------------------
LESS DISTRIBUTIONS
-----------------------
Distributions from net
investment income (0.26) (0.29)
-----------------------
Distributions from net
realized gain on
investment
transactions (0.78) (0.07)
----------------------- --------- ---------
Total distributions (1.04) (0.36)
----------------------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 17.67 $ 16.03
----------------------- --------- ---------
TOTAL RETURN (B) 17.55% 41.58%
-----------------------
RATIOS TO AVERAGE NET
ASSETS
-----------------------
Expenses 1.00% 1.00%
-----------------------
Net investment income 1.78% 2.35%
-----------------------
Expense waiver/
reimbursement (d) 0.18% 0.50%
-----------------------
SUPPLEMENTAL DATA
-----------------------
Net assets, end of
period (000 omitted) $134,657 $47,318
-----------------------
Portfolio turnover 66% 42%
-----------------------
</TABLE>
(a) For the five months ended October 31, 1988.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained the Fund's annual
report for the fiscal year ended October 31, 1994, which can be obtained free of
charge.
<PAGE>
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SYNOPSIS
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 17, 1984. 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
load and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
Class 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.
Additionally, 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.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including entering into repurchase agreements, investing in when-issued
securities and put and call options, and lending portfolio securities. These
risks are described under "Investment Policies."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty Funds."
<PAGE>
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LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;
Capital Growth Fund, providing appreciation of capital primarily through equity
securities;
Federated Bond Fund, providing current income through high-quality corporate
debt;
Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;
International Equity Fund, providing long-term capital growth and income
through international securities;
International Income Fund, providing a high level of current income consistent
with prudent investment risk through high-quality debt securities denominated
primarily in foreign currencies;
Liberty Equity Income Fund, Inc., providing above-average income and capital
appreciation through income producing equity securities;
Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;
Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
Liberty U.S. Government Money Market Trust, providing current income consistent
with stability of principal through high-quality U.S. government securities;
Liberty Utility Fund, Inc., providing current income and long-term growth of
income, primarily through electric, gas, and communications utilities;
Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value through investment grade securities;
Limited Term Municipal Fund, providing a high level of current income exempt
from federal regular income tax consistent with the preservation of principal,
primarily limited to municipal securities;
Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the state
of Michigan and Michigan municipalities, primarily through Michigan municipal
securities;
Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with stability
of principal and exempt from federal income tax, through high-quality,
short-term municipal securities; and
World Utility Fund, providing total return primarily through securities issued
by domestic and foreign companies in the utilities industries.
<PAGE>
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
FEDERATED LIFETRACK PROGRAM (CLASS A SHARES AND CLASS C SHARES)
The Fund is also a member of the Federated LifeTrack Program sold through
financial representatives. The Federated LifeTrack Program is an integrated
program of investment options, plan recordkeeping, and consultation services for
401(k) and other participant-directed benefit and savings plans. Under the
Federated LifeTrack Program, employers or plan trustees may select a group of
investment options to be offered in a plan which also uses the Federated
LifeTrack Program for recordkeeping and administrative services. Additional fees
are charged to participating plans for these services. As part of the Federated
LifeTrack Program, exchanges may readily be made between investment options
selected by the employer or a plan trustee. For further information about
participating in the Federated LifeTrack Program, please contact an investment
professional or the Fund at the address referenced in the Synopsis of this
prospectus.
The other funds participating in the Federated LifeTrack Program are: American
Leaders Fund, Inc., Automated Cash Management Trust, Automated Government Cash
Reserves, Automated Government Money Trust, Automated Treasury Cash Reserves,
Capital Preservation Fund, Federated ARMs Fund, Federated Bond Fund, Federated
GNMA Trust, Federated High Yield Trust, Federated Income Trust, Federated
Managed Aggressive Growth Fund, Federated Managed Growth and Income Fund,
Federated Managed Growth Fund, Federated Managed Income Fund, Federated Max Cap
Fund, Federated Mini Cap Fund, Federated Mid Cap Fund, Federated Short-Term
Income Fund, Federated Stock Trust, Federated U.S. Government Securities Fund:
1-3 Years, Federated U.S. Government Securities Fund: 2-5 Years, Fortress
Utility Fund, Inc., Fund for U.S. Government Securities, Inc., Intermediate
Income Fund, International Equity Fund, International Income Fund, Liberty
Equity Income Fund, Inc., Liberty High Income Bond Fund, Inc., Liberty Utility
Fund, Inc., and Stock and Bond Fund, Inc.
With respect to Class A Shares, no sales load is imposed on purchases made by
qualified retirement plans with over $1 million invested in funds participating
in the Federated LifeTrack Program.
<PAGE>
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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
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 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
<PAGE>
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 Adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objectives. Otherwise, the Fund will hold or trade the
convertible securities. In selecting convertible securities for the Fund, the
Adviser evaluates the investment characteristics of the convertible security as
a fixed income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
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 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 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.
<PAGE>
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 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 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.
<PAGE>
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.
<PAGE>
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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.
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INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry sales loads and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50% at
the time of purchase. Certain purchases of Class A Shares are not subject to a
sales load. 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 loads. See "Reducing or Eliminating the Sales Load." Class A Shares have
no conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a 12b-1 fee while Class A
Shares do
<PAGE>
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 load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to the 12b-1 fee. Class C Shares have no conversion feature.
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HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
<PAGE>
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING 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 load 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 load is imposed for Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee or fees for
services.
No sales load is imposed on purchases made by retirement plans with over $1
million invested in funds available through the Federated LifeTrack Program.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales load retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales load; however, the distributor will make twelve
monthly payments to the dealer totaling 0.25% of the public offering price over
the first year following the purchase. Such payments are based on the original
purchase price of Shares outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
Effective as of the date of this prospectus, and until further notice, the
entire amount of the applicable sales load will be reallowed to dealers. In
addition, the distributor will pay dealers additional bonus payments in an
amount equal to 0.50 of 1.00% of the public offering price of Shares sold.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions
<PAGE>
may wish to use the transfer agent's subaccounting system to minimize their
internal recordkeeping requirements. The transfer agent charges a fee based on
the level of subaccounting services rendered. Institutions holding Shares in a
fiduciary, agency, custodial, or similar capacity may charge or pass through
subaccounting fees as part of or in addition to normal trust or agency account
fees. They may also charge fees for other services provided which may be related
to the ownership of Shares. This prospectus should, therefore, be read together
with any agreement between the customer and the institution with regard to the
services provided, the fees charged for those services, and any restrictions and
limitations imposed.
REDUCING OR ELIMINATING
THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A Shares
through:
quantity discounts and accumulated purchases;
concurrent purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
purchases with proceeds from redemptions of unaffiliated investment company
shares.
QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales load. In addition, the sales load, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $30,000 and he purchases $20,000 more at the current public offering price,
the sales load on the additional purchase according to the schedule now in
effect would be 4.50%, not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Class A Shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to
<PAGE>
that effect. This letter of intent includes a provision for a sales load
adjustment depending on the amount actually purchased within the 13-month period
and a provision for the custodian to hold up to 5.50% of the total amount
intended to be purchased in escrow (in Shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Liberty Family of Funds, excluding money market accounts, will be aggregated
to provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales load. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.
PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES
Investors may purchase Class A Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated investment
company that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales load, under
certain circumstances described under "Contingent Deferred Sales Charge--Class B
Shares," a contingent deferred sales charge may be applied by the distributor at
the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee, or
other charge. Class B Shares acquired by
<PAGE>
exchange from Class B Shares of another fund in the Liberty Family of Funds will
convert into Class A Shares based on the time of the initial purchase. For
purposes of conversion to Class A Shares, Shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class A
Shares is subject to the continuing availability of a ruling from the Internal
Revenue Service or an opinion of counsel that such conversions will not
constitute taxable events for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge, see "Contingent Deferred Sales Charge--Class C
Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received immediately. Payment for purchases which are subject to a
sales load must be received within three business days following the order.
Payment for purchases on which no sales load is imposed must be received before
3:00 p.m. (Eastern time) on the next business day following the order. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attn: EDGEWIRE; For
<PAGE>
Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain other Federated Funds (as
defined in the "Synopsis" of this prospectus) which are sold with a sales load
different from that of the Fund's or with no sales load, and which are advised
by subsidiaries or affiliates of Federated Investors. These exchanges are made
at net asset value plus the difference between the Fund's sales load already
paid and any sales load of the Federated Fund into which the Shares are to be
exchanged, if higher. Neither the Fund nor any of the funds in the Liberty
Family of Funds imposes any additional fees on exchanges. Shareholders in
certain other Federated Funds may exchange their shares in the Federated Funds
for Class A Shares. Participants in a retirement plan under the Federated
LifeTrackProgram may exchange all or some of their Shares for Class A Shares of
other funds offered under the plan at net asset value.
CLASS B SHARES
Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Liberty Family of Funds. (Not all funds in the Liberty
Family of Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Liberty
Family of Funds.) Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time
<PAGE>
for which exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see "Contingent Deferred Sales
Charge."
CLASS C SHARES
Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Liberty Family of Funds at net asset value without a
contingent deferred sales charge. (Not all funds in the Liberty Family of Funds
currently offer Class C Shares. Contact your financial institution regarding the
availability of other Class C Shares in the Liberty Family of Funds.)
Participants in a retirement plan under the Program may exchange some or all of
their Shares for Class C Shares of other funds offered under their plan at net
asset value without a contingent deferred sales charge. To the extent that a
shareholder exchanges Shares for Class C Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period. For more information, see "Contingent
Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds (where applicable) may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Services Company, 500 Victory Road--2nd Floor, Quincy,
Massachusetts 02171.
Instructions for exchanges for retirement plans participating in the Federated
LifeTrack Program should be given to the plan administrator.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
<PAGE>
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. Redemptions of Shares held through retirement plans
participating in the Federated LifeTrack Program will be governed by the
requirements of the respective plans.
REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly
<PAGE>
completed authorization form. These forms can be obtained from Federated
Securities Corp. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
The minimum amount for a wire transfer is $1,000. Proceeds from redeemed Shares
purchased by check or through ACH will not be wired until that method of payment
has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, Massachusetts
02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by registered or certified mail with the
written request.
If you are requesting a redemption of any amount to be sent to an address other
than that
on record with the Fund, or a redemption payable to a third party, then all
signatures appearing on the written request must be guaranteed by a bank which
is a member of the Federal Deposit Insurance Corporation, a trust company, a
member firm of a domestic stock exchange, or any other "eligible guarantor
institution," as defined by the Securities and Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
<PAGE>
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Class A Shares are sold with a
sales load, it is not advisable for shareholders to continue to purchase Class A
Shares while participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or
redeemed with a sales load and not distributed by Federated Securities Corp. may
be charged a contingent deferred sales charge of .50 of 1.00% for redemptions
made within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION 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>
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption. No contingent deferred sales charge
will be charged for redemptions of Class C Shares from the Federated LifeTrack
Program.
CLASS A SHARES, CLASS B SHARES, AND
CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner
<PAGE>
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than six full years from the
date of purchase with respect to Class B Shares and one full year from the date
of purchase with respect to Class C Shares and applicable Class A Shares; (3)
Shares held for fewer than six years with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares on a first-in, first-out basis. A contingent deferred sales
charge is not assessed in connection with an exchange of Fund Shares for Shares
of other funds in the Liberty Family of Funds in the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time the
exchanged-for Shares are redeemed is calculated as if the shareholder had held
the Shares from the date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be eliminated with
respect to certain redemptions (see "Elimination of Contingent Deferred Sales
Charge").
ELIMINATION OF CONTINGENT
DEFERRED SALES CHARGE
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family Funds or
Federated LifeTrack Program funds or redemptions from the Federated LifeTrack
Program.
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; (2) redemptions representing minimum required distributions from
an Individual Retirement Account or other retirement plan to a shareholder who
has attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Trustees, employees and sales representatives of the Fund, the
distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Trustees reserve the
right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
<PAGE>
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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 load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that quarter's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
<PAGE>
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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 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.
Peter R. Anderson has been the Fund's co-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.
James E. Grefenstette has been the Fund's co-portfolio manager since December
1994. Mr.
<PAGE>
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.
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 (except for participants in the Federated LifeTrack
Program). These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.
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
<PAGE>
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 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.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or customers under the Federated
LifeTrack Program or by certain qualified plans as approved by Federated
Securities Corp. (Such payments are subject to a reclaim from the financial
institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that
<PAGE>
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 annual rate which relates to the average aggregate
daily net assets of all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
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.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND AND CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Trust and 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 portfolio 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 portfolio and Class A Shares, Class B Shares, and Class C Shares
of the portfolio; 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.
<PAGE>
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.
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.
<PAGE>
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SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Trust have equal voting rights, except that in matters affecting
only a particular Fund or class, only Shares of that Fund or class are entitled
to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares of all series entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
<PAGE>
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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.
PENNSYLVANIA CORPORATE AND
PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Trust is not subject to Pennsylvania corporate or personal property taxes;
and
Trust shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
<PAGE>
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PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each class
of Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. 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.
<PAGE>
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
August 15, 1995
[LOGO]FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Cusip 314172107
Cusip 314172206
Cusip 314172305
G01228-01 (8/95)
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 Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares dated August 15, 1995 with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information, which is in paper form only, or a paper copy of this prospectus, if
you have received your prospectus electronically, free of charge by calling
1-800-235-4669. To obtain other information or to make inquiries about the Fund,
contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated August 15, 1995
TABLE OF CONTENTS
Summary of Fund Expenses.......................................................1
Financial Highlights...........................................................2
General Information............................................................3
Liberty Family of Funds........................................................3
Federated LifeTrack Program..................................................4
Investment Information.........................................................5
Investment Objective.........................................................5
Investment Policies..........................................................5
Investment Limitations.......................................................6
Net Asset Value................................................................9
How to Purchase Shares.........................................................9
What Shares Cost............................................................10
Special Purchase Features...................................................13
Exchange Privilege............................................................13
How to Redeem Shares..........................................................15
Special Redemption Features.................................................16
Contingent Deferred Sales Charge............................................16
Elimination of Contingent Deferred
Sales Charge.............................................................17
Account and Share Information.................................................18
Trust Information.............................................................19
Management of the Trust.....................................................19
Distribution of Class A Shares..............................................20
Administration of the Fund..................................................21
Expenses of the Fund and Class A
Shares...................................................................21
Brokerage Transactions......................................................22
Shareholder Information.......................................................23
Voting Rights...............................................................23
Massachusetts Partnership Law...............................................23
Tax Information...............................................................24
Federal Income Tax..........................................................24
Pennsylvania Corporate and Personal Property Taxes.....................24
Performance Information.......................................................25
Other Classes of Shares.......................................................25
SUMMARY OF FUND EXPENSES
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................................... 5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)..................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................................................................................. 0.75%
12b-1 Fee....................................................................................................... None
Total Other Expenses............................................................................................ 0.31%
Shareholder Services Fee (after waiver) (2)...................................................... 0.09%
Total Class A Shares Operating Expenses (3)............................................................ 1.06%
</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 load and
not distribtued by Federated Securities Corp. may be charged a contingent
deferred sales charge of 0.50 of 1.00% for redemptions made within one full
year of purchase. See "Contingent Deferred Sales Charge."
(2) The maximum shareholder services fee is 0.25%.
(3) The Total Class A Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending October 31, 1995. The Total
Class A Shares Operating Expenses were 0.99% for the fiscal year ended
October 31, 1994.
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...... $70 $87 $110 $177
You would pay the following expenses on the same investment, assuming no
redemption.............................................................. $65 $87 $110 $177
</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.
FINANCIAL HIGHLIGHTS
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 25 of the Combined Statement of Additional Information. The Financial
Highlights presented below are historical information for shares of Federated
Growth Trust, which were the predecessor to Class A Shares of Federated Growth
Strategies Fund.
<TABLE>
<CAPTION>
Six
Months Period Ended
Ended April 30, Year Ended October 31, October 31,
1995 ----------------------------------------------------------- -------------
(unaudited) 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 0.16 0.21 0.20 0.33 0.57 0.75 0.59 0.09
--------------------------
Net realized and
unrealized gain (loss) on
investments 1.63 (2.18) 2.96 0.45 5.97 (2.69) 3.80 1.08
-------------------------- ----- --------- --------- --------- --------- --------- --------- -----
Total from investment
operations 1.79 (1.97) 3.16 0.78 6.54 (1.94) 4.39 1.17
--------------------------
LESS DISTRIBUTIONS
--------------------------
Distributions from net
investment income (0.17) (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 (0.85) (0.67) (0.40) (1.20) (1.74) (2.27) (0.58) (0.92)
-------------------------- ----- --------- --------- --------- --------- --------- --------- -----
NET ASSET VALUE, END OF
PERIOD $ 22.22 $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78 $ 20.99 $ 17.18
-------------------------- ----- --------- --------- --------- --------- --------- --------- -----
TOTAL RETURN (B) 8.97% (8.43%) 15.06% 3.93% 41.54% (10.41%) 25.87% 6.95%
--------------------------
RATIOS TO AVERAGE NET
ASSETS
--------------------------
Expenses 1.09%(c) 0.99% 0.96% 1.01% 1.01% 1.01% 1.01% 1.00%(c)
--------------------------
Net investment income 1.48%(c) 0.89% 0.90% 1.54% 2.88% 4.00% 2.99% 1.30%(c)
--------------------------
Expense waiver/
reimbursement (d) -- -- -- -- 0.10% 0.22% 0.14% 0.60%(c)
--------------------------
SUPPLEMENTAL DATA
--------------------------
<CAPTION>
Net assets, end of period
(000 omitted) $244,758 $320,630 $460,811 $391,655 $275,561 $138,407 $134,735 $104,146
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------
Portfolio turnover 67% 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 (d) 0.15% 0.18% 0.50%
--------------------------
SUPPLEMENTAL DATA
--------------------------
Net assets, end of period
(000 omitted) $102,395 $134,657 $47,318
<S> <C> <C> <C>
--------------------------
Portfolio turnover 88% 66% 42%
--------------------------
</TABLE>
(a) For the five months ended October 31, 1988.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained the Fund's annual
report for the fiscal year ended October 31, 1994, which can be obtained free of
charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 17, 1984. 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
load and are redeemed at net asset value. However, a contingent deferred sales
charge is imposed under certain circumstances. For a more complete description,
see "How to Redeem Shares."
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."
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;
Capital Growth Fund, providing appreciation of capital primarily through equity
securities;
Federated Bond Fund, providing current income through high-quality corporate
debt;
Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;
International Equity Fund, providing long-term capital growth and income
through international securities;
International Income Fund, providing a high level of current income consistent
with prudent investment risk through high-quality debt securities denominated
primarily in foreign currencies;
Liberty Equity Income Fund, Inc., providing above-average income and capital
appreciation through income producing equity securities;
Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;
Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
Liberty U.S. Government Money Market Trust, providing current income consistent
with stability of principal through high-quality U.S. government securities;
Liberty Utility Fund, Inc., providing current income and long-term growth of
income, primarily through electric, gas, and communications utilities;
Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value through investment grade securities;
Limited Term Municipal Fund, providing a high level of current income exempt
from federal regular income tax consistent with the preservation of principal,
primarily limited to municipal securities;
Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the state
of Michigan and Michigan municipalities, primarily through Michigan municipal
securities;
Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with stability
of principal and exempt from federal income tax, through high-quality,
short-term municipal securities; and
World Utility Fund, providing total return primarily through securities issued
by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
FEDERATED LIFETRACK PROGRAM
The Fund is also a member of the Federated LifeTrack Program sold through
financial representatives. The Federated LifeTrack Program is an integrated
program of investment options, plan recordkeeping, and consultation services for
401(k) and other participant-directed benefit and savings plans. Under the
Federated LifeTrack Program, employers or plan trustees may select a group of
investment options to be offered in a plan which also uses the Federated
LifeTrack Program for recordkeeping and administrative services. Additional fees
are charged to participating plans for these services. As part of the Federated
LifeTrack Program, exchanges may readily be made between investment options
selected by the employer or a plan trustee. For further information about
participating in the Federated LifeTrack Program, please contact an investment
professional or the Fund at the address referenced in the section entitled
"General Information."
The other funds participating in the Federated LifeTrack Program are: American
Leaders Fund, Inc., Automated Cash Management Trust, Automated Government Cash
Reserves, Automated Government Money Trust, Automated Treasury Cash Reserves,
Capital Preservation
Fund, Federated ARMs Fund, Federated Bond Fund, Federated GNMA Trust, Federated
High Yield Trust, Federated Income Trust, Federated Managed Aggressive Growth
Fund, Federated Managed Growth and Income Fund, Federated Managed Growth Fund,
Federated Managed Income Fund, Federated Max Cap Fund, Federated Mini Cap Fund,
Federated Mid Cap Fund, Federated Short-Term Income Fund, Federated Stock Trust,
Federated U.S. Government Securities Fund: 1-3 Years, Federated U.S. Government
Securities Fund: 2-5 Years, Fortress Utility Fund, Inc., Fund for U.S.
Government Securities, Inc., Intermediate Income Fund, International Equity
Fund, International Income Fund, Liberty Equity Income Fund, Inc., Liberty High
Income Bond Fund, Inc., Liberty Utility Fund, Inc., and Stock and Bond Fund,
Inc.
No sales load is imposed on purchases made by qualified retirement plans with
over $l million invested in funds participating in the Federated LifeTrack
Program.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is 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
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
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.
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 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 load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS DEALER
SALES LOAD AS A PERCENTAGE CONCESSION
A PERCENTAGE OF NET AS A PERCENTAGE
AMOUNT OF OF OFFERING AMOUNT OF PUBLIC
TRANSACTION PRICE INVESTED OFFERING 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 load 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 load is imposed for Shares purchased through "wrap accounts" or similar
programs, under which
clients pay a fee or fees for services.
No sales load is imposed on purchases made by retirement plans with over $1
million invested in funds available through the Federated
LifeTrack Program.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 90% of the applicable
sales load. Any portion of the sales load which is not paid to a dealer will be
retained by the distributor. However, the distributor may offer to pay dealers
up to 100% of the sales load retained by it. Such payments may take the form of
cash or promotional incentives, such as reimbursement of certain expenses of
qualified employees and their spouses to attend informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. In some instances, these incentives will be made available only
to dealers whose employees have sold or may sell a significant amount of Shares.
On purchases of $1 million or more, the investor pays no sales load; however,
the distributor will make twelve monthly payments to the dealer totaling 0.25%
of the public offering price over the first year following the purchase. Such
payments are based on the original purchase price of Shares outstanding at each
month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
Effective as of the date of this prospectus, and until further notice, the
entire amount of the applicable sales load will be reallowed to dealers. In
addition, the distributor will pay dealers additional bonus payments in an
amount equal to 0.50 of 1.00% of the public offering price of Shares sold.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
REDUCING OR ELIMINATING
THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Shares through:
quantity discounts and accumulated purchases;
concurrent purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
purchases with proceeds from redemptions of unaffiliated investment company
shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Shares made on the same day by the investor, the
investor's spouse, and the investor's children under age 21 when it calculates
the sales load. In addition, the sales load, if applicable, is reduced for
purchases made at one time by a trustee or fiduciary for a single trust estate
or a single fiduciary account.
If an additional purchase of 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 load on
the additional purchase according to the schedule now in effect would be 4.50%,
not 5.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will reduce the sales load after it confirms the purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 5.50% of the
total amount intended to be purchased in escrow (in Shares) until such purchase
is completed.
The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount
specified in the letter of intent is not purchased, an appropriate number of
escrowed Shares may be redeemed in order to realize the difference in the sales
load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be
purchased. At the time a letter of intent is established, current balances in
accounts in any 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 load. Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales load. If the shareholder redeems his
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 load, with the
proceeds from the redemption of shares of an unaffiliated investment company
that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.
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 load must be received within three business days following the order.
Payment for purchases on which no sales load is imposed must be received before
3:00 p.m. (Eastern time) on the next business day following the order. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; 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 load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain other funds for which
affiliates of Federated Investors serve as investment adviser or principal
underwriter ("Federated Funds") which are sold with a sales load different from
that of the Fund's or with no sales load, and which are advised by subsidiaries
or affiliates of Federated Investors. These exchanges are made at net asset
value plus the difference between the Fund's sales load already paid and any
sales load of the Federated Fund into which the Shares are to be exchanged, if
higher. Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Shareholders in certain other
Federated Funds may exchange their shares in the Federated Funds for Class A
Shares. Participants in a retirement plan under the Federated LifeTrack Program
may exchange all or some of their Shares for Class A Shares of other funds
offered under the plan at net asset value.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any
time. Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds 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 brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts 02171.
Instructions for exchanges for retirement plans participating in the Federated
LifeTrack Program should be given to the plan administrator.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 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. Redemptions of Shares held through retirement plans
participating in the Federated LifeTrack Program will be governed by the
requirements of the respective plans.
REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by
calling the Fund provided the Fund has a properly completed authorization form.
These forms can be obtained from Federated Securities Corp. Proceeds will be
mailed in the form of a check, to the shareholder's address of record or by wire
transfer to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. The minimum amount for a wire transfer is
$1,000. Proceeds from redeemed Shares purchased by check or through ACH will not
be wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, Massachusetts
02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by registered or certified mail with the
written request.
If you are requesting a redemption of any amount to be sent to an address other
than that
on record with the Fund, or a redemption
payable to a third party, then all signatures appearing on the written request
must be guaranteed by a bank which is a member of the Federal Deposit Insurance
Corporation, a trust company, a member firm of a domestic stock exchange, or any
other "eligible guarantor institution," as defined by the Securities and
Exchange Act of 1934, as amended. The Fund does not accept signatures guaranteed
by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its
transfer agent reserve the right to amend these standards at any time without
notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this
program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through his financial
institution. Due to the fact that Shares are sold with a sales load, 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 load and not distributed by Federated Securities Corp. may
be charged a contingent deferred sales charge of .50 of 1.00% for redemptions
made within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
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 or
Federated LifeTrack Program funds or redemptions from the Federated LifeTrack
Program.
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; (2) redemptions representing minimum required distributions from
an Individual Retirement Account or other retirement plan to a shareholder who
has attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Trustees, employees and sales representatives of the Fund, the
distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Trustees reserve the
right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
ACCOUNT AND SHARE
INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. 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 load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that quarter's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the 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 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.
Peter R. Anderson has been the Fund's co-
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.
James E. Grefenstette has been the Fund's co-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.
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.
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
sales services, distribution-related support services, or shareholder services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to .50 of 1% of the net asset value of Shares
purchased by their clients or customers under the Federated LifeTrack Program or
by certain qualified plans as approved by Federated Securities Corp. (Such
payments are subject to a reclaim from the financial institution should the
assets leave the program within 12 months after purchase.)
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. 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 annual rate which relates to the average aggregate
daily net assets of all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
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.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
EXPENSES OF THE FUND
AND CLASS A SHARES
Holders of 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 portfolio expenses for which holders of Class A Shares pay their allocable
portion include, but are not limited to: registering the portfolio and Class A
Shares of the portfolio; 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 firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of each Fund or
class in the Trust have equal voting rights, except that in matters affecting
only a particular Fund or class, only Shares of that Fund or class are entitled
to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares of all series entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND
PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Trust is not subject to Pennsylvania corporate or personal property taxes;
and
Trust shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for 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 load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares.
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 load. 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 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.
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
August 15, 1995
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Cusip 314172107
G01228-03 (8/95)
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the combined prospectus for Federated Growth Strategies Fund (the
"Fund") dated August 15, 1995. This Statement is not a prospectus
itself. To receive a copy of the prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated August 15, 1995
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
---------------------------------------------------------------
Types of Investments 1
Temporary Investments 2
When-Issued and Delayed Delivery Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 3
Portfolio Turnover 3
Investment Limitations 3
FEDERATED EQUITY FUNDS MANAGEMENT 5
---------------------------------------------------------------
Fund Ownership 9
Trustees' Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
---------------------------------------------------------------
Adviser to the Fund 10
Advisory Fees 10
Other Related Services 11
ADMINISTRATIVE SERVICES 11
---------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 11
---------------------------------------------------------------
BROKERAGE TRANSACTIONS 11
---------------------------------------------------------------
PURCHASING SHARES 12
---------------------------------------------------------------
Distribution Plan (Class B Shares and
Class C Shares Only) and Shareholder
Services Agreement 12
Conversion to Federal Funds 12
Purchases by Sales Representatives, Trustees,
and Employees of the Fund 12
DETERMINING NET ASSET VALUE 12
---------------------------------------------------------------
Determining Market Value of Securities 12
REDEEMING SHARES 13
---------------------------------------------------------------
Redemption in Kind 13
EXCHANGING SECURITIES FOR SHARES 13
---------------------------------------------------------------
Tax Consequences 13
TAX STATUS 13
---------------------------------------------------------------
The Fund's Tax Status 13
Shareholders' Tax Status 14
TOTAL RETURN 14
---------------------------------------------------------------
YIELD 14
---------------------------------------------------------------
PERFORMANCE COMPARISONS 14
---------------------------------------------------------------
ABOUT FEDERATED INVESTORS 16
---------------------------------------------------------------
Mutual Fund Market 16
Institutional 16
Trust Organizations 16
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 16
FINANCIAL STATEMENTS 16
---------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 25
---------------------------------------------------------------
<PAGE>
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. 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
<PAGE>
--------------------------------------------------------------------------------
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:
instruments 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
prime commercial paper (rated A-1 by Standard and Poor's Ratings Group,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch Investors
Service, Inc.).
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:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the 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:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal 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
<PAGE>
--------------------------------------------------------------------------------
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 agree-
ments 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
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
investment 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 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, 1994,
and 1993, the portfolio turnover rates were 59% and 57%, respectively.
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
<PAGE>
--------------------------------------------------------------------------------
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.
<PAGE>
--------------------------------------------------------------------------------
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 and loan 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, Pennsylvania
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; 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.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, Florida
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
--------------------------------------------------------------------------------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, Pennsylvania
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
--------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, Massachusetts
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
--------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, Pennsylvania
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center-Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
--------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center--Suite 674
Pittsburgh, Pennsylvania
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Peter E. Madden
70 Westcliff Road
Westin, Massachusetts
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
--------------------------------------------------------------------------------
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center--Suite 674
Pittsburgh, Pennsylvania
Birthdate: October 6, 1926
Trustee
Attorney-at-law; 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, Pennsylvania
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
--------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, Pennsylvania
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
--------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, Pennsylvania
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
--------------------------------------------------------------------------------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp. and Federated Administrative Services.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services;
President or Vice President of the Funds; Director, Trustee, or Managing General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Trustee of the Trust.
--------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 22, 1930
Executive Vice President
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Executive Vice President or President of the Funds.
--------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 26, 1938
Executive Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
--------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director, Federated
Research Corp.; Chairman and Director, Federated Securities Corp.; President or
Vice President of some of the Funds; Director or Trustee of some of the Funds.
--------------------------------------------------------------------------------
David M. Taylor
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Senior Vice President, Federated Shareholder
Services; Senior Vice President, Federated Administrative Services; Treasurer of
the Funds.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
*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 July 3, 1995, no shareholders of record owned 5% or more of the
outstanding shares of Federated Growth Trust, the predecessor to Class A Shares
of the Fund.
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME, POSITION WITH TRUST FROM TRUST*
<S> <C>
John F. Donahue
Chairman and Trustee $0
John T. Conroy, Jr.
Trustee $1,566
William J. Copeland
Trustee $1,566
James E. Dowd
Trustee $1,566
Lawrence D. Ellis, M.D.
Trustee $1,419
<CAPTION>
NAME, POSITION WITH TRUST TOTAL COMPENSATION PAID FROM FUND COMPLEX+
<S> <C>
John F. Donahue
Chairman and Trustee $0 for the Trust and
68 other investment companies in the Fund Complex
John T. Conroy, Jr.
Trustee $117,202 for the Trust and
64 other investment companies in the Fund Complex
William J. Copeland
Trustee $117,202 for the Trust and
64 other investment companies in the Fund Complex
James E. Dowd
Trustee $117,202 for the Trust and
64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D.
Trustee $106,460 for the Trust and
64 other investment companies in the Fund Complex
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME, POSITION WITH TRUST FROM TRUST*
<S> <C>
Edward L. Flaherty, Jr.
Trustee $1,566
Peter E. Madden
Trustee $1,419
Gregor F. Meyer
Trustee $1,419
John E. Murray, Jr.
Trustee $0
Wesley W. Posvar
Trustee $1,419
Marjorie P. Smuts
Trustee $1,419
<CAPTION>
NAME, POSITION WITH TRUST TOTAL COMPENSATION PAID FROM FUND COMPLEX+
Edward L. Flaherty, Jr.
Trustee $117,202 for the Trust and
64 other investment companies in the Fund Complex
Peter E. Madden
Trustee $90,563 for the Trust and
64 other investment companies in the Fund Complex
Gregor F. Meyer
Trustee $106,460 for the Trust and
64 other investment companies in the Fund Complex
John E. Murray, Jr.
Trustee $0 for the Trust and
69 other investment companies in the Fund Complex
Wesley W. Posvar
Trustee $106,460 for the Trust and
64 other investment companies in the Fund Complex
Marjorie P. Smuts
Trustee $106,460 for the Trust and
64 other investment companies in the Fund Complex
</TABLE>
--------------------------------------------------------------------------------
*Information is furnished for the fiscal year ended October 31, 1994.
+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 the prospectus. During the fiscal years ended
October 31, 1994, 1993, and 1992, the Fund's Adviser earned $3,112,641,
$3,288,904, and $2,594,945, 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
<PAGE>
--------------------------------------------------------------------------------
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds offered by Federated Securities Corp.
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee described in the
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, 1994, the Administrators collectively earned
$410,620. For the fiscal years ended October 31, 1993, and 1992, Federated
Administrative Services, Inc., earned $597,926 and $515,312, respectively. 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.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
--------------------------------------------------------------------------------
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the size,
type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The fee
paid for this service is based upon the level of the Fund's average net assets
for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
--------------------------------------------------------------------------------
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
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.
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 relation to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising 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.
For the fiscal years ended October 31, 1994, 1993, and 1992, the Fund paid total
brokerage commissions of $829,771, $336,988, and $604,078, respectively.
As of October 31, 1994, the Fund owned $6,950,000 of securities of Travelers
Inc., and $3,337,500 of securities of Mellon Bank Corp., both of which are
regular broker/dealers that derive more than 15% of gross revenues from
securities-related activities.
<PAGE>
PURCHASING SHARES
--------------------------------------------------------------------------------
Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value (plus a sales load on Class A Shares only) on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the combined 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, 1994, the Fund paid shareholder service
fees in the amount of $180,150 on behalf of Class A Shares.
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 load. Shares may also be sold without a sales load to trusts or
pension or profit-sharing plans for these people.
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 the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
according to the last sale price on a national securities exchange, if
available;
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
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.
<PAGE>
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 the combined
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.
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:
derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
<PAGE>
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
Prior to the creation of separate classes of Shares, the Fund's average annual
total return for the one-year, five-year, and ten-year periods ended October 31,
1994, were (8.43%), 6.78%, and 13.79%, respectively.
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
load 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.
YIELD
--------------------------------------------------------------------------------
Prior to the creation of separate classes of Shares, the Fund's yield for the
thirty-day period ended October 31, 1994, was 1.41%.
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:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's or any class of Shares' expenses; and
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:
<PAGE>
--------------------------------------------------------------------------------
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc., analyzes price, yield,
risk, and total return for equity and fixed income funds.
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.
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.
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 load on Class A Shares.
<PAGE>
ABOUT FEDERATED INVESTORS
--------------------------------------------------------------------------------
Federated Investors ("Federated") is dedicated to meeting investor needs which
is reflected in its investment decision making--structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As of
December 31, 1994, Federated managed 15 equity funds totaling approximately $4
billion in assets across growth, value, equity income, international, index and
sector (i.e. utility) styles. Federated's value-oriented management style
combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and high
yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of
applications, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisors. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Mark R. Gensheimer, Executive
Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The financial statements for the six-month period ended April 30, 1995, are
incorporated herein by reference from the Semi-Annual Report for Federated
Growth Trust dated June 30, 1995 (File Nos. 2-91090 and 811-4017). A copy of
this report may be obtained without charge by contacting the Fund.
*source: Investment Company Institute
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------------------------------------------------------------------------------------------- --------------
<C> <S> <C>
EQUITIES--72.7%
-------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--5.4%
----------------------------------------------------------------------------------------------------
305,500 *Magma Copper Co. $ 5,460,812
----------------------------------------------------------------------------------------------------
240,000 Medusa Corp. 5,460,000
----------------------------------------------------------------------------------------------------
270,000 Praxair, Inc. 6,243,750
---------------------------------------------------------------------------------------------------- --------------
Total 17,164,562
---------------------------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--2.3%
----------------------------------------------------------------------------------------------------
150,000 Chrysler Corp. 7,312,500
---------------------------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--6.3%
----------------------------------------------------------------------------------------------------
800,000 *Dr. Pepper/Seven-Up Cos. 20,300,000
---------------------------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--6.8%
----------------------------------------------------------------------------------------------------
800,000 *ADT Limited 9,000,000
----------------------------------------------------------------------------------------------------
2,633,800 *Chambers Development, Inc., Class A 5,267,600
----------------------------------------------------------------------------------------------------
260,000 *Safeway, Inc. 7,670,000
---------------------------------------------------------------------------------------------------- --------------
Total 21,937,600
---------------------------------------------------------------------------------------------------- --------------
ENERGY--6.7%
----------------------------------------------------------------------------------------------------
223,600 Ashland Oil, Inc. 8,692,450
----------------------------------------------------------------------------------------------------
497,600 *Kenetech Corp. 6,344,400
----------------------------------------------------------------------------------------------------
260,000 YPF Sociedad Anonima, ADR 6,272,500
---------------------------------------------------------------------------------------------------- --------------
Total 21,309,350
---------------------------------------------------------------------------------------------------- --------------
FINANCE--8.9%
----------------------------------------------------------------------------------------------------
400,000 MBNA Corp. 10,700,000
----------------------------------------------------------------------------------------------------
60,000 Mellon Bank Corp. 3,337,500
----------------------------------------------------------------------------------------------------
153,400 NationsBank Corp. 7,593,300
----------------------------------------------------------------------------------------------------
200,000 Travelers, Inc. 6,950,000
---------------------------------------------------------------------------------------------------- --------------
Total 28,580,800
---------------------------------------------------------------------------------------------------- --------------
HEALTHCARE--7.0%
----------------------------------------------------------------------------------------------------
115,000 Columbia HCA Healthcare Corp. 4,786,875
----------------------------------------------------------------------------------------------------
140,000 *Foundation Health Corp. 4,585,000
----------------------------------------------------------------------------------------------------
150,000 Genentech, Inc. 7,612,500
----------------------------------------------------------------------------------------------------
136,300 *Genetics Institute, Inc. 5,520,150
---------------------------------------------------------------------------------------------------- --------------
Total 22,504,525
---------------------------------------------------------------------------------------------------- --------------
INDUSTRIAL/MANUFACTURING--11.2%
----------------------------------------------------------------------------------------------------
204,800 Dover Corp. 11,366,400
----------------------------------------------------------------------------------------------------
734,700 *Foamex International, Inc. 6,612,300
----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
------------- ---------------------------------------------------------------------------------------------------- --------------
<C> <S> <C>
EQUITIES--CONTINUED
-------------------------------------------------------------------------------------------------------------------
INDUSTRIAL/MANUFACTURING--CONTINUED
----------------------------------------------------------------------------------------------------
204,200 General Motors Corp., Class H $ 7,351,200
----------------------------------------------------------------------------------------------------
283,800 Greenfield Industries, Inc. 6,740,250
----------------------------------------------------------------------------------------------------
100,000 Stewart & Stevenson Services 3,850,000
---------------------------------------------------------------------------------------------------- --------------
Total 35,920,150
---------------------------------------------------------------------------------------------------- --------------
TECHNOLOGY--9.8%
----------------------------------------------------------------------------------------------------
204,200 *Compaq Computer Corp. 8,193,525
----------------------------------------------------------------------------------------------------
307,300 *Integrated Device Technology 8,719,637
----------------------------------------------------------------------------------------------------
104,200 Intel Corp. 6,473,425
----------------------------------------------------------------------------------------------------
204,200 Loral Corp. 8,091,425
---------------------------------------------------------------------------------------------------- --------------
Total 31,478,012
---------------------------------------------------------------------------------------------------- --------------
TRANSPORTATION--2.0%
----------------------------------------------------------------------------------------------------
266,300 American President Co. Ltd. 6,457,775
---------------------------------------------------------------------------------------------------- --------------
UTILITIES--6.3%
----------------------------------------------------------------------------------------------------
306,900 Cinergy Corp. 7,097,063
----------------------------------------------------------------------------------------------------
210,000 MCI Communications Corp. 4,830,000
----------------------------------------------------------------------------------------------------
204,200 Sonat, Inc. 6,636,500
----------------------------------------------------------------------------------------------------
51,600 Sprint Corp. 1,683,450
---------------------------------------------------------------------------------------------------- --------------
Total 20,247,013
---------------------------------------------------------------------------------------------------- --------------
TOTAL EQUITIES (IDENTIFIED COST $205,459,491) 233,212,287
---------------------------------------------------------------------------------------------------- --------------
CONVERTIBLE SECURITIES--19.5%
-------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--1.5%
----------------------------------------------------------------------------------------------------
150,000 AK Steel Holding Corp., SAILS, $2.15 4,875,000
---------------------------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--2.7%
----------------------------------------------------------------------------------------------------
$ 30,000,000 Coleman Worldwide Corp., Conv. LYON, 7.25% accrual, 5/27/2013 8,587,500
---------------------------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--2.6%
----------------------------------------------------------------------------------------------------
$ 7,750,000 Laidlaw, Inc., Conv. Deb. ADT, 6.00%, 1/15/1999 8,340,938
---------------------------------------------------------------------------------------------------- --------------
FINANCE--6.4%
----------------------------------------------------------------------------------------------------
312,500 First USA, Inc., PRIDES, $1.99 10,781,250
----------------------------------------------------------------------------------------------------
250,000 Sunamerica, Inc., Conv. Pfd., Series D, $2.78 9,656,250
---------------------------------------------------------------------------------------------------- --------------
Total 20,437,500
---------------------------------------------------------------------------------------------------- --------------
HEALTHCARE--2.3%
----------------------------------------------------------------------------------------------------
$ 10,000,000 Roche Holdings, Inc., LYON, 4.75% accrual, 9/23/2008 5,225,000
----------------------------------------------------------------------------------------------------
15,000 *Schering Plough Corp., Warrants 2,273,400
---------------------------------------------------------------------------------------------------- --------------
Total 7,498,400
---------------------------------------------------------------------------------------------------- --------------
</TABLE>
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
------------- ---------------------------------------------------------------------------------------------------- --------------
<C> <S> <C>
CONVERTIBLE SECURITIES--CONTINUED
-------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--2.1%
----------------------------------------------------------------------------------------------------
$ 4,460,000 General Instrument Corp., Conv. Jr. Sub. Note, 5.00%, 6/15/2000 $ 6,603,253
---------------------------------------------------------------------------------------------------- --------------
UTILITIES--1.9%
----------------------------------------------------------------------------------------------------
104,000 Nacional Financiera, SNC, PRIDES, $6.79 6,032,000
---------------------------------------------------------------------------------------------------- --------------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST $60,722,428) 62,374,591
---------------------------------------------------------------------------------------------------- --------------
**REPURCHASE AGREEMENT--7.4%
-------------------------------------------------------------------------------------------------------------------
$ 23,710,000 J.P. Morgan Securities, Inc., 4.82%, dated 10/31/94, due 11/1/1994 (at amortized cost) 23,710,000
---------------------------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $289,891,919) $ 319,296,878+
---------------------------------------------------------------------------------------------------- --------------
</TABLE>
The cost for federal tax purposes amounts to $290,095,920. The net unrealized
appreciation of investments on a federal tax basis amounts to $29,200,958, which
is comprised of $47,090,873 appreciation and $17,889,915 depreciation at
October 31, 1994.
*Non-income producing.
**The repurchase agreement is fully collateralized by U.S. government
obligations. The investment in the repurchase agreement was through joint
participation in a joint account with other Federated funds.
Note: The categories of investments are shown as a percentage of net assets
($320,629,748) at October 31, 1994.
The following abbreviations are used in this portfolio:
ADR--American Depository Receipts
LYON--Liquid Yield Option Note
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
SAILS--Stock Appreciation Income Linked Securities
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-------------------------------------------------------------------------------------------------------------------
Investment in securities, at value (identified cost, $289,891,919, and tax cost, $290,095,920) $ 319,296,878
-------------------------------------------------------------------------------------------------------------------
Cash 3,135
-------------------------------------------------------------------------------------------------------------------
Income receivable 513,056
-------------------------------------------------------------------------------------------------------------------
Receivable for investments sold 22,207,154
-------------------------------------------------------------------------------------------------------------------
Receivable for Shares sold 170,972
------------------------------------------------------------------------------------------------------------------- --------------
Total assets 342,191,195
-------------------------------------------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $ 20,712,645
----------------------------------------------------------------------------------------------------
Payable for Shares redeemed 788,817
----------------------------------------------------------------------------------------------------
Accrued expenses 59,985
---------------------------------------------------------------------------------------------------- -------------
Total liabilities 21,561,447
------------------------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 15,063,856 Shares outstanding $ 320,629,748
------------------------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
-------------------------------------------------------------------------------------------------------------------
Paid-in capital $ 281,344,946
-------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 29,404,959
-------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain (loss) on investments 9,371,740
-------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 508,103
------------------------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 320,629,748
------------------------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($320,629,748 / 15,063,856 Shares outstanding) $21.28
------------------------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
--------------------------------------------------------------------------------------------------------------------
Interest $ 3,586,170
--------------------------------------------------------------------------------------------------------------------
Dividends 4,183,916
-------------------------------------------------------------------------------------------------------------------- --------------
Total income 7,770,086
--------------------------------------------------------------------------------------------------------------------
EXPENSES:
--------------------------------------------------------------------------------------------------------------------
Investment advisory fee $ 3,112,641
------------------------------------------------------------------------------------------------------
Administrative personnel and services fee 410,620
------------------------------------------------------------------------------------------------------
Custodian fees 170,755
------------------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees 69,463
------------------------------------------------------------------------------------------------------
Trustees' fees 8,912
------------------------------------------------------------------------------------------------------
Auditing fees 21,895
------------------------------------------------------------------------------------------------------
Legal fees 14,005
------------------------------------------------------------------------------------------------------
Portfolio accounting fees 27,722
------------------------------------------------------------------------------------------------------
Share registration costs 42,079
------------------------------------------------------------------------------------------------------
Printing and postage 12,144
------------------------------------------------------------------------------------------------------
Insurance premiums 10,400
------------------------------------------------------------------------------------------------------
Taxes 4,337
------------------------------------------------------------------------------------------------------
Miscellaneous 8,801
------------------------------------------------------------------------------------------------------
Shareholder services fee 180,150
------------------------------------------------------------------------------------------------------ ------------
Total expenses 4,093,924
-------------------------------------------------------------------------------------------------------------------- --------------
Net investment income 3,676,162
-------------------------------------------------------------------------------------------------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
--------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 9,370,805
--------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (51,582,544)
-------------------------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain (loss) on investments (42,211,739)
-------------------------------------------------------------------------------------------------------------------- --------------
Change in net assets resulting from operations $ (38,535,577)
-------------------------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
---------------------------------------------------------------------------------------------------
OPERATIONS--
---------------------------------------------------------------------------------------------------
Net investment income $ 3,676,162 $ 3,943,542
---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($9,574,806 and $9,253,729 net gains, respectively, as
computed for federal income tax purposes) 9,370,805 11,467,664
---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (51,582,544) 44,574,581
--------------------------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations (38,535,577) 59,985,787
--------------------------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
---------------------------------------------------------------------------------------------------
Distributions from net investment income (3,448,745) (4,405,675)
---------------------------------------------------------------------------------------------------
Distributions from net realized gains (9,252,795) (3,134,631)
--------------------------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (12,701,540) (7,540,306)
--------------------------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
---------------------------------------------------------------------------------------------------
Proceeds from sale of Shares 161,557,597 219,086,722
---------------------------------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 5,957,016 3,344,081
---------------------------------------------------------------------------------------------------
Cost of Shares redeemed (256,459,141) (205,719,474)
--------------------------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from Share transactions (88,944,528) 16,711,329
--------------------------------------------------------------------------------------------------- -------------- --------------
Change in net assets (140,181,645) 69,156,810
---------------------------------------------------------------------------------------------------
NET ASSETS:
---------------------------------------------------------------------------------------------------
Beginning of period 460,811,393 391,654,583
--------------------------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $508,103 and $280,686,
respectively) $ 320,629,748 $ 460,811,393
--------------------------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
(FORMERLY, FEDERATED GROWTH TRUST)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1994
--------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end, no-load
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sale price reported on
national securities exchanges. Unlisted securities and bonds (and private
placement securities) are generally valued at the price provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines
established by the Board of Trustees (the "Trustees"). Risks may arise from
the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Trust could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). Distributions to shareholders are recorded on the
ex-dividend date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
GENERAL--Investment transactions are accounted for on the trade date.
RECLASSIFICATION--The Trust reclassified a cumulative net effect of $337
from undistributed net investment income and accumulated net realized gain
(loss) to paid-in capital in accordance with SOP 93-2. Net investment
income, net realized gains, and net assets were not affected by this
change.
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
--------------------------------------------------------------------------------
(3) CAPITAL SHARES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1994 1993
<S> <C> <C>
Shares sold 7,063,731 9,655,835
-----------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 259,280 148,924
-----------------------------------------------------------------------------------------------------
Shares redeemed (11,526,631) (9,050,047)
----------------------------------------------------------------------------------------------------- ------------- -----------
Net change (4,203,620) 754,712
----------------------------------------------------------------------------------------------------- ------------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .75 of 1% of the Trust's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust
with administrative personnel and services. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, the FAS fee
is based on the level of average aggregate daily net assets of all funds advised
by subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of share.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS a fee of up
to .25 of 1% of average daily net assets of the Trust for the period. This fee
is to obtain certain personal services for shareholders and to maintain the
shareholder accounts.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Trust. This fee is based on the size, type,
and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records. The
fee is based on the level of the Trust's average daily net assets for the period
plus, out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1994, were as follows:
<TABLE>
<S> <C>
--------------------------------------------------------------------------------------------------------------------
PURCHASES $ 235,461,785
-------------------------------------------------------------------------------------------------------------------- --------------
SALES $ 226,312,250
-------------------------------------------------------------------------------------------------------------------- --------------
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Growth Strategies Fund (formerly,
Federated Growth Trust) as of October 31, 1994, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights (see
page 4 of the combined prospectus) for each of the periods presented therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Growth Strategies Fund at October 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods presented therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 9, 1994
Cusip 314172107
Cusip 314172206
Cusip 314172305
G01228-02 (8/95)
