Reg. No.333-
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811-4017
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FEDERATED EQUITY FUNDS
(Exact Name of Registrant as Specified in Charter)
(412) 288-1900
(Area Code and Telephone Number)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
JOHN W. MCGONIGLE, ESQUIRE
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Copies to:
Byron F. Bowman, Esquire Matthew G. Maloney, Esquire
Senior Corporate Counsel Dickstein Shapiro Morin & Oshinsky LLP
Federated Investors 2101 L Street, N.W.
Federated Investors Tower Washington, D.C. 20037
Pittsburgh, PA 15222
It is proposed that this filing will become effective on October 24, 1996, or
as soon thereafter as is practicable, pursuant to Rule 488. (Approximate Date
of Proposed Public Offering)
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940 that it elects
to register an indefinite amount of securities under the Securities Act of 1933
and filed the Notice required by that Rule for Registrant's fiscal year ended
October 31, 1994 on December 15, 1994 and filed the Notice required by Rule 24e-
2 for its fiscal year ended October 31, 1995 on December 15, 1995. Accordingly,
no filing fee is submitted herewith.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 1(A) OF FORM N-14 SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY FORM N-14
Item of Part A of Form N-14 and Caption or Location in
Caption Prospectus
1.Beginning of Registration
Statement and Outside Front Cross Reference Sheet;
Cover Page of Prospectus Cover Page
2
2.Beginning and Outside Back
Cover Page of Prospectus Table of Contents
3.Fee Table, Synopsis Information Summary of Expenses; Summary;
and Risk Factors Risk Factors
4.Information About the Information About the
Transaction Reorganization
5.Information About the Information About the Federated
Registrant Fund, the Trust and the
State Bond Fund
6.Information About the Information About the Federated Fund,
Company Being Acquired the Trust and the State Bond Fund
7.Voting Information Voting Information
8.Interest of Certain Persons
and Experts Not Applicable
9.Additional Information
Required for Reoffering by
Persons Deemed to be
Underwriters Not Applicable
3
STATE BOND COMMON STOCK FUND
100 NORTH MINNESOTA STREET
P.O. BOX 69
NEW ULM, MINNESOTA 56073-0069
Dear Shareholder:
The Board of Directors and management of State Bond Common Stock Fund
(the ``tate Bond Fund'') are pleased to submit for your vote a proposal to
transfer all of the assets of the State Bond Fund to Federated Growth Strategies
Fund (the "Federated Fund"), a portfolio of Federated Equity Funds, a mutual
fund advised by Federated Management. The Federated Fund has an investment
objective similar to that of the State Bond Fund in that it seeks appreciation
of capital by investing primarily in equity securities of companies with
prospects for above-average growth in earnings and dividends. As part of the
transaction, holders of shares in the State Bond Fund would receive Class A
Shares of the Federated Fund equal in value to their shares in the State Bond
Fund and the State Bond Fund would be liquidated. Shareholders receiving Class
A Shares of the Federated Fund as a result of the proposed reorganization would
not have to pay a sales load upon receiving such Shares, nor would they be
subject to any contingent deferred sales charges in connection with the exercise
of exchange rights or redemptions of such Shares.
The Board of Directors of the State Bond Fund, as well as ARM Capital
Advisors, Inc., the State Bond Fund's manager, and ARM Financial Services, Inc.,
the State Bond Fund's distributor, believe the proposed agreement and plan of
reorganization is in the best interests of State Bond Fund shareholders for the
following reasons:
-- The reorganization of the State Bond Fund into the Federated
Fund may provide operating efficiencies as a result of the size
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of the Federated Fund which were not available to State Bond
Fund shareholders due to the smaller size of the State Bond
Fund.
-- The Federated Fund has an investment objective similar to
that of the State Bond Fund and offers an investment portfolio
which invests primarily in equity securities of companies with
prospects for above-average growth in earnings and dividends.
The Federated Fund is managed by Federated Management, a subsidiary of
Federated Investors. Federated Investors was founded in 1955 and is located in
Pittsburgh, Pennsylvania. Federated Management and other subsidiaries of
Federated Investors serve as investment advisers to a number of investment
companies and private accounts. With over $90 billion invested across more than
250 funds under management and/or administration by its subsidiaries, Federated
Investors is one of the largest mutual fund investment managers in the United
States. With more than 2,000 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.
Federated Investors also has an excellent reputation for customer
servicing, having received a #1 rating for five years in a row by the
Dalbar,Inc. service rating agency. The shareholder services for the Federated
funds include advanced technological systems that result in quick shareholder
access to a broad spectrum of information.
We believe the transfer of the State Bond Fund's assets in this
transaction presents an exciting investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer will be
effected only if approved by a majority of all of the State Bond Fund's
outstanding shares on the record date voted in person or represented by proxy.
We hope you share our enthusiasm and will participate by casting your vote in
5
person, or by proxy if you are unable to attend the meeting. Please read the
enclosed prospectus/proxy statement carefully before you vote.
THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST
INTEREST OF THE STATE BOND FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,
Dale C. Bauman
President
STATE BOND COMMON STOCK FUND
100 NORTH MINNESOTA STREET
P.O. BOX 69
NEW ULM, MINNESOTA 56073-0069
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF STATE BOND COMMON STOCK FUND:
A Special Meeting of Shareholders of State Bond Common Stock Fund, a
portfolio of State Bond Equity Funds, Inc. (the ``tate Bond Fund'') will be
held at 3:00 p.m. on December , 1996 at: 100 North Minnesota Street, New
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Ulm, Minnesota 56073-0069, for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between State Bond Fund and Federated Equity Funds, on behalf of
6
its portfolio, Federated Growth Strategies Fund (the "Federated Fund"), whereby
the Federated Fund would acquire all of the net assets of the State Bond Fund in
exchange for the Federated Fund's Class A Shares to be distributed pro rata by
the State Bond Fund to the holders of its shares in complete liquidation of the
State Bond Fund; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
By Order of the Board of Directors,
Dated: November , 1996 Kevin L. Howard
--
Secretary
Shareholders of record at the close of business on October 11, 1996, are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card. Your vote is important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER
MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY
REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF YOU
ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
NOVEMBER , 1996
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Acquisition of the Assets of
STATE BOND COMMON STOCK FUND,
a portfolio of
STATE BOND EQUITY FUNDS, INC.
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
Telephone Number: 1-800-328-4735
By and in exchange for Class A Shares of
FEDERATED GROWTH STRATEGIES FUND,
a portfolio of
FEDERATED EQUITY FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-341-7400
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby Federated Growth Strategies Fund
(the "Federated Fund"), a portfolio of Federated Equity Funds, a Massachusetts
business trust (the ``rust''), would acquire all of the net assets of State
Bond Common Stock Fund, a portfolio of State Bond Equity Funds, Inc., a Maryland
corporation (the `State Bond Fund''), in exchange for the Federated Fund's
Class A Shares to be distributed pro rata by the State Bond Fund to the holders
of its shares, in complete liquidation of the State Bond Fund. As a result of
the Plan, each shareholder of the State Bond Fund will become the owner of the
Federated Fund's Class A Shares having a total net asset value equal to the
total net asset value of his or her holdings in the State Bond Fund.
THE BOARD OF DIRECTORS OF THE STATE BOND FUND UNANIMOUSLY RECOMMENDS APPROVAL
OF THE PLAN.
Each of the Federated Fund and the State Bond Fund is a diversified
portfolio of securities of an open-end management investment company. The
Federated Fund's investment objective is appreciation of capital which it
pursues by investing primarily in equity securities of companies with prospects
for above-average growth in earnings and dividends. The State Bond Fund's
investment objective is to seek to produce long-term capital appreciation with
dividend income as fair and reasonable as possible consistent with the State
Bond Fund's primary objective by investing primarily in common stocks. For a
comparison of the investment policies of the Federated Fund and the State Bond
Fund, see "Summary-Investment Objectives, Policies and Limitations."
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about the Federated Fund that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the Prospectus of the Federated Fund dated December
31, 1995, which is incorporated herein by reference. Statements of Additional
Information for the Federated Fund dated December 31, 1995 (relating to the
Federated Fund's prospectus of the same date) and November , 1996 (relating
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to this Prospectus/Proxy Statement), the Annual Report to Shareholders dated
October 31, 1995, and the Semi-Annual Report to Shareholders dated April 30,
1996, all containing additional information, have been filed with the Securities
and Exchange Commission and are incorporated herein by reference. Copies of the
Statements of Additional Information, the Annual Report and the Semi-Annual
Report may be obtained without charge by writing or calling the Federated Fund
at the address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT 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.
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/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page No.
Summary of Expenses
Summary
About the Proposed Reorganization
Investment Objectives, Policies and Limitations
Advisory and Other Fees
Distribution Arrangements
Purchase, Exchange and Redemption Procedures
Dividends
Tax Consequences
Risk Factors
Information About the Reorganization
Background and Reasons for the Proposed Reorganization
Agreement Among ARM, ARM Capital and Federated
Description of the Plan of Reorganization
Description of Federated Fund Shares
Federal Income Tax Consequences
Comparative Information on Shareholder Rights and Obligations
Capitalization
Information About the Federated Fund, the Trust and the State Bond Fund
Federated Growth Strategies Fund, a portfolio of Federated Equity
Funds
State Bond Common Stock Fund
Voting Information
Outstanding Shares and Voting Requirements
Dissenter's Right of Appraisal
Other Matters and Discretion of Persons Named in the Proxy
Agreement and Plan of Reorganization -- Exhibit A
SUMMARY OF EXPENSES
FEDERATED FUND STATE BOND PRO FORMA
(CLASS A SHARES) FUND COMBINED
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(AS A PERCENTAGE OF OFFERING PRICE) 5.50%(1) 4.75% 5.50%(1)
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage of
OFFERING PRICE) None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase
PRICE OR REDEMPTION PROCEEDS, AS APPLICABLE) 0.00%(2) 0.00%
0.00%(2)
Redemption Fee (as a percentage of
amount redeemed, if applicable)(3) NONE NONE NONE
EXCHANGE FEE None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
MANAGEMENT FEE 0.75% 0.65% 0.75%
12B-1 FEE None 0.25% None
TOTAL OTHER EXPENSES 0.36%(4) 0.28% 0.36%(4)
TOTAL OPERATING EXPENSES(5) 1.11% 1.18% 1.11%
(1) State Bond Fund shareholders acquiring Class A Shares of the Federated Fund
under the proposed reorganization would not be subject to a sales charge.
(2) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. may be charged a contingent
deferred sales charge of 0.50 of 1% for redemptions made within one full year of
purchase. For a more complete description see ``ummary - Distribution
Arrangements.'' This contingent deferred sales charge would not be applicable
to shares acquired under the proposed reorganization.
(3) Wire-transfered redemptions of Class A Shares of the Federated Fund
of less than $5,000 may be subject to additional fees. A $10.00 fee will be
charged for certain redemptions of State Bond Fund Shares by wire transfer.
(4) Total other expenses for the Federated Fund and the Pro Forma Combined Fund
include a shareholder services fee of 0.10%. The shareholder services fee has
been reduced to reflect the voluntary waiver of a portion of the shareholder
services fee. The shareholder service provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum shareholder services fee
is 0.25%.
(5) The total operating expenses for Class A Shares of the Federated Fund are
based on expenses expected during the fiscal year ending October 31, 1996. The
total operating expenses were 1.10% for the fiscal year ended October 31, 1995
and would have been 1.26% absent the voluntary waiver of a portion of the
shareholder services fee. The total operating expenses for the State Bond Fund
are based upon expenses incurred by the State Bond Fund during its fiscal year
ended December 31, 1995.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of shares of each of the Federated
Fund, the State Bond Fund and the pro forma combined fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses see "Summary - Advisory and Other Fees" and "Summary - Distribution
Arrangements."
Long-term shareholders of the State Bond Fund may pay more than the
economic equivalent of the maximum front-end sales charges permitted under the
rules of the National Association of Securities Dealers, Inc.
EXAMPLE - AN INVESTOR 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. EXPENSES WOULD BE THE SAME IF THERE WERE
NO REDEMPTION AT THE END OF EACH TIME PERIOD.
1 year 3 years 5 years 10 years
FEDERATED FUND $66 $88 $113 $183
STATE BOND FUND $59 $83 $109 $184
PRO FORMA COMBINED $66 $88 $113 $183
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Federated Fund dated December 31, 1995, the Statement of
Additional Information of the Federated Fund dated December 31, 1995, the
Prospectus of the State Bond Fund dated May 1, 1996, the Statement of Additional
Information of the State Bond Fund dated May 1, 1996, and the Plan, a copy of
which is attached to this Prospectus/Proxy Statement as Exhibit A.
About the Proposed Reorganization
The Board of Directors of the State Bond Fund has voted to recommend to
holders of the shares of the State Bond Fund the approval of the Plan whereby
the Federated Fund, a portfolio of the Trust, would acquire all of the assets of
the State Bond Fund in exchange for the Federated Fund's Class A Shares to be
distributed pro rata by the State Bond Fund to its shareholders in complete
liquidation and dissolution of the State Bond Fund (the "Reorganization"). As a
result of the Reorganization, each shareholder of the State Bond Fund will
become the owner of the Federated Fund's Class A Shares having a total net asset
value equal to the total net asset value of his or her holdings in the State
Bond Fund on the date of the Reorganization, i.e., the Closing Date (as
hereinafter defined).
As a condition to the Reorganization transactions, the Trust and the
State Bond Fund will receive an opinion of counsel that the Reorganization will
be considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code of 1986, as amended (the `Code''), so that no gain or
loss will be recognized by either the Federated Fund or the State Bond Fund or
the shareholders of the State Bond Fund. The tax basis of the Federated Fund's
Class A Shares received by State Bond Fund shareholders will be the same as the
tax basis of their shares in the State Bond Fund. After the acquisition is
completed, the State Bond Fund will be dissolved.
Investment Objectives, Policies and Limitations
The investment objective of the Federated Fund is to provide
appreciation of capital. This investment objective may not be changed without
the affirmative vote of a majority of the outstanding voting securities of the
Federated Fund, as defined in the Investment Company Act of 1940, as amended
(the ``940 Act''). The Federated Fund pursues its investment objective by
investing primarily in equity securities of companies with prospects for above-
average growth in earnings and dividends.
The investment objective of the State Bond Fund is to seek to produce
long-term capital appreciation with dividend income as fair and reasonable as
possible consistent with the State Bond Fund's primary objective by investing
primarily in common stocks. This investment objective may not be changed
without the affirmative vote of a majority of the outstanding voting securities
of the State Bond Fund, as defined in the 1940 Act.
The Federated Fund invests primarily in equity securities of companies
based on traditional research techniques, including assessment of earnings and
dividend growth prospects and of the risk and volatility of each company's
business. The Federated Fund generally invests in companies with a market
capitalization of $100,000,000 or more. The Federated Fund may invest in common
and preferred stocks, corporate bonds rated investment grade or better,
debentures, notes, warrants and put and call options on stocks. In the event
that a debt security which had an eligible rating when purchased is downgraded
below investment grade, Federated Management (as hereinafter defined) will
reassess whether the continued holding of the security is consistent with the
Federated Fund's investment objective. The Federated Fund may purchase
securities of foreign issuers, invest in convertible securities, purchase
restricted securities (subject to a limit on all illiquid securities of 15% of
total assets), purchase securities on a when-issued or delayed delivery basis
and lend portfolio securities. If necessary for temporary defensive purposes,
the Federated Fund may also 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. Unless otherwise designated, the investment policies of the
Federated Fund may be changed by the Board of Trustees without shareholder
approval, although shareholders will be notified before any material change
becomes effective.
Under normal circumstances, at least 65% of the value of the State Bond
Fund's total assets will be invested in common stocks, with the remainder being
invested in government securities, short-term securities rated within the top
three ratings of Standard & Poor's Ratings Services, a division of McGraw-Hill
Companies, Inc. (``&P'') or Moody's Investors Service, Inc. (``Moody's'') or
securities convertible to common stocks. ARM Capital (as hereinafter defined)
seeks to temper the inherent risks of investment in common stocks by
diversifying the State Bond Fund's investments. When considered appropriate,
assets of the State Bond Fund may be shifted to stocks of companies less
sensitive to changes in economic or market conditions, or may be held in cash or
invested in senior securities. The State Bond Fund may lend portfolio
securities, enter into repurchase agreements and invest in high-yield
securities. Unless otherwise designated, the investment policies of the State
Bond Fund may be changed by the Board of Directors without shareholder approval.
Both the Federated Fund and the State Bond Fund are subject to certain
investment limitations. For the Federated Fund, these include investment
limitations which prohibit it from (1) borrowing money directly or through
reverse repurchase agreements except, under certain circumstances, the Federated
Fund may borrow up to one-third of the value of its net assets; (2) selling
securities short except, under strict limitations, the Federated 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; (3) investing 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 acquiring more than
10% of any class of voting securities of any one issuer; (4) purchasing
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; (5) investing 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; (6) committing more than 5% of its total assets to premiums
on open put option positions; or (7) investing more than 5% of its net assets in
warrants. The first three investment limitations listed above cannot be changed
without shareholder approval; the last four limitations may be changed by the
Board of Trustees without shareholder approval, although shareholders will be
notified before any material change becomes effective.
The State Bond Fund has investment limitations which prohibit it from
(1) investing more than 5% of the market value of its total assets in the
securities of any one issuer, other than the U.S. Government or its agencies, or
purchasing any security if, as a result, it would hold more than 10% of the
outstanding voting securities of any issuer; (2) borrowing money except from
banks as a temporary emergency measure and then not in excess of 10% of the
State Bond Fund's total assets at cost; (3) purchasing the securities of an
issuer in continuous operation for less than three years if more than 5% of the
State Bond Fund's assets would be so invested; or (4) investing more than 25% of
its net asset value in any one industry. The above investment limitations of
the State Bond Fund cannot be changed without shareholder approval.
In addition to the policies and limitations set forth above, both the
Federated Fund and the State Bond Fund are subject to certain additional
investment policies and limitations, described in the Federated Fund's Statement
of Additional Information dated December 31, 1995 and the State Bond Fund's
Statement of Additional Information dated May 1, 1996. Reference is hereby made
to the Federated Fund's Prospectus and Statement of Additional Information, each
dated December 31, 1995, and to the State Bond Fund's Prospectus and Statement
of Additional Information, each dated May 1, 1996, which set forth in full the
investment objective, policies and investment limitations of each of the
Federated Fund and the State Bond Fund, all of which are incorporated herein by
reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Federated Fund is 0.75 of 1%
of the Federated Fund's average daily net assets. The investment adviser to the
Federated Fund, Federated Management ("Federated Management"), a subsidiary of
Federated Investors, may voluntarily choose to waive a portion of its advisory
fee. This voluntary waiver of fees may be terminated by Federated Management at
any time in its sole discretion. Federated Management has also undertaken to
reimburse the Federated Fund for operating expenses in excess of limitations
established by certain states. The maximum annual management fee for the State
Bond Fund is 0.65 of 1% on the first $100 million of average daily net assets of
the State Bond Fund, 0.60 of 1% on the next $100 million of average daily net
assets of the State Bond Fund and 0.55 of 1% of average daily net assets of the
State Bond Fund over $200 million. The State Bond Fund's investment manager,
ARM Capital Advisors, Inc.(`ARM Capital''), a wholly-owned subsidiary of ARM
Financial Group, Inc. (``RM''), has voluntarily agreed to reimburse the State
Bond Fund for expenses (including the management fee but excluding interest,
taxes, brokerage commissions, extraordinary expenses and fees paid pursuant to a
Rule 12b-1 plan) in excess of 1.5% of the first $30 million of the average daily
net assets of the State Bond Fund and 1% of any additional average daily net
assets of the State Bond Fund. ARM Capital has also undertaken to reimburse the
State Bond Fund for operating expenses in excess of limitations established by
certain states.
Federated Services Company, an affiliate of Federated Management,
provides certain administrative personnel and services necessary to operate the
Federated Fund at an annual rate based upon the average aggregate daily net
assets of all funds advised by Federated Management and its affiliates. The
rate charged is 0.15 of 1% on the first $250 million of all such funds' average
aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on
the next $250 million and 0.075 of 1% of all such funds' average aggregate daily
net assets in excess of $750 million, with a minimum annual fee per portfolio of
$125,000 plus $30,000 for each additional class of shares of any such portfolio.
Federated Services Company may choose voluntarily to waive a portion of its fee.
The administrative fee expense for the Federated Fund's most recent fiscal year
was $197,711. Administrative personnel and other services necessary to operate
the State Bond Fund are currently provided by ARM Capital and are included in
the annual management fee for the State Bond Fund, as discussed above.
The Federated Fund has entered into a Shareholder Services Agreement
under which it may make payments of up to 0.25 of 1% of the average daily net
asset value of the Class A Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts. The Shareholder
Services Agreement provides that Federated Shareholder Services ("FSS"), an
affiliate of Federated Management, will either perform shareholder services
directly or will select financial institutions to perform such services.
Financial institutions will receive fees based upon shares owned by their
clients or customers. The schedule of such fees and the basis upon which such
fees will be paid is determined from time to time by the Federated Fund and FSS.
Other than in connection with payments under a Rule 12b-1 plan as described
below, the State Bond Fund does not make payments to obtain similar shareholder
services.
The total annual operating expenses for Class A Shares of the Federated
Fund were 1.10% of average daily net assets (after waivers) for its most recent
fiscal year. The total annual operating expenses for shares of the State Bond
Fund were 1.18% of average daily net assets for its most recent fiscal year.
Without such waivers or reimbursements, the expense ratio of the Federated Fund
and the State Bond Fund would be higher by 0.16% and 0.0%, respectively, of
average daily net assets.
Distribution Arrangements
Federated Securities Corp. ("FSC"), an affiliate of Federated
Management, is the principal distributor for shares of the Federated Fund. The
Federated Fund does not have a Rule 12b-1 plan in effect with respect to its
Class A Shares and, accordingly, does not, nor does FSC, compensate brokers and
dealers for sales and administrative services performed in connection with sales
of Class A Shares of the Federated Fund pursuant to a plan of distribution
adopted pursuant to Rule 12b-1. FSC will pay financial institutions, at the
time of purchase, from its assets, an amount equal to 0.50 of 1% of the net
asset value of Class A Shares purchased by their clients or customers under
certain qualified retirement plans as approved by FSC. (Such payments are
subject to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.) In addition, FSC, from its own
assets, may pay financial institutions supplemental fees as financial assistance
for providing substantial sales services, distribution-related support services
or shareholder services with respect to the Federated Fund. Such assistance
will be predicated upon the amount of Class A 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 FSC may be
reimbursed by Federated Management or its affiliates. If a financial
institution elects to waive receipt of this payment, the Federated Fund will
waive any applicable contingent deferred sales charge (such contingent deferred
sales charges are discussed below).
ARM Financial Services, Inc. (``RMFS''), an affiliate of ARM Capital,
is the principal distributor for shares of the State Bond Fund. The State Bond
Fund has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-1 Plan") pursuant
to which the State Bond Fund pays ARMFS an amount equal to an annual rate of
0.25 of 1% of the average daily net assets of the State Bond Fund. The fee may
be used by ARMFS to (i) provide initial and ongoing sales compensation to its
investment executives and to other broker-dealers in connection with the sale of
State Bond Fund shares and to pay for other advertising and promotional expenses
in connection with the sale of State Bond Fund shares, and (ii) to provide
compensation to entities in connection with the provision of certain personal
and account maintenance services to State Bond Fund shareholders, including, but
not limited to, responding to shareholder inquiries and providing information on
their investments. The Federated Fund will not assume any liabilities or make
any voluntary reimbursements on account of the State Bond Fund's Rule 12b-1
Plan.
Certain costs exist with respect to the purchase and sale of Federated
Fund and State Bond Fund shares. Class A Shares of the Federated Fund and
shares of the State Bond Fund are sold at their net asset value next determined
after an order is received, plus a maximum sales charge of 5.50% and 4.75%,
respectively. No sales charge will be imposed in connection with the issuance
of Federated Fund shares to State Bond Fund shareholders as a result of the
Reorganization. Class A Shares of the Federated Fund purchased with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales charge and not distributed by FSC may be
charged a contingent deferred sales charge of 0.50 of 1% for redemptions made
within one full year of purchase. Any such charge will be imposed on the lesser
of the net asset value of the redeemed shares at the time of purchase or
redemption. The contingent deferred sales charges are not imposed in connection
with the exercise of exchange rights, nor will they be imposed on redemptions of
Federated Fund shares received by shareholders of the State Bond Fund as a
result of the consummation of the Reorganization. For a complete description of
sales charges, contingent deferred sales charges and exemptions from such
charges, reference is hereby made to the Prospectus of the Federated Fund dated
December 31, 1995 and the Prospectus of the State Bond Fund dated May 1, 1996,
each of which is incorporated herein by reference thereto.
Purchase, Exchange and Redemption Procedures
The transfer agent and dividend disbursing agent for the Federated Fund
is Federated Shareholder Services Company (formerly called Federated Services
Company). The transfer agent and dividend disbursing agent for the State Bond
Fund is ARM Transfer Agency, Inc. Procedures for the purchase, exchange and
redemption of the Federated Fund's Class A Shares differ slightly from
procedures applicable to the purchase, exchange and redemption of the State Bond
Fund's shares. Any questions about such procedures may be directed to, and
assistance in effecting purchases, exchanges or redemptions of the Federated
Fund's Class A Shares or the State Bond Fund's shares may be obtained from FSC,
principal distributor for the Federated Fund, at 1-800-341-7400 or from ARMFS,
principal distributor for the State Bond Fund, at 1-800-328-4735.
Reference is made to the Prospectus of the Federated Fund dated December
31, 1995, and the Prospectus of the State Bond Fund dated May 1, 1996, for a
complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of Federated Fund and State
Bond Fund shares, respectively, each of which is incorporated herein by
reference thereto. Set forth below is a brief listing of the significant
purchase, exchange and redemption procedures applicable to the Federated Fund's
Class A Shares and the State Bond Fund's shares.
Purchases of Class A Shares of the Federated Fund may be made through a
financial institution who has an agreement with FSC or, once an account has been
established, by wire or check. Purchases of shares of the State Bond Fund may
be made through ARMFS and through certain broker-dealers under contract with
ARMFS or directly by wire or check once an account has been established. The
minimum initial investment in the Federated Fund is $500, except for retirement
accounts for which the minimum is $50. Subsequent investments must be in
amounts of at least $100, except for retirement accounts for which the minimum
is $50. The minimum initial investment in the State Bond Fund is $250.
Subsequent investments must be in an amount of at least $50. The Federated Fund
and the State Bond Fund each reserve the right to reject any purchase request.
In connection with the sale of Class A Shares of the Federated Fund, FSC may
from time to time offer certain items of nominal value to any shareholder.
The purchase price of the Federated Fund's Class A Shares and the State
Bond Fund's shares is based on net asset value plus a sales charge. The net
asset value per share for each of the Federated Fund and the State Bond Fund is
calculated as of the close of trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange, Inc. (the `NYSE'') on each day on which the Federated
Fund and the State Bond Fund compute their net asset value. Purchase and
redemption orders for the Federated Fund received from broker/dealers before
5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m.
(Eastern time) may be entered at that day's price. Purchase orders for shares
of the State Bond Fund received from authorized broker/dealers will be executed
at the offering price next determined after the receipt of the order by the
broker/dealer, provided that the broker/dealer promptly transmits the order to
ARMFS the same day. Redemption orders for shares of the State Bond Fund
received by the State Bond Fund's transfer agent from authorized dealers or
representatives of ARMFS prior to the close of the NYSE will be entered at that
day's price; such redemption orders received after the close of the NYSE will be
entered at the net asset value determined at the close of the NYSE on the next
trading day. Federated Fund purchase orders by wire are considered received
immediately and payments must be received within three business days following
the order if a sales charge is due or by 3:00 p.m. (Eastern time) on the next
business day if no such charge is due. Federated Fund purchase orders received
by check are considered received after the check is converted into federal
funds, which normally occurs one day after receipt.
Holders of Class A Shares of the Federated Fund have exchange privileges
with respect to Class A Shares in certain of the funds for which affiliates of
Federated Investors serve as investment adviser or principal underwriter
(collectively, the "Federated Funds"), each of which has different investment
objectives and policies. Class A Shares in the Federated Fund may be exchanged
for Class A Shares of certain Federated Funds at net asset value without a
contingent deferred sales charge. To the extent a shareholder exchanges Class A
Shares of the Federated Fund for Class A Shares in other Federated Funds, the
time for which the exchanged-for shares are to be held will be added to the time
for which exchanged-from shares were held for purposes of satisfying the
applicable holding period. Class A Shares to be exchanged must have a net asset
value which meets the minimum investment requirement for the fund into which the
exchange is being made. Holders of shares of the State Bond Fund have exchange
privileges with respect to shares in certain of the other funds for which ARM
Capital serves as investment manager (collectively, the `State Bond Group''),
each of which has different investment objectives and policies. Any exchange
for shares of other funds in the State Bond Group will be at the respective net
asset values next determined after receipt of the request for exchange.
Exercise of the exchange privilege is treated as a sale for federal income tax
purposes and, accordingly, may have tax consequences for the shareholder.
Information on share exchanges may be obtained from the Federated Fund or the
State Bond Fund, as appropriate.
Redemptions of Federated Fund Class A Shares may be made through a
financial institution, by telephone, by mailing a written request or through the
Federated Fund's Systematic Withdrawal Program. Redemptions of State Bond Fund
shares may be made through an authorized dealer or representative of ARMFS or by
mailing a written request to the State Bond Fund's transfer agent. Class A
Shares of the Federated Fund are redeemed at their net asset value, less any
applicable contingent deferred sales charge, next determined after the
redemption request is received. Shares of the State Bond Fund are redeemed at
their net asset value, determined at the close of the NYSE on the date the
redemption request is received. Proceeds will ordinarily be distributed by
check within seven days after receipt of a redemption request.
Dividends
Each of the Federated Fund's and the State Bond Fund's current policy is
to declare and pay dividends from net investment income, quarterly to
shareholders of the Federated Fund and semi-annually to shareholders of the
State Bond Fund, and to make annual distributions of net realized capital gains,
if any. With respect to both the Federated Fund and the State Bond Fund, unless
a shareholder otherwise instructs, dividends and capital gain distributions will
be reinvested automatically in additional shares at net asset value, subject to
no sales charge.
Tax Consequences
As a condition to the Reorganization transactions, the Trust and the
State Bond Fund will receive an opinion of counsel that the Reorganization will
be considered a tax-free "reorganization" under applicable provisions of the
Code so that no gain or loss will be recognized by either the Federated Fund or
the State Bond Fund or the shareholders of the State Bond Fund. The tax basis
of the Federated Fund shares received by State Bond Fund shareholders will be
the same as the tax basis of their shares in the State Bond Fund.
RISK FACTORS
As with other mutual funds that invest primarily in equity securities,
the Federated 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. Since the State Bond Fund invests primarily in common stocks, these
risk factors are generally also present in an investment in the State Bond Fund.
A full discussion of the risks inherent in investment in the Federated Fund and
the State Bond Fund is set forth in the Federated Fund's Prospectus and
Statement of Additional Information, each dated December 31, 1995 and the State
Bond Fund's Prospectus and Statement of Additional Information, each dated May
1, 1996, each of which is incorporated herein by reference thereto.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
On June 14, 1995, SBM Company, which was then the investment adviser to
the State Bond Fund, completed the sale of substantially all of its business
operations to ARM (the ``995 Transaction''). In connection with the 1995
Transaction, ARM Capital became the investment manager of the State Bond Fund.
In addition, ARM acquired all of the outstanding stock of SBM Financial
Services, Inc., the predecessor in interest to ARMFS, the current distributor of
shares of the State Bond Fund.
Considerations of the Board of Directors of the State Bond Fund. On
June 6, 1996, ARM management advised the Board of Directors of the State Bond
Fund that ARM was considering redirecting its corporate strategy away from the
management and distribution of retail mutual funds in order to concentrate more
fully on its core businesses. Moreover, ARM management stated that due to the
relatively small net assets in the State Bond Fund and the other mutual funds in
the State Bond Group, ARM and its affiliates were not in a position to provide
the value-added shareholder services, technological advancements, comprehensive
distribution networks and diversified product choices that many larger mutual
fund complexes offer. As a result, management stated that ARM was engaged in
the identification and analysis of various potential alternatives for the State
Bond Fund and the other funds in the State Bond Group.
After conducting a screening process, ARM determined that in its
judgment, the proposed Reorganization was the most desirable alternative
involving the State Bond Fund that was reasonably available and that it should
be presented to the State Bond Fund's Board of Directors for its consideration.
A meeting of the entire Board of Directors was held on August 16, 1996,
at which Federated (as defined below) presented to the Board information
relating to the overall reputation, financial strength and stability of
Federated Investors, the parent company of Federated Management (together with
its affiliates, ``ederated''). Federated, founded in 1955, is among the seven
largest mutual fund sponsors, with over $90 billion invested across more than
250 funds under management and/or administration by its subsidiaries, and over
2,000 employees. Federated's management also discussed the growth of assets
under management and/or administration by Federated from approximately $35
billion in 1989 to over $90 billion as of August 1996. Federated's management
explained to the Board that the majority of this growth came from within
Federated through its multiple distribution channels. The Board was also
informed of the variety of investment products available through Federated,
including international funds and an array of domestic funds broader than
currently offered in the State Bond Group, the exchange privileges that would be
available to former State Bond Fund shareholders if the Reorganization is
consummated, and the multiple sales charge (or `load'') structures available to
prospective shareholders. The Board took into account that if the
Reorganization takes place, shareholders of the State Bond Fund would exchange
their shares for Shares of the Federated Fund without the imposition of any
sales charge.
Federated's management advised the Board of its reputation for customer
servicing, noting that it has received a #1 rating for five years in a row by
the Dalbar, Inc. service rating agency. Federated's management stated that its
shareholder services include advanced technological systems that result in quick
shareholder access to a broad spectrum of information, including: telephonic
automated yield and performance information; consolidated monthly shareholder
statements; no-fee IRAs; quarterly newsletters; year-end tax reporting
information; direct deposit; and telephonic redemption and exchange.
Federated's management also discussed comparative sales loads with the
Board. While the maximum front end sales load of the Federated Fund is higher
than that of the State Bond Fund, Federated's management advised the Board that
it is lower than the average for equity growth funds distributed through brokers
(as reported by Strategic Insight), and is competitive. Federated's management
described rights of accumulation and other programs that can reduce sales
charges with respect to the Federated Fund.
Federated's management also reviewed with the Board relative asset size
and expense ratios, including relative advisory fees. The Board discussed the
fact that the Federated Fund is larger in asset size than the State Bond Fund
and considered potential economies of scale that might be experienced by former
State Bond Fund shareholders if they were to become shareholders of a larger
fund. Federated's management discussed with the Board expense waiver and
reimbursement arrangements with respect to both the Federated Fund in particular
and to the complex generally.
The Chief Investment Officer, Equities/High Yield, of Federated
discussed with the Board the investment philosophy of Federated Management for
its funds, including the Federated Fund. He also described the background and
significant investment experience of Federated portfolio managers and other
related personnel issues.
The Board was presented with materials comparing the investment
objectives and policies of the State Bond Fund with those of the Federated Fund,
and determined that they were substantially similar. The Board was also
presented with and discussed materials comparing the performance, Morningstar
ratings and relative risks of the State Bond Fund and the Federated Fund.
Federated's management also presented biographical information about each of the
Trustees of the Trust and reviewed with the Board the structure of its
compliance and internal audit departments and the scope of its training
programs.
The Board also considered the potential benefits to ARM if the
Reorganization is consummated. The Board discussed the fact that ARM and ARM
Capital would be compensated for selling the books, records and goodwill
relating to the management of the State Bond Group, agreeing to certain non-
competition arrangements and cooperating in assisting in the transfer of the
assets of the State Bond Group to the Federated Funds. They also took into
account the proposed payment to ARMFS of .25% of the average daily net assets of
the Federated Fund attributable to shareholder accounts serviced by ARMFS, as
well as the possible compensation of ARMFS for distribution of additional
Federated financial products in the future.
The Board noted that the State Bond Fund would not bear any of the costs
involved in the Reorganization, which would be borne entirely by ARM and/or
Federated. In addition, the Board discussed the anticipated tax-free nature of
the Reorganization to the State Bond Fund and its shareholders.
In connection with their consideration of the Reorganization, the Board
also reviewed their fiduciary obligations under state and federal law. They
considered the requirements of Section 15(f) of the 1940 Act, which provides
that an investment manager to an investment company, and the affiliates of such
manager (such as ARM), may receive any amount or benefit in connection with a
sale of any interest in such investment manager which results in an assignment
of an investment management contract if (1) for a period of three years after
such assignment, at least 75% of the board of directors of the investment
company are not `interested persons'' (as defined in the 1940 Act) of the new
investment manager or its predecessor; and (2) no `unfair burden'' (as defined
in the 1940 Act) is imposed on the investment company as a result of the
assignment or any express or implied terms, conditions or understandings
applicable thereto.
With respect to the first condition of Section 15(f) relating to Board
composition, the Board was advised that the Federated Fund's Board of Trustees
presently consists of twelve (12) Trustees, only two (2) of whom are
`interested persons.'' With respect to the second condition of Section 15(f),
while there is no specific definition of ``nfair burden,'' it includes any
arrangement, for two years after the transaction, pursuant to which the
predecessor or successor adviser is entitled to receive compensation from any
person in connection with the mutual fund's purchase or sale of securities,
other than bona fide ordinary compensation as principal underwriter. The
definition of unfair burden also includes any payments from the fund for other
than bona fide investment advisory or other services. The Board considered the
fact that representations were made by Federated and ARM that the agreement
among Federated, ARM and ARM Capital would contain representations and covenants
that the Reorganization would not impose an unfair burden on the State Bond
Group.
After reviewing and considering all of the information provided by
Federated and ARM, including the terms of the Reorganization, the Board,
including all of the Directors who are not interested persons of the State Bond
Fund or ARM Capital, voted unanimously at a special telephonic meeting held on
August 26, 1996, to approve the Reorganization and to recommend it to the
shareholders of the State Bond Fund for their approval.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
REORGANIZATION.
Considerations of the Board of Trustees of the Federated Fund. The
Board of Trustees of the Federated Fund, including a majority of the independent
Trustees, have unanimously concluded that consummation of the Reorganization is
in the best interests of the Federated Fund and the shareholders of the
Federated Fund and that the interests of Federated Fund shareholders would not
be diluted as a result of effecting the Reorganization and have unanimously
voted to approve the Plan.
Agreement Among ARM, ARM Capital and Federated
The Reorganization is being proposed as part of an agreement in
principle by and among Federated, ARM, and ARM Capital, pursuant to which ARM
and ARM Capital would be compensated for selling to Federated the books, records
and goodwill relating to the management of the State Bond Group and cooperating
in facilitating the transaction contemplated by the agreement. As part of that
agreement, ARM Capital and its affiliates have agreed not to compete with
Federated by providing investment advisory services to certain investment
companies. Following the Reorganization, ARM or its affitiates have agreed to
provide certain services to shareholders for which ARM or its affiliates may
receive fees paid by Federated and/or mutual funds in which the shareholders are
invested.
Description of the Plan of Reorganization
The Plan provides that the Federated Fund will acquire all of the net
assets of the State Bond Fund in exchange for the Federated Fund's Class A
Shares to be distributed pro rata by the State Bond Fund to its shareholders in
complete liquidation of the State Bond Fund on or about December , 1996 (the
---
"Closing Date"). Shareholders of the State Bond Fund will become shareholders
of the Federated Fund as of the close of business on the Closing Date, and will
be entitled to the Federated Fund's next dividend distribution.
As of or prior to the Closing Date, the State Bond Fund will declare and
pay a dividend or dividends which, together with all previous such dividends,
shall have the effect of distributing to its shareholders all taxable income for
the period ending on the Closing Date. In addition, the State Bond Fund's
dividend will include its net capital gains realized in the period ending on the
Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the State Bond Fund and the Trust, on behalf of the Federated
Fund, as described under the caption "Federal Income Tax Consequences" below.
The Plan may be terminated and the Reorganization may be abandoned at any time
before or after approval by shareholders of the State Bond Fund prior to the
Closing Date by either party if it believes that consummation of the
Reorganization would not be in the best interests of its shareholders.
Federated Management is responsible for the payment of substantially all
of the expenses of the Reorganization incurred by either party, whether or not
the Reorganization is consummated. Such expenses include, but are not limited
to, accountants' fees, registration fees, transfer taxes (if any), the fees of
banks and transfer agents and the costs of preparing, printing, copying and
mailing proxy solicitation materials to the State Bond Fund's shareholders and
the costs of holding the Special Meeting (as hereinafter defined). ARM is
responsible for the payment of the legal fees of the State Bond Fund.
The foregoing description of the Plan entered into between the Trust, on
behalf of the Federated Fund, and the State Bond Fund, is qualified in its
entirety by the terms and provisions of the Plan, a copy of which is attached
hereto as Exhibit A and incorporated herein by reference thereto.
Description of Federated Fund Shares
Full and fractional Class A Shares of the Federated Fund will be issued
without the imposition of a sales charge or other fee to the shareholders of the
State Bond Fund in accordance with the procedures described above. Class A
Shares of the Federated Fund to be issued to shareholders of the State Bond Fund
under the Plan will be fully paid and nonassessable when issued and transferable
without restriction and will have no preemptive or conversion rights. Reference
is hereby made to the Prospectus of the Federated Fund dated December 31, 1995
provided herewith for additional information about Class A Shares of the
Federated Fund.
Federal Income Tax Consequences
As a condition to the Reorganization, the Trust, on behalf of the
Federated Fund, and the State Bond Fund will receive an opinion from Dickstein
Shapiro Morin & Oshinsky LLP, counsel to the Trust, to the effect that, on the
basis of the existing provisions of the Code, current administrative rules and
court decisions, for federal income tax purposes: (1) the Reorganization as set
forth in the Plan will constitute a tax-free reorganization under section
368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the
Federated Fund upon its receipt of the State Bond Fund's assets solely in
exchange for Federated Fund Class A Shares; (3) no gain or loss will be
recognized by the State Bond Fund upon the transfer of its assets to the
Federated Fund in exchange for Federated Fund Class A Shares or upon the
distribution (whether actual or constructive) of the Federated Fund Class A
Shares to the State Bond Fund shareholders in exchange for their shares of the
State Bond Fund; (4) no gain or loss will be recognized by shareholders of the
State Bond Fund upon the exchange of their State Bond Fund shares for Federated
Fund Class A Shares; (5) the tax basis of the State Bond Fund's assets acquired
by the Federated Fund will be the same as the tax basis of such assets to the
State Bond Fund immediately prior to the Reorganization; (6) the tax basis of
Federated Fund Class A Shares received by each shareholder of the State Bond
Fund pursuant to the Plan will be the same as the tax basis of State Bond Fund
shares held by such shareholder immediately prior to the Reorganization; (7) the
holding period of the assets of the State Bond Fund in the hands of the
Federated Fund will include the period during which those assets were held by
the State Bond Fund; and (8) the holding period of Federated Fund Class A Shares
received by each shareholder of the State Bond Fund will include the period
during which the State Bond Fund shares exchanged therefor were held by such
shareholder, provided the State Bond Fund shares were held as capital assets on
the date of the Reorganization.
Shareholders should recognize that an opinion of counsel is not binding
on the Internal Revenue Service (``RS'') or any court. The State Bond Fund
does not expect to obtain a ruling from the IRS regarding the consequences of
the Reorganization. Accordingly, if the IRS sought to challenge the tax
treatment of the Reorganization and was successful, neither of which is
anticipated, the Reorganization would be treated as a taxable sale of assets of
the State Bond Fund, followed by the taxable liquidation of the State Bond Fund.
Comparative Information on Shareholder Rights and Obligations
General. Both the Trust and the State Bond Fund are open-end,
diversified management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The Trust
is organized as a business trust pursuant to a Declaration of Trust under the
laws of the Commonwealth of Massachusetts. The Trust is governed by its
Declaration of Trust, Bylaws, and Board of Trustees, in addition to applicable
state and Federal law. The State Bond Fund is organized as a separate series of
State Bond Equity Funds, Inc. under the laws of the State of Maryland and is
governed by its Articles of Incorporation, Bylaws, and Board of Directors, in
addition to applicable state and Federal law. Set forth below is a brief
summary of the significant rights of shareholders of the Trust and the State
Bond Fund.
Shares of the Trust and the State Bond Fund. The Trust is authorized to
issue an unlimited number of shares of beneficial interest which have no par
value. The Federated Fund is a separate series of the Trust. The Board of
Trustees has established three classes of shares of the Federated Fund, known as
Class A Shares, Class B Shares and Class C Shares. The State Bond Fund has an
authorized capital of 10,000,000,000 shares of common stock with a par value of
$.00001 per share. The State Bond Fund is currently the sole investment
portfolio of State Bond Equity Funds, Inc. and has only one class of shares.
Issued and outstanding shares of both the Federated Fund and State Bond Fund are
fully paid and nonassessable, and freely transferable.
Voting Rights. Neither the Trust nor the State Bond Fund is required to
hold annual meetings of shareholders, except as required under the 1940 Act.
Shareholder approval is necessary only for certain changes in operations or the
election of trustees/directors under certain circumstances. The Trust requires
that a special meeting of shareholders be called for any permissible purpose
upon the written request of the holders of at least 10% of the outstanding
shares of the series of the Trust entitled to vote. A special meeting of the
shareholders of the State Bond Fund is required to be called upon the written
request of shareholders representing not less than 25% of the issued and
outstanding shares entitled to vote. Each share of the Federated 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. All shares of the State
Bond Fund have equal voting rights.
Trustees and Directors. The Declaration of Trust of the Trust provides
that the term of office of each Trustee shall be for the lifetime of the Trust
or the earlier of his or her death, resignation, retirement, removal or mental
or physical incapacity. A Trustee of the Trust may be removed by: (i) written
instrument signed by at least two-thirds of the Trustees, (ii) a majority vote
of the Trustees if the Trustee has become mentally or physically incapacitated
or (iii) a vote of two-thirds of the outstanding shares at any special meeting
of shareholders. A vacancy on the Board may be filled by the Trustees remaining
in office. The Bylaws of the State Bond Fund provide that each Director holds
office from the time of his or her election until the next annual meeting of
shareholders or until his or her successor is duly elected and qualifies or the
earlier of his or her death, resignation, removal, or other cause. A Director
of the State Bond Fund may be removed, with or without cause, by the affirmative
vote of a majority of the votes entitled to be cast for the election of
Directors, and such shareholders may elect a qualified person as Director to
replace the Director so removed. In case of any vacancy on the Board of
Directors, a majority of the remaining Directors may elect a successor to hold
office until the next annual meeting of the shareholders and until his or her
successor is duly elected and qualifies. A meeting of shareholders will be
required for the purpose of electing additional Trustees or Directors whenever
fewer than a majority of the Trustees or Directors then in office were elected
by shareholders.
Liability of Trustees/Directors and Officers. Under the Declaration of
Trust of the Trust, a Trustee or officer will be personally liable only for his
or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, provided
he or she has acted under the belief that his or her actions are in the best
interests of the Trust. The Declaration of Trust further provides that Trustees
and officers will be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses of litigation unless the person's
conduct is determined to constitute willful misfeasance, bad faith, gross
negligence or reckless disregard of the person's duties. The Amended and
Restated Articles of Incorporation of the State Bond Fund contain a provision
eliminating liability of directors and officers to the State Bond Fund or its
shareholders to the fullest extent permitted by Maryland law. Therefore,
directors and officers of the State Bond Fund will not be liable for monetary
damages to the State Bond Fund or its shareholders for breach of the duty of
care. However, such elimination of liability regarding a director's duty of
care does not permit the elimination or limitation of liability (1) to the
extent that it is proved that the person actually received an improper benefit
or profit in money, property or services actually received; (2) to the extent
that a judgment or other final adjudication adverse to the person is entered in
a proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding; or (3) for any
action or failure to act occurring prior to February 18, 1988. In addition, due
to the provisions of the 1940 Act, shareholders would still have the right to
pursue monetary claims against directors or officers for acts involving willful
malfeasance, bad faith, gross negligence or reckless disregard of their duties
as directors or officers. Under the agreement in principle by and among
Federated, ARM and ARM Capital, Federated has agreed for a period of three (3)
years following the Closing to provide coverage under a directors and officers
liability insurance policy for the current Directors of the State Bond Fund.
Shareholder Liability. Under certain circumstances, shareholders of the
Federated Fund may be held personally liable as partners under Massachusetts law
for obligations of the Trust on behalf of the Federated Fund. To protect its
shareholders, the Trust has filed legal documents with the Commonwealth of
Massachusetts that expressly disclaim the liability of its shareholders for such
acts or obligations of the Trust. These documents require that notice of this
disclaimer be given in each agreement, obligation or instrument that the Trust
or its trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Federated Fund, 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.
Termination or Liquidation. In the event of the termination or
liquidation of the Trust or any series or class of the Trust or of the
termination or liquidation of the State Bond Fund, the shareholders of the
respective fund or class are entitled to receive, when and as declared by the
Trustees or the Directors, as the case may be, the excess of the assets
belonging to the respective fund or class over the liabilities belonging to the
respective fund or class. In either case, the assets belonging to the fund or
class will be distributed among the shareholders in proportion to the number of
shares of the respective fund or class held by them.
Capitalization
The following table sets forth the unaudited capitalization of the Class
A Shares of the Federated Fund and the shares of the State Bond Fund as of
August 31, 1996 and on a pro forma combined basis as of that date:
cbrx01!.doc/575133
38
Federated Fund State Bond Pro Forma
(Class A Shares) Fund Combined
Net Assets............... $284,593,477 $67,714,007
$352,307,484
Net Asset Value Per Share $24.11 $10.28
$24.11
Shares Outstanding....... 11,803,633 6,589,144
14,612,100
INFORMATION ABOUT THE FEDERATED FUND, THE TRUST
AND THE STATE BOND FUND
Federated Growth Strategies Fund, a portfolio of Federated Equity Funds
Information about the Trust and the Federated Fund is contained in the
Federated Fund's current Prospectus dated December 31, 1995, a copy of which is
included herewith and incorporated by reference herein. Additional information
about the Federated Fund is included in the Federated Fund's Annual Report to
Shareholders dated October 31, 1995, the Semi-Annual Report to Shareholders,
dated April 30, 1996, the Statement of Additional Information dated December 31,
1995 and the Statement of Additional Information dated November , 1996
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(relating to this Prospectus/Proxy Statement), each of which is incorporated
herein by reference. Copies of the Annual Report, Semi-Annual Report and
Statements of Additional Information, which have been filed with the Securities
and Exchange Commission (the "SEC"), may be obtained upon request and without
charge by contacting the Federated Fund at 1-800-341-7400 or by writing the
Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The
Trust is subject to the informational requirements of the Securities Act of
1933, as amended (the `1933 Act''), the Securities Exchange Act of 1934, as
amended (the "1934 Act") and the 1940 Act and in accordance therewith files
reports and other information with the SEC. Reports, proxy and information
statements, charter documents and other information filed by the Trust or the
Federated Fund can be obtained by calling or writing the Federated Fund and can
also be inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at certain of its regional offices
located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New York, NY 10048.
Copies of such material can be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Trust with the SEC under the 1933 Act, omits
certain of the information contained in the Registration Statement. Reference
is hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Trust and the Federated Fund and the
shares offered hereby. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable document
filed with the SEC.
State Bond Common Stock Fund
Information about the State Bond Fund and State Bond Equity Funds, Inc.
is contained in the State Bond Fund's current Prospectus dated May 1, 1996, the
Annual Report to Shareholders dated December 31, 1995, the Semi-Annual Report to
Shareholders dated June 30, 1996, its Statement of Additional Information dated
May 1, 1996 and the Statement of Additional Information dated November , 1996
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(relating to this Prospectus/Proxy Statement), each of which is incorporated
herein by reference. Copies of such Prospectus, Annual Report, Semi-Annual
Report, and Statement(s) of Additional Information, which have been filed with
the SEC, may be obtained upon request and without charge from the State Bond
Fund by calling 1-800-328-4735 or by writing to the State Bond Fund at 100 North
Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069. The State Bond
Fund is subject to the informational requirements of the 1933 Act, the 1934 Act
and the 1940 Act and in accordance therewith files reports and other information
with the SEC. Reports, proxy and information statements, charter documents and
other information filed by State Bond Equity Funds, Inc. or its portfolio, the
State Bond Fund, can be obtained by calling or writing the State Bond Fund and
can also be inspected at the public reference facilities maintained by the SEC
or obtained at prescribed rates at the addresses listed in the previous section.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of the State Bond Fund of proxies for use
at the Special Meeting of Shareholders (the "Special Meeting") to be held at
3:00 p.m. on December , 1996 at: 100 North Minnesota Street, New Ulm,
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Minnesota 56073-0069, and at any adjournments thereof. The proxy confers
discretionary authority on the persons designated therein to vote on other
business not currently contemplated which may properly come before the Special
Meeting. A proxy, if properly executed, duly returned and not revoked, will be
voted in accordance with the specifications thereon; if no instructions are
given, such proxy will be voted in favor of the Plan. A shareholder may revoke
a proxy at any time prior to use by filing with the Secretary of the State Bond
Fund an instrument revoking the proxy, by submitting a proxy bearing a later
date or by attending and voting at the Special Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by Federated Management. In addition to
solicitations through the mails, proxies may be solicited by officers, employees
and agents of the State Bond Fund, Federated Management and their respective
affiliates at no additional cost to the State Bond Fund. Such solicitations may
be by telephone, telegraph or personal contact. Federated Management will
reimburse custodians, nominees and fiduciaries for the reasonable costs incurred
by them in connection with forwarding solicitation materials to the beneficial
owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Directors of the State Bond Fund has fixed the close of
business on October 11, 1996 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting and any
adjournment thereof. As of the record date, there were shares of the
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State Bond Fund outstanding. Each of the State Bond Fund's shares is entitled
to one vote and fractional shares have proportionate voting rights. [On the
record date, the Directors and officers of the State Bond Fund as a group owned
less than 1% of the outstanding shares of the State Bond Fund.] To the best
knowledge of ARM Capital, as of the record date, no person, except as set forth
in the table below, owned beneficially or of record 5% or more of the State Bond
Fund's outstanding shares.
Name and Address of Shares Percent of Percent of
Beneficial Owner Owned Outstanding Outstanding
Beneficially Shares Shares of the
Federated Fund
Following
Reorganization
As of the record date, there were Class A, Class B and
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Class C Shares of the Federated Fund outstanding. On the record date, the
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Trustees and officers of the Federated Fund as a group owned less than 1% of the
outstanding Class A, Class B and Class C Shares of the Federated Fund
outstanding. To the best knowledge of Federated Management, as of the record
date, no person, except as set forth in the table below, owned beneficially or
of record 5% or more of the Federated Fund's outstanding Class A, Class B or
Class C Shares.
Percent of
Outstanding
Shares Owned Percent of Shares of the
Class A Name and Address of Beneficially Outstanding Federated Fund
Shares Beneficial Owner Shares Following
Reorganization
Shares Owned Percent of
Class B Name and Address of Beneficially Outstanding
Shares Beneficial Owner Shares
Shares Owned Percent of
Class C Name and Address of Beneficially Outstanding
Shares Beneficial Owner Shares
Approval of the Plan requires the affirmative vote of a majority of the
outstanding shares of the State Bond Fund. The votes of shareholders of the
Federated Fund are not being solicited since their approval is not required in
order to effect the Reorganization.
One-third of the issued and outstanding shares of the State Bond Fund,
represented in person or by proxy, will be required to constitute a quorum at
the Special Meeting for the purpose of voting on the proposed Reorganization.
For purposes of determining the presence of a quorum, shares represented by
abstentions and "broker non-votes" will be counted as present, but not as votes
cast, at the Special Meeting. Because approval of the Reorganization requires
the approval of a majority of the outstanding shares of the State Bond Fund,
abstentions and "broker non-votes" will have the same effect as if they were
votes against the Reorganization.
Dissenter's Right of Appraisal
Shareholders of the State Bond Fund objecting to the Reorganization have
no appraisal rights under the State Bond Fund's Articles of Incorporation or
Maryland law. Under the Plan, if approved by State Bond Fund shareholders, each
shareholder will become the owner of Class A Shares of the Federated Fund having
a total net asset value equal to the total net asset value of his or her
holdings in the State Bond Fund at the Closing Date.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY
Management of the State Bond Fund knows of no other matters that may
properly be, or which are likely to be, brought before the meeting. However, if
any other business shall properly come before the meeting, the persons named in
the proxy intend to vote thereon in accordance with their best judgment.
If at the time any session of the Special Meeting is called to order, a
quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Special Meeting to a
later date. In the event that a quorum is present but sufficient votes in favor
of one or more of the proposals have not been received, the persons named as
proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies with respect to any such proposal. All such
adjournments will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxies will vote those proxies which they are
entitled to vote in favor of the proposal, in favor of such an adjournment, and
will vote those proxies required to be voted against the proposal, against any
such adjournment
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated September 23, 1996 (the
"Agreement"), between FEDERATED EQUITY FUNDS, a Massachusetts business trust
(the "Trust"), on behalf of its portfolio FEDERATED GROWTH STRATEGIES FUND
(hereinafter called the "Acquiring Fund"), and STATE BOND EQUITY FUNDS, INC., a
Maryland corporation (hereinafter called the "Corporation") on behalf of its
portfolio STATE BOND COMMON STOCK FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of the
net assets of the Acquired Fund in exchange solely for Class A Shares of the
Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the
Closing Date (as hereinafter defined), of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Corporation and the Trust are registered open-end
management investment companies and the Acquired Fund owns securities in which
the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue shares of common stock or shares of beneficial interest, as the case may
be;
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined under the Investment Company Act of
1940, as amended (the "1940 Act")), of the Trust has determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is
in the best interests of the Acquiring Fund shareholders and that the interests
of the existing shareholders of the Acquiring Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Directors, including a majority of the directors
who are not "interested persons" (as defined under the 1940 Act), of the
Corporation has determined that the exchange of all of the assets of the
Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired
Fund shareholders;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1.TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired
Fund agrees to assign, transfer and convey to the Acquiring Fund all of the net
assets of the Acquired Fund, including all securities and cash, other than cash
in an amount necessary to pay any unpaid dividends and distributions as provided
in paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring
Fund agrees in exchange therefor to deliver to the Acquired Fund the number of
Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3. Such transaction shall take place at the closing
(the "Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account, for the benefit of its shareholders, on the stock
record books of the Acquiring Fund and shall deliver a confirmation thereof to
the Acquired Fund.
1.2 The Acquired Fund will discharge or make provision for the discharge
of all of its liabilities and obligations prior to or on the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall be
made on the Closing Date and shall be delivered to State Street Bank and Trust
Company (hereinafter called "State Street"), Boston, Massachusetts, the
Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring
Fund, together with proper instructions and all necessary documents to transfer
to the account of the Acquiring Fund, free and clear of all liens, encumbrances,
rights, restrictions and claims created by the Acquired Fund. All cash
delivered shall be in the form of immediately available funds payable to the
order of the Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any dividends or interest received on or after the Closing Date with respect to
assets transferred to the Acquiring Fund thereunder. The Acquired Fund will
transfer to the Acquiring Fund any distributions, rights or other assets
received by the Acquired Fund after the Closing Date as distributions on or with
respect to the securities transferred. Such assets shall be deemed included in
assets transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's
shareholders of record, determined as of the close of business on the Closing
Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by
the Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund
Shareholder shall have the right to receive any unpaid dividends or other
distributions which were declared before the Valuation Date (as hereinafter
defined) with respect to the shares of the Acquired Fund that are held by the
shareholder on the Valuation Date. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the Acquired
Fund Shareholders, and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders, based on their ownership of shares
of the Acquired Fund on the Closing Date. All issued and outstanding Shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with Section 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Corporation up to and including the Closing Date and
such later dates, with respect to dissolution and deregistration of the
Corporation, on which the Corporation is dissolved and deregistered.
1.9 The Corporation shall be deregistered as an investment company under
the 1940 Act and dissolved as a Maryland corporation as promptly as practicable
following the Closing Date and the making of all distributions pursuant to
paragraph 1.5.
2.VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the
Closing Date (such time and date being herein called the "Valuation Date"),
using the valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net
asset value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets shall
be determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1, by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund.
3.CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be December , 1996 or such later date as the
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parties may mutually agree. All acts taking place at the Closing Date shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern
time) at the offices of the Acquiring Fund, Federated Investors Tower,
Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may
mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 ARM Transfer Agency, Inc., as transfer agent for the Acquired Fund,
shall deliver at the Closing a certificate of an authorized officer stating that
its records contain the names and addresses of the Acquired Fund Shareholders
and the number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue
and deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Secretary of the Acquired Fund, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, assumption agreements, share certificates, if any, receipts or
other documents as such other party or its counsel may reasonably request.
4.REPRESENTATIONS AND WARRANTIES.
4.1 The Corporation represents and warrants to the Trust as follows:
(a) The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and has
power to own all of its properties and assets and to carry out this Agreement.
(b) The Corporation is registered under the 1940 Act, as an
open-end, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Corporation is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Corporation's Articles of Incorporation or Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will result in
liability to it after the Closing Date.
(e) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business. The Acquired Fund knows of
no facts which might form the basis for the institution of such proceedings, and
is not a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired Fund
at December 31, 1994 has been audited by other auditors and at December
31, 1995 has been audited by Ernst & Young LLP, independent auditors, and have
been prepared in accordance with generally accepted accounting principles,
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Acquired
Fund as of such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) The unaudited Statement of Assets and Liabilities of the
Acquired Fund at June 30, 1996 has been prepared in accordance with generally
accepted accounting principles, consistently applied, although subject to year-
end adjustments, and on a basis consistent with the Statement of Assets and
Liabilities of the Acquired Fund at December 31, 1995 which has been audited by
Ernst & Young LLP, independent auditors, and such statement (copies of which
have been furnished to the Acquiring Fund) fairly reflects the financial
condition of the Acquired Fund as of such date, and there are no known
liabilities of the Acquired Fund, contingent or otherwise, as of such date not
disclosed therein.
(i) Since June 30, 1996, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund.
(j) At the Closing Date, all Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by such date
shall have been filed or an appropriate extension obtained, and all Federal and
other taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof or contest in good faith, and to the best of the
Acquired Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(k) For each fiscal year of its operation, subject to applicable
statute of limitation periods, the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a regulated
investment company.
(l) All issued and outstanding shares of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. All of the issued and outstanding shares of the
Acquired Fund will, at the time of the Closing, be held by the persons and in
the amounts set forth in the records of the transfer agent as provided in
paragraph 3.3. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquired Fund
shares, nor is there outstanding any security convertible into any of the
Acquired Fund shares.
(m) On the Closing Date, the Acquired Fund will have full right,
power and authority to sell, assign, transfer and deliver the assets to be
transferred by it hereunder.
(n) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary action
on the part of the Corporation and, subject to the approval of the Acquired Fund
Shareholders, this Agreement constitutes the valid and legally binding
obligation of the Acquired Fund enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and to general
principles of equity and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(o) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration Statement
referred to in paragraph 5.5 (only insofar as it relates to the Acquired Fund)
will, on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading.
4.2 The Trust represents and warrants to the Corporation as follows:
(a) The Trust is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has the power to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act as an open-end,
diversified, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Trust's Declaration of Trust or Bylaws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(d) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business. The Acquiring Fund knows of
no facts which might form the basis for the institution of such proceedings, and
is not a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) The Statement of Assets and Liabilities of the Acquiring
Fund at October 31, 1994 and 1995, have been audited by Ernst & Young LLP,
independent auditors, and have been prepared in accordance with generally
accepted accounting principles, and such statements (copies of which have been
furnished to the Acquired Fund) fairly reflect the financial condition of the
Acquiring Fund as of such dates, and there are no known contingent liabilities
of the Acquiring Fund as of such dates not disclosed therein.
(g) The unaudited Statement of Assets and Liabilities of the
Acquiring Fund at April 30, 1996 has been prepared in accordance with generally
accepted accounting principles, consistently applied, although subject to year-
end adjustments, and on a basis consistent with the Statement of Assets and
Liabilities of the Acquiring Fund at October 31, 1995 which has been audited by
Ernst & Young LLP, independent auditors, and such statement (copies of which
have been furnished to the Acquired Fund) fairly reflects the financial
condition of the Acquiring Fund as of such date, and there are no known
liabilities of the Acquiring Fund, contingent or otherwise, as of such date not
disclosed therein.
(h) Since April 30, 1996, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as disclosed to and
accepted by the Acquired Fund.
(i) At the Closing Date, all Federal and other tax returns and
reports of the Acquiring Fund required by law to have been filed or an
appropriate extension obtained, by such date shall have been filed, and all
Federal and other taxes shall have been paid so far as due, or provision shall
have been made for the payment thereof or contest in good faith, and to the best
of the Acquiring Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(j) For each fiscal year of its operation, subject to applicable
statute of limitation periods, the Acquiring Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a regulated
investment company.
(k) All issued and outstanding Acquiring Fund Shares are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(l) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary action on the part of the Trust, and
this Agreement constitutes the valid and legally binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject to the effect
of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(m) The Prospectus/Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring Fund) will,
on the effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
5.COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include customary
dividends and distributions.
5.2 The Corporation will call a meeting of the Acquired Fund Shareholders
to consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after
the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such
form as is reasonably satisfactory to the Acquiring Fund, a statement of the
earnings and profits of the Acquired Fund for Federal income tax purposes which
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code and which will be certified by the Corporation's President and its
Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of the Prospectus/Proxy Statement,
referred to in paragraph 4.1(m), all to be included in a Registration Statement
on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income, if any, plus the excess of its interest income, if any, excludable from
gross income under Code section 103(a) over its deductions disallowed under Code
sections 265 and 171(a)(2) for the taxable periods or years ended on or before
December 31, 1995 and for the period from said date to and including the Closing
Date (computed without regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized in taxable periods or years ended on or
before December 31, 1995 and in the period from said date to and including the
Closing Date.
6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Corporation contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the Acquired
Fund's portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquiring
Fund, to the effect that the representations and warranties of the Corporation
made in this Agreement are true and correct in all material respects at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquiring
Fund shall reasonably request.
7.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquired
Fund, to the effect that the representations and warranties of the Trust made in
this Agreement are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request.
7.3 There shall not have been any material adverse change in the Acquiring
Fund's financial condition, assets, liabilities or business since the date
hereof other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of any indebtedness, except as otherwise
disclosed to and accepted by the Acquired Fund.
8.FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, either
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Corporation's Articles of
Incorporation and the 1940 Act.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in
all material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
the Acquiring Fund or the Acquired Fund, provided that either party hereto may
for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Trust and the Corporation shall have received an opinion of
Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
Federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets in exchange
for the Acquiring Fund Shares and the distribution of the Acquiring Fund Shares
to the Acquired Fund Shareholders in liquidation of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the
Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the Acquiring
Fund Shares; (c) No gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to Acquired Fund Shareholders in
exchange for their shares of the Acquired Fund; (d) No gain or loss will be
recognized by the Acquired Fund Shareholders upon the exchange of their Acquired
Fund shares for the Acquiring Fund Shares; (e) The tax basis of the Acquired
Fund assets acquired by the Acquiring Fund will be the same as the tax basis of
such assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the Acquired
Fund Shareholders pursuant to the Reorganization will be the same as the tax
basis of the Acquired Fund shares held by such shareholder immediately prior to
the Reorganization; (g) The holding period of the assets of the Acquired Fund in
the hands of the Acquiring Fund will include the period during which those
assets were held by the Acquired Fund; and (h) The holding period of the
Acquiring Fund Shares to be received by each Acquired Fund Shareholder will
include the period during which the Acquired Fund shares exchanged therefor were
held by such shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9.TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Directors of the
Corporation or the Board of Trustees of the Trust at any time prior to the
Closing Date (and notwithstanding any vote of the Acquired Fund Shareholders) if
circumstances should develop that, in the opinion of either of the parties'
Board, make proceeding with the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated hereby
is abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the directors, trustees or officers of the Corporation or the Trust or
the shareholders of the Acquiring Fund or of the Acquired Fund, in respect of
this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Trust or the Board of Directors of
the Corporation, if, in the judgment of either, such waiver will not have a
material adverse effect on the benefits intended under this Agreement to the
shareholders of the Acquiring Fund or of the Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof, and merges and
supersedes all prior discussions, agreements, and understandings of every kind
and nature between them relating to the subject matter hereof. Neither party
shall be bound by any condition, definition, warranty or representation, other
than as set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York, without giving effect to principles of
conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the limitation
of liability as set forth in Article XI of the Declaration of Trust of the Trust
and agrees that the obligations assumed by the Acquiring Fund pursuant to this
Agreement shall be limited in any case to the Acquiring Fund and its assets and
the Acquired Fund shall not seek satisfaction of any such obligation from the
shareholders of the Acquiring Fund, the trustees, officers, employees or agents
of the Trust or any of them.
11.7 An agreement has been entered into under which Federated Management
will assume substantially all of the expenses of the reorganization including
accountants' fees, registration fees, transfer taxes (if any), the fees of banks
and transfer agents and the costs of preparing, printing, copying and mailing
proxy solicitation materials to the Acquired Fund's shareholders and the costs
62
of holding the Special Meeting of Shareholders. ARM Financial Group, Inc. will
assume the legal fees of the Acquired Fund.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and attested on
its behalf by its duly authorized representatives as of the date first above
written.
Acquired Fund:
STATE BOND EQUITY FUNDS, INC.,
on behalf of its portfolio,
STATE BOND COMMON STOCK FUND
Attest:
By: /s/ Kevin L. Howard
Name: Kevin L. Howard
Title: Secretary and Treasurer
/s/ Sheri Bean
Name: Sheri Bean
Title: Assistant Secretary
Acquiring Fund:
FEDERATED EQUITY FUNDS
on behalf of its portfolio,
FEDERATED GROWTH
STRATEGIES FUND
Attest:
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: Executive vice President
/s/ S. Elliott Cohan
Name: S. Elliott Cohan
Title: Assistant Secretary
STATEMENT OF ADDITIONAL INFORMATION
November , 1996
---
ACQUISITION OF THE ASSETS OF
STATE BOND COMMON STOCK FUND,
A PORTFOLIO OF
STATE BOND EQUITY FUNDS, INC.
100 NORTH MINNESOTA STREET
P.O. BOX 69
NEW ULM, MINNESOTA 56073-0069
TELEPHONE NUMBER: 1-800-328-4735
BY AND IN EXCHANGE FOR CLASS A SHARES OF
FEDERATED GROWTH STRATEGIES FUND,
A PORTFOLIO OF
FEDERATED EQUITY FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-341-7400
This Statement of Additional Information dated November , 1996 is not
---
a prospectus. A Prospectus/Proxy Statement dated November , 1996 related to
---
the above-referenced matter may be obtained from Federated Equity Funds,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement
of Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Federated Growth
Strategies Fund, a portfolio of Federated Equity Funds, dated December 31, 1995.
2. Statement of Additional Information of State Bond Common Stock
Fund, a portfolio of State Bond Equity Funds, Inc., dated May 1, 1996.
3. Financial Statements of Federated Growth Strategies Fund, a
portfolio of Federated Equity Funds, dated October 31, 1995.
4. Financial Statements (unaudited) of Federated Growth Strategies
Fund, a portfolio of Federated Equity Funds, dated April 30, 1996.
5. Financial Statements of State Bond Common Stock Fund, a portfolio
of State Bond Equity Funds, Inc., dated December 31, 1995.
6. Financial Statements (unaudited) of State Bond Common Stock Fund,
a portfolio of State Bond Equity Funds, Inc., dated June 30, 1996.
7. Pro Forma Financial Information of Federated Growth Strategies
Fund, a portfolio of Federated Equity Funds, dated October 31, 1995 and
April 30, 1996.
The Statement of Additional Information of Federated Growth Strategies
Fund, (the "Federated Fund"), a portfolio of Federated Equity Funds (the
"Trust"), dated December 31, 1995, is incorporated herein by reference to Post-
Effective Amendment No. 29 to the Trust's Registration Statement on Form N-1A
(File Nos. 2-91090 and 811-4017) which was filed with the Securities and
Exchange Commission on or about December 27, 1995. A copy may be obtained, upon
request and without charge, from the Federated Fund at Federated Investors
Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-341-7400.
The Statement of Additional Information of State Bond Common Stock Fund
(the "State Bond Fund"), a portfolio of State Bond Equity Funds, Inc. (the
"Corporation"), dated May 1, 1996, is incorporated herein by reference to Post-
Effective Amendment No. 58 to the Corporation's Registration Statement on Form
N-1A (File Nos. 2-19600 and 811-1138) which was filed with the Securities and
Exchange Commission on or about March 1, 1996. A copy may be obtained, upon
request and without charge, from the State Bond Fund at 100 North Minnesota
Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number: 1-800-
328-4735.
The audited financial statements of the Federated Fund, dated
October 31, 1995, are incorporated herein by reference to the Federated Fund's
Annual Report to Shareholders dated October 31, 1995 which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the Federated Fund at Federated Investors Tower,
Pittsburgh, PA 15222-3279; telephone number: 1-800-341-7400.
The audited financial statements of the State Bond Fund, dated December
31, 1995, are incorporated herein by reference to the State Bond Fund's Annual
Report to Shareholders dated December 31, 1995, which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box
69, New Ulm, Minnesota 56073-0069; telephone number 1-800-328-4735
The unaudited financial statements of the Federated Fund, dated April
30, 1996, are incorporated herein by reference to the Federated Fund's Semi-
Annual Report to Shareholders, dated April 30, 1996, which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the Federated Fund at Federated Investors Tower,
Pittsburgh, PA 15222-3279; telephone number: 1-800-341-7400.
The unaudited financial statement of the State Bond Fund, dated June 30,
1996, are incorporated herein by reference to the State Bond Fund's Semi-Annual
Report to Shareholders, dated June 30, 1996, which was filed with the Securities
and Exchange Commission. A copy may be obtained, upon request and without
charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New
Ulm, Minnesota 56073Ulm, Minnesota 56073-0069; telephone number: 1-800-328-4735.
The pro forma financial information of the Federated Fund, dated
financial information of the Federated Fund, dated
11.7 An agreement has been entered into under which Federated Management
will assume substantially all of the expenses of the reorganization including
accountants' fees, registration fees, transfer taxes (if any), the fees of banks
and transfer agents and the costs of preparing, printing, copying and mailing
proxy solicitation materials to the Acquired Fund's shareholders and the costs
of holding the Special Meeting of Shareholders. ARM Financial Group, Inc. will
assume the legal fees of the Acquired Fund.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
ed Pro Forma Combining Statement of Operations reflects
the accounts of Federated Growth Strategies Fund and State Bond Common Stock
Fund for the years ended October 31, 1995, and December 31, 1995, respectively,
the most recent fiscal year ends of the Funds.
In addition, included are the unaudited Pro Forma Combining Portfolio of
Investments and Statement of Assets and Liabilities reflecting the accounts of
the Funds at April 30, 1996. These statements have been derived from the books
and records utilized in calculating the daily net asset value at April 30, 1996.
The accompanying unaudited Pro Forma Combining Statement of Operations reflects
the accounts of Federated Growth Strategies Fund and State Bond Common Stock
Fund for the six months ended April 30, 1996, and the six months ended June 30,
1996, respectively, the most recent semi-annual periods of the Funds.
The Pro Forma statements give effect to the proposed transfer of assets from
State Bond Common Stock Fund in exchange for Class A Shares of Federated Growth
Strategies Fund.
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED STATE FEDERATED STATE BOND
GROWTH BOND PRO FORMA GROWTH COMMON PRO FORMA
STRATEGIES COMMON COMBINED STRATEGIES STOCK COMBINED
FUND STOCK FUND FUND
FUND
SHARES SHARES SHARES VALUE VALUE VALUE
COMMON STOCKS--90.4%
<C> <C> <C> <S> <C> <C> <C>
BASIC INDUSTRY--5.8%
50,700 ------ 50,700 AK Steel Holding Corp. $1,571,700 $----- $1,571,700
------ 26,045 26,045 Archer-Daniels-Midland Co. ------ 419,976 419,976
60,000 ------ 60,000 Champion International Corp. 3,210,000 ------ 3,210,000
------ 30,000 30,000 Morton International, Inc. ------ 915,000 915,000
67,500 ------ 67,500 Potash Corporation of Saskatchewan, 4,699,688 ------ 4,699,688
Inc.
125,000 ------ 125,000 Praxair, Inc. 3,375,000 ------ 3,375,000
104,500 ------ 104,500 UCAR Global Enterprises, Inc. 2,978,250 ------ 2,978,250
------ 30,000 30,000 WMX Technologies, Inc. ------ 843,750 843,750
Total 15,834,638 2,178,726 18,013,364
CONSUMER DURABLES--2.3%
------ 20,000 20,000 American Greetings ------ 631,250 631,250
164,500 ------ 164,500 Brunswick Corp. 3,207,750 ------ 3,207,750
------ 8,000 8,000 Goodyear Tire & Rubber Co. ------ 304,000 304,000
58,100 ------ 58,100 Oakley, Inc. 2,004,450 ------ 2,004,450
------ 40,000 40,000 Rubbermaid, Inc. ------ 1,045,000 1,045,000
Total 5,212,200 1,980,250 7,192,450
CONSUMER NON-DURABLES--9.0%
------ 30,000 30,000 Anheuser-Busch Cos., Inc. ------ 1,980,000 1,980,000
47,500 ------ 47,500 Coca-Cola Co. 3,414,062 ------ 3,414,062
------ 12,000 12,000 ConAgra, Inc. ------ 463,500 463,500
------ 20,000 20,000 CPC International ------ 1,327,500 1,327,500
145,000 ------ 145,000 (a) Gymboree Corp. 3,280,625 ------ 3,280,625
53,400 ------ 53,400 IBP, Inc. 3,197,325 ------ 3,197,325
21,000 21,000 International Flavors and ------ 1,013,250 1,013,250
Fragrances, Inc.
57,000 ------ 57,000 Nike, Inc., Class B 3,234,750 ------ 3,234,750
52,000 ------ 52,000 Philip Morris Cos., Inc. 4,394,000 ------ 4,394,000
------ 30,000 30,000 Procter & Gamble Co. ------ 2,430,000 2,430,000
------ 50,000 50,000 Sara Lee Corp. ------ 1,468,750 1,468,750
------ 40,000 40,000 The Gillette Company ------ 1,935,000 1,935,000
Total 17,520,762 10,618,000 28,138,762
ENERGY MINERALS--3.8%
31,000 ------ 31,000 British Petroleum, Ltd., ADR $2,735,750 $----- $2,735,750
------ 15,000 15,000 Burlington Resources, Inc. ------ 540,000 540,000
------ 25,000 25,000 Phillips Petroleum Co. ------ 806,250 806,250
------ 12,000 12,000 Royal Dutch Petroleum Co. ------ 1,474,500 1,474,500
79,100 ------ 79,100 (a) Western Atlas, Inc. 3,470,513 ------ 3,470,513
168,500 ------ 168,500 (a) YPF Sociedad Anonima, ADR 2,885,563 ------ 2,885,563
Total 9,091,826 2,820,750 11,912,576
FINANCE--15.4%
78,400 ------ 78,400 Aflac, Inc. 3,194,800 ------ 3,194,800
------ 33,750 33,750 American International Group, Inc. ------ 2,847,656 2,847,656
106,000 ------ 106,000 Bank of New York Co., Inc. 4,452,000 ------ 4,452,000
------ 20,000 20,000 Capital One Financial ------ 490,000 490,000
70,000 ------ 70,000 Citicorp 4,541,250 ------ 4,541,250
------ 15,000 15,000 Federal National Mortgage ------ 1,573,125 1,573,125
Association
80,200 ------ 80,200 First Commerce Corp. 2,486,200 ------ 2,486,200
------ 60,000 60,000 Green Tree Financial Corp. ------ 1,597,500 1,597,500
110,300 ------ 110,300 Lehman Brothers Holdings, Inc. 2,399,025 ------ 2,399,025
------ 8,000 8,000 MBIA, Inc. ------ 557,000 557,000
125,000 ------ 125,000 MBNA Corp. 4,609,375 ------ 4,609,375
------ 15,000 15,000 Mellon Bank Corp. ------ 751,875 751,875
70,000 20,000 90,000 MGIC Investment Corp. 3,981,250 1,137,500 5,118,750
44,800 ------ 44,800 NationsBank Corp. 2,945,600 ------ 2,945,600
------ 10,000 10,000 Providian Corp. ------ 392,500 392,500
------ 10,000 10,000 Reuters Holding PLC ------ 555,625 555,625
------ 20,000 20,000 Signet Bank Corp. ------ 475,000 475,000
81,400 ------ 81,400 Sunamerica, Inc. 5,067,150 ------ 5,067,150
65,100 15,001 80,101 Travelers Group, Inc. 3,287,550 757,534 4,045,084
Total 36,964,200 11,135,315 48,099,515
HEALTH CARE--14.4%
------ 30,000 30,000 Abbott Laboratories $----- $1,192,500 $1,192,500
74,500 ------ 74,500 (a) Amgen, Inc. 3,576,000 ------ 3,576,000
------ 15,000 15,000 Bristol-Myers Squibb Co. ------ 1,143,750 1,143,750
------ 15,000 15,000 Columbia HCA Healthcare Corp. ------ 736,875 736,875
100,000 ------ 100,000 (a) Foundation Health Corp 4,237,500 ----- 4,237,500
44,500 ------ 44,500 (a) Genzyme Corp. 2,592,125 ------ 2,592,125
50,000 ------ 50,000 Johnson & Johnson 4,075,000 ------ 4,075,000
31,900 ------ 31,900 Lilly (Eli) & Co. 3,082,337 ------ 3,082,337
57,000 40,000 97,000 Medtronic, Inc. 3,291,750 2,310,000 5,601,750
58,300 ------ 58,300 Merck & Co., Inc. 3,352,250 ------ 3,352,250
180,000 ------ 180,000 Mylan Laboratories, Inc. 3,420,000 ------ 3,420,000
175,000 ------ 175,000 (a) Ornda Healthcorp 3,084,375 ------ 3,084,375
67,400 ------ 67,400 Pfizer, Inc. 3,867,075 ------ 3,867,075
------ 20,000 20,000 Schering-Plough Corp. ------ 1,072,500 1,072,500
100,000 ------ 100,000 Teva Pharmaceutical Industries, 3,925,000 ------ 3,925,000
Ltd., ADR
Total 38,503,412 6,455,625 44,959,037
PRODUCER MANUFACTURING--6.4%
90,500 ------ 90,500 (a) American Standard Companies 2,420,875 ------ 2,420,875
98,000 ------ 98,000 Dover Corp. 3,871,000 ------ 3,871,000
------ 40,000 40,000 General Electric Co. ------ 2,530,000 2,530,000
100,000 ------ 100,000 Greenfield Industries, Inc. 3,000,000 ------ 3,000,000
71,000 ------ 71,000 Magna International, Inc., Class A 3,070,750 ------ 3,070,750
81,500 ------ 81,500 (a) Thermo Electron Corp. 3,749,000 ------ 3,749,000
160,000 ------ 160,000 (a) Westinghouse Air Brakes 1,400,000 ------ 1,400,000
Total 17,511,625 2,530,000 20,041,625
RETAIL TRADE--2.4%
------ 11,000 11,000 Dayton Hudson Corp. ------ 756,250 756,250
------ 20,000 20,000 Fingerhut Companies, Inc. ------ 272,500 272,500
------ 10,000 10,000 Home Depot, Inc. ------ 372,512 372,512
RETAIL TRADE--CONTINUED
50,000 ------ 50,000 Premark International, Inc. $2,312,500 $----- $2,312,500
79,200 ------ 79,200 (a) Safeway, Inc. 3,742,200 ------ 3,742,200
------ 8,000 8,000 Wal-Mart Stores, Inc. ------ 173,000 173,000
Total 6,054,700 1,574,262 7,628,962
SERVICES--7.3%
------ 10,000 10,000 Carnival Corp. - Class A ------ 232,500 232,500
109,600 ------ 109,600 Coflexip, ADR 1,534,400 ------ 1,534,400
28,100 ------ 28,100 (a) Corrections Corp. America 1,531,450 ------ 1,531,450
------ 15,000 15,000 (a) CUC International, Inc. ------ 519,375 519,375
------ 20,000 20,000 Marriott International, Inc. ------ 737,500 737,500
81,500 ------ 81,500 Olsten Corp. 3,137,750 ------ 3,137,750
99,000 ------ 99,000 Service Corp. International 3,972,375 ------ 3,972,375
------ 15,000 15,000 Tele-Communications, Inc. ------ 255,938 255,938
------ 3,750 3,750 Tele-Communications Liberty Media ------ 92,578 92,578
------ 20,000 20,000 The Walt Disney Co. ------ 1,152,500 1,152,500
------ 25,000 25,000 Time Warner, Inc. ------ 912,500 912,500
------ 5,000 5,000 Tribune Co. ------ 315,625 315,625
189,324 ------ 189,324 (a) USA Waste Services, Inc. 3,975,804 ------ 3,975,804
90,000 ------ 90,000 (a) Viacom, Inc., Class B 4,500,000 ------ 4,500,000
Total 18,651,779 4,218,516 22,870,295
TECHNOLOGY--15.4%
60,000 ------ 60,000 (a) Applied Materials, Inc. 3,007,500 ------ 3,007,500
------ 10,000 10,000 (a) Arrow Electronics, Inc. ------ 507,500 507,500
------ 8,000 8,000 Autodesk, Inc. ------ 270,500 270,500
45,000 10,000 55,000 (a) Cisco Systems, Inc. 3,487,500 775,625 4,263,125
55,000 ------ 55,000 (a) Digital Equipment Corp. 2,976,875 ------ 2,976,875
------ 20,000 20,000 (a) DSC Communications Corp. ------ 741,250 741,250
114,000 ------ 114,000 (a) DST Systems, Inc. 2,394,000 ------ 2,394,000
------ 10,000 10,000 (a) EMC Corp. ------ 155,000 155,000
TECHNOLOGY--CONTINUED
120,000 ------ 120,000 Ericsson LM $2,563,125 $----- $2,563,125
------ 15,000 15,000 First Data Corp. ------ 991,875 991,875
------ 20,000 20,000 (a) General Instrument Co. ------ 380,000 380,000
130,700 ------ 130,700 (a) Integrated Device Technology, 2,483,300 ------ 2,483,300
Inc.
40,000 ------ 40,000 Intel Corp. 2,795,000 ------ 2,795,000
170,000 ------ 170,000 Loral Corp. 5,036,250 ------ 5,036,250
60,800 ------ 60,800 (a) LSI Logic Corp. 2,865,200 ------ 2,865,200
------ 12,000 12,000 (a) Microsoft Corp. ------ 1,200,750 1,200,750
53,800 20,000 73,800 Motorola, Inc. 3,530,625 1,312,500 4,843,125
------ 8,000 8,000 (a) Newbridge Networks Corp. ------ 244,000 244,000
57,700 ------ 57,700 Nokia (AB), ADR 3,216,775 ------ 3,216,775
61,800 30,000 91,800 (a) Oracle Corp. 2,696,025 1,310,625 4,006,650
46,500 46,500 Texas Instruments, Inc. 3,173,625 ------ 3,173,625
Total 40,225,800 7,889,625 48,115,425
TRANSPORTATION--1.1%
50,000 ------ 50,000 Delta Air Lines, Inc. 3,281,250 ------ 3,281,250
UTILITIES--7.1%
102,300 ------ 102,300 CMS Energy Corp. 2,826,037 ------ 2,826,037
------ 25,000 25,000 El Paso Natural Gas Co. ------ 675,000 675,000
65,000 ------ 65,000 FPL Group, Inc. 2,721,875 ------ 2,721,875
------ 7,000 7,000 (a) Lin Television Corp. ------ 199,500 199,500
160,000 40,000 200,000 MCI Communications Corp. 3,990,000 997,500 4,987,500
------ 20,000 20,000 (a) Nextel Communications, Inc. ------ 278,750 278,750
167,500 ------ 167,500 (a) PanAmSat Corp. 2,533,438 ------ 2,533,438
122,100 ------ 122,100 Sonat, Inc. 3,510,375 ------ 3,510,375
------ 20,550 20,550 Sprint Corp. ------ 791,175 791,175
------ 10,000 10,000 Telefonos de Mexico, S.A. ------ 275,000 275,000
------ 10,000 10,000 Telephone & Data Systems, Inc. ------ 400,000 400,000
62,000 10,000 72,000 Vodafone Group $2,534,250 $408,750 $2,943,000
Total 18,115,975 4,025,675 22,141,650
TOTAL COMMON STOCKS 226,968,167 55,426,744 282,394,911
(IDENTIFIED COST $218,374,244)
CONVERTIBLE SECURITIES--4.2%
CONSUMER SERVICES--1.3%
$13,400,000 $----- $13,400,000 Boston Chicken, Inc., Conv. LYON, 3,902,750 ------ 3,902,750
.08% accrual, 6/1/2015
FINANCE--1.6%
120,000 ------ 120,000 First USA, Inc., PRIDES, $1.99 4,980,000 ------ 4,980,000
TECHNOLOGY SERVICES--1.3%
60,900 ------ 60,900 General Motors Corp., Conv. Pfd., 4,080,300 ------ 4,080,300
Series C, $3.25
TOTAL CONVERTIBLE SECURITIES 12,963,050 ------ 12,963,050
(IDENTIFIED COST $10,591,019)
SHORT-TERM SECURITIES--2.1%
FINANCE--1.4%
------ 1,750,000 1,750,000 American Express Credit Corp., ------ 1,748,054 1,748,054
5.72%, due 11/8/1995
------ 1,600,000 1,600,000 Ford Motor Credit Co., 5.73%, due ------ 1,600,000 1,600,000
11/1/1995
------ 925,000 925,000 Ford Motor Credit Co., 5.76%, due ------ 924,704 924,704
11/3/1995
Total ------ 4,272,758 4,272,758
RETAIL TRADE--0.7%
------ 2,150,000 2,150,000 Sears Roebuck Acceptance Corp., ------ 2,147,939 2,147,939
5.75%, due 11/7/1995
TOTAL SHORT-TERM SECURITIES ------ 6,420,697 6,420,697
(AT AMORTIZED COST)
(B) REPURCHASE AGREEMENT--3.9%
12,310,000 ----- 12,310,000 J.P. Morgan Securities, Inc.,
5.90%, dated 10/31/95, due 12,310,000 ------ 12,310,000
11/1/1995 (at amortized cost)
TOTAL INVESTMENTS (IDENTIFIED $252,241,217 $61,847,441 $314,088,658
COST $247,695,960)(C)
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $247,695,960.
The net unrealized appreciation of investments on a federal tax basis
amounts to $66,392,698 which is comprised of $72,316,837 appreciation and
$5,924,139 depreciation at October 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($312,346,463) at October 31, 1995.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
LYON --Liquid Yield Option Note
PLC --Public Limited Company
PRIDES --Preferred Redeemable Increased Dividend Equity Securities
(See Notes to Pro Forma Financial Statements which are an integral part of
the Financial Statements)
<TABLE>
<CAPTION>
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
(UNAUDITED)
FEDERATED STATE BOND
GROWTH COMMON PRO PRO FORMA
FORMA
STRATEGIES STOCK FUND ADJUSTMENT COMBINED
FUND
<S> <C> <C> <C> <C>
ASSETS:
Investments in
securities, at value$ 252,241,217 $61,847,441 ----$ 314,088,658
Cash ---- 32,124 ---- 32,124
Receivables for:
Investments sold 3,776,069 ---- ---- 3,776,069
Shares of
beneficial interest 316,057 133 ---- 316,190
sold
216,664 60,900 ---- 277,564
Income
Total assets 256,550,007 61,940,598 ---- 318,490,605
LIABILITIES:
Payables for/ to:
Shares of
beneficial interest
redeemed 240,824 22,408 ---- 263,232
Investments 5,592,077 ---- ---- 5,592,077
purchased
Bank 117,346 ---- ---- 117,346
Accrued expenses and
other liabilities 87,490 83,997 ---- 171,487
Total 6,037,737 106,405 ---- 6,144,142
liabilities
TOTAL NET ASSETS $ 250,512,270 $ 61,834,193 ---- $ 312,346,463
NET ASSETS CONSIST OF:
Paid in capital $ 161,711,242 $ 30,643,355 ---- $ 192,354,597
Net unrealized
appreciation of
investments 37,433,997 28,959,022 ---- 66,393,019
Accumulated net realized gain
(loss)
on investments 51,266,162 2,087,086 ---- 53,353,248
Undistributed net
investment income 100,869 144,730 ---- 245,599
TOTAL NET ASSETS $ 250,512,270 $ 61,834,193 ---- $ 312,346,463
Class A Shares $ 249,109,599 $ 61,834,193 ---- $ 310,943,792
Class B Shares $ 1,345,476 $ ---- ---- $ 1,345,476
Class C Shares $ 57,195 $ ---- ---- $ 57,195
SHARES OUTSTANDING:
Class A Shares 9,499,332 6,567,862 (4,209,930) 11,857,264
(a)
Class B Shares 51,294 ---- ---- 51,294
Class C Shares 2,181 ---- ---- 2,181
TOTAL SHARE 9,552,807 6,567,862 (4,209,930) 11,910,739
OUTSTANDING
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
CLASS A SHARES:
Net Asset Value Per $ 26.22 $ 9.41 $ 26.22
Share
Offering Price Per $ 27.75 $ 9.88*** $ 27.75
Share*
Redemption Proceeds
Per Share** $ 26.22 $ 9.41 $ 26.22
CLASS B SHARES:
Net Asset Value Per $ 26.23 $ N/A $ 26.23
Share
Offering Price Per $ 26.23 $ N/A $ 26.23
Share*
Redemption Proceeds $ 24.79
Per Share** $ 24.79 $ N/A
CLASS C SHARES:
Net Asset Value Per $ 26.22 $ N/A $ 26.22
Share
Offering Price Per $ 26.22 $ N/A $ 26.22
Share*
Redemption Proceeds
Per Share** $ 25.96 $ N/A $ 25.96
INVESTMENTS, AT $ 214,807,541 $ 32,888,419 $ 247,695,960
IDENTIFIED COST
(a) Adjustment to reflect share balance as a result of the combination,
based on the exchange ratio of 0.35901058822.
* See "How to Purchase Shares" in the Federated Growth Strategies Fund
Prospectus, as of December 31, 1995.
** See "How to Redeem Shares" in the Federated Growth Strategies Fund
Prospectus, as of December 31, 1995.
*** See "How are the Fund's Sales Charges Determined?" in the State Bond
Common Stock Fund Prospectus, as of May 1, 1996.
</TABLE>
<TABLE>
<CAPTION>
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1995 FOR FEDERATED GROWTH STRATEGIES FUND AND
THE YEAR ENDED DECEMBER 31, 1995 FOR STATE BOND COMMON STOCK FUND
<S> <C> <C> <C> <C>
FEDERATED STATE
BOND
GROWTH COMMON
STRATEGIES STOCK PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
INVESTMENT INCOME:
Dividends $4,084,557 $897,942 $ $4,982,499
----
Interest 1,533,321 311,032 - 1,844,353
---
Total Investment $5,617,878 $1,208,974 ---- $6,826,852
Income
EXPENSES:
Investment advisory and 1,958,826 384,661 59,183 (a) 2,402,670
management fee
Administrative personnel and 197,711 ---- 44,478 (b) 242,189
services fee
Custodian fees 64,622 17,842 (9,332) (c) 73,132
Transfer and dividend disbursing
agent fees and expenses 197,076 76,928 (2,938) (d) 271,066
Directors'/Trustees' 7,432 ---- ---- 7,432
fees
Professional 25,526 26,607 (26,607) (e) 25,526
fees
Portfolio accounting 71,343 ---- ---- 71,343
fees
Distribution services fee - State
Bond Common Stock Fund ---- 146,996 (146,996) (f) ----
Distribution services fee - 1,071 ---- ---- 1,071
Class B Shares
Distribution services fee - 39 ---- ---- 39
Class C Shares
Shareholder services fee - 652,572 ---- 146,996 (f) 799,568
Class A Shares
Shareholder services fee - 357 ---- ---- 357
Class B Shares
Shareholder services fee - 13 ---- ---- 13
Class C Shares
Share registration 55,656 ---- ---- 55,656
costs
Printing and 27,112 10,389 (7,701) (g) 29,800
postage
Insurance 7,018 ---- ---- 7,018
premiums
Taxes 12,436 ---- ---- 12,436
Miscellaneous 9,625 33,162 (24,625) (h) 18,162
Total 3,288,435 696,585 32,458 4,017,478
expenses
Deduct-
Waiver of shareholder services (407,139) ---- ---- (407,139)
fee--Class A Shares
Net expenses 2,881,296 696,585 32,458 3,610,339
2,736,582 512,389 (32,458) 3,216,513
Net investment income
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on 51,470,307 2,106,098 ---- 53,576,405
investments
Net change in unrealized appreciation 8,029,038 11,820,148 ---- 19,849,186
of investments
Net realized and unrealized gain 59,499,345 13,926,246 ---- 73,425,591
on investments
Change in net assets $62,235,927 $14,438,635 ($32,458) $76,642,104
resulting from operations
(See Legend on
following page)
(See Notes to Pro Forma Financial
Statements)
</TABLE>
Federated Growth Strategies Fund
(formerly, Federated Growth Trust)
State Bond Common Stock Fund
Pro Forma Combining Statement of Operations
(continued)
For the Year Ended October 31, 1995 for Federated
Growth Strategies Fund and
the Year Ended December 31, 1995 for State Bond Common
Stock Fund
(unaudited)
(a) Federated Management (the "Adviser") receives for
its services an annual investment advisory fee equal
to 0.75% of Federated Growth Strategies Fund's (the
"Fund") average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver
at any time at its sole discretion. ARM Capital
Advisors charged an annual rate of 0.65% on the first
$100 million of the average daily net assets, 0.60% of
the next $100 million of the average daily net assets,
and 0.55% of the average daily net assets in excess of
$200 million of the State Bond Common Stock Fund for
its advisory fee.
(b) Federated Administrative Services ("FAS")
provides the Fund with certain administrative
personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Fund for
the period.
(c) State Street Bank and Trust Company is custodian
for the securities and cash of the Fund. The
custodian fee is based on a percentage of assets, plus
out-of-pocket expenses.
(d) Federated Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee is
based on the size, type, and number of accounts and
transactions made by shareholders.
(e) Adjustment to reflect the audit fee and legal fee
reductions due to the combining of two portfolios into
one.
(f) Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services
(`FSS'') the Fund will pay FSS up to 0.25% of average
daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive a portion of its
fee. FSS can modify or terminate this voluntary
waiver at any time at its sole discretion. SBM
Financial Services, Inc. received 0.25% of the average
daily net assets of State Bond Common Stock Fund under
the terms of a distribution plan pursuant to Rule 12b-
1 of the Investment Company Act of 1940, as amended,
to finance activities intended to result in the sale
of State Bond Common Stock Fund's shares and to
provide certain services for shareholders and to
maintain shareholder accounts. Class A Shares of
Federated Growth Strategies Fund does not have a
distribution plan.
(g) Adjustment to reflect the printing and postage
expense reduction due to the combining of two
portfolios into one.
(h) Adjustment to reflect the elimination of the
Directors/Trustees fees for State Bond Common Stock
Fund and the reduction of state registration fees and
insurance fees due to the combining of two portfolios
into one.
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining
Portfolio of Investments and Statement of Assets
and Liabilities reflect the accounts of Federated
Growth Strategies Fund and State Bond Common
Stock Fund, collectively (the `Funds'') as of
October 31, 1995. These statements have been
derived from the books and records utilized in
calculating daily net asset values at October 31,
1995. The Statement of Operations reflects the
accounts of Federated Growth Strategies Fund and
State Bond Common Stock Fund for the twelve
months ended October 31, 1995 and the twelve
months ended December 31, 1995, respectively, the
most recent fiscal year ends of the Funds.
The Pro Forma Financial Statements should be read
in conjunction with the historical financial
statements of the Funds which are incorporated by
reference in the Statement of Additional
Information. The Funds follow generally accepted
accounting principles applicable to management
investment companies which are disclosed in the
historical financial statements of each fund.
The Pro Forma Financial Statements give effect to
the proposed transfer of the assets of State Bond
Common Stock Fund in exchange for Class A Shares
of Federated Growth Strategies Fund. Under
generally accepted accounting principles,
Federated Growth Strategies Fund will be the
surviving entity for accounting purposes with its
historical cost of investment securities and
results of operations being carried forward.
The Pro Forma Financial Statements have been
adjusted to reflect the anticipated advisory and
administration fee arrangements for the surviving
entity. Certain other operating costs have also
been adjusted to reflect anticipated expenses of
the combined entity. Other costs which may change
as a result of the reorganization are currently
undeterminable.
For the twelve months ended October 31, 1995 and
the twelve months ended December 31, 1995,
Federated Growth Strategies Fund and State Bond
Common Stock Fund, respectively, paid investment
advisory fees computed at the annual rate of each
Fund's average net assets as follows:
FUND PERCENT OF EACH FUND'S
AVERAGE NET ASSETS
Federated Growth Strategies Fund 0.75%
State Bond Common Stock Fund 0.65% on the first $100 million
0.60% on the next $100 million
0.55% in excess of $200 million
The adviser may voluntarily choose to waive a
portion of their fees and reimburse certain
operating expenses.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes
the issuance of 2,357,932 shares of Federated
Growth Strategies Fund Class A shares in exchange
for 6,567,862 shares of State Bond Common Stock
Fund which would have been issued at October 31,
1995, in conjunction with the proposed
reorganization.
<TABLE>
<CAPTION>
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
FEDERATED FEDERATED
GROWTH STATE GROWTH STATE BOND
STRATEGIES BOND PRO FORMA STRATEGIES COMMON PRO FORMA
FUND COMMON COMBINED FUND STOCK FUND COMBINED
STOCK
FUND
SHARES SHARES SHARES VALUE VALUE VALUE
COMMON STOCKS-93.2%
<C> <C> <C> <S> <C> <C> <C>
BASIC INDUSTRY--5.7%
------ 26,045 26,045 Archer-Daniels-Midland Co. $------ $491,599 $491,599
90,000 ------ 90,000 Barrick Gold Corp. 2,756,250 ------ 2,756,250
19,600 ----- 19,600 Monsanto Co. 2,969,400 ------ 2,969,400
30,000 30,000 Morton International, Inc. ------ 1,061,250 1,061,250
69,800 ------ 69,800 Potash Corporation of Saskatchewan, 4,920,900 ------ 4,920,900
Inc.
71,500 ------ 71,500 Praxair, Inc. 2,761,688 ------ 2,761,688
95,000 ------ 95,000 UCAR Global Enterprises, Inc. 3,895,000 ------ 3,895,000
------ 30,000 30,000 WMX Technologies, Inc. ------ 1,042,500 1,042,500
Total 17,303,238 2,595,349 19,898,587
CONSUMER DURABLES--3.5%
20,000 20,000 American Greetings Corp. ------ 553,750 553,750
69,600 ------ 69,600 Anthony Industries, Inc. 1,983,600 ------ 1,983,600
56,593 ------ 56,593 General Motors Corp., Class E 3,190,430 ------ 3,190,430
------ 8,000 8,000 Goodyear Tire & Rubber Co. ------ 417,000 417,000
50,500 ------ 50,500 Harley Davidson, Inc. 2,228,312 ------ 2,228,312
85,000 ------ 85,000 Oakley, Inc. 3,910,000 ------ 3,910,000
Total 11,312,342 970,750 12,283,092
CONSUMER NON-DURABLES--7.7%
------ 30,000 30,000 Anheuser-Busch Cos., Inc. ------ 2,013,750 2,013,750
42,500 ------ 42,500 Campbell Soup Co. 2,656,250 ------ 2,656,250
16,200 ------ 16,200 Coca-Cola Co. 1,320,300 ------ 1,320,300
------ 12,000 12,000 ConAgra, Inc. ------ 463,500 463,500
------ 20,000 20,000 CPC International, Inc. ------ 1,382,500 1,382,500
------ 21,000 21,000 International Flavors and ------ 1,031,625 1,031,625
Fragrances, Inc.
107,700 ------ 107,700 Mossimo, Inc. 4,092,600 ------ 4,092,600
51,500 ------ 51,500 Nike, Inc., Class B 4,506,250 ------ 4,506,250
35,500 ------ 35,500 Philip Morris Cos., Inc. 3,199,438 ------ 3,199,438
------ 30,000 30,000 Procter & Gamble Co. $------ $2,535,000 $2,535,000
------ 50,000 50,000 Sara Lee Corp. ------ 1,550,000 1,550,000
------ 40,000 40,000 The Gillette Company ------ 2,160,000 2,160,000
Total 15,774,838 11,136,375 26,911,213
ENERGY MINERALS--6.2%
28,000 ------ 28,000 British Petroleum Co. PLC, ADR 3,059,000 ------ 3,059,000
------ 15,000 15,000 Burlington Resources, Inc. ------ 558,750 558,750
285,000 ------ 285,000 Global Marine, Inc. 3,241,875 ------ 3,241,875
95,000 ------ 95,000 Petroleum Geo-Services, ADR 3,004,375 ------ 3,004,375
------ 25,000 25,000 Phillips Petroleum Co. ------ 1,037,500 1,037,500
156,900 ------ 156,900 Reading & Bates Corp. 3,844,050 ------ 3,844,050
------ 12,000 12,000 Royal Dutch Petroleum Co. ------ 1,719,000 1,719,000
26,700 ------ 26,700 Western Atlas, Inc. 1,602,000 ------ 1,602,000
153,000 ------ 153,000 YPF Sociedad Anonima, ADR 3,346,875 ------ 3,346,875
Total 18,098,175 3,315,250 21,413,425
FINANCE--12.1%
79,500 ------ 79,500 Aflac, Inc. 2,464,500 ------ 2,464,500
------ 33,750 33,750 American International Group, Inc. ------ 3,083,906 3,083,906
144,900 ------ 144,900 (a) Amerin Corp. 3,278,362 ------ 3,278,362
20,000 20,000 Capital One Financial ------ 590,000 590,000
36,500 ------ 36,500 Citicorp 2,874,375 ------ 2,874,375
------ 60,000 60,000 Federal National Mortgage ------ 1,837,500 1,837,500
Association
------ 60,000 60,000 Green Tree Financial Corp. ------ 2,025,000 2,025,000
------ 8,000 8,000 MBIA, Inc. ------ 571,000 571,000
127,500 ------ 127,500 MBNA Corp. 3,617,812 ------ 3,617,812
45,500 15,000 60,500 Mellon Bank Corp. 2,445,625 806,250 3,251,875
------ 20,000 20,000 MGIC Investment Corp. ------ 1,085,000 1,085,000
------ 10,000 10,000 Providian Corp. $------ $461,250 $461,250
------ 10,000 10,000 Reuters Holding PLC ------ 676,875 676,875
117,900 ------ 117,900 Schwab (Charles) Corp. 2,888,550 ------ 2,888,550
------ 20,000 20,000 Signet Bank Corp. ------ 490,000 490,000
85,000 ------ 85,000 Sunamerica, Inc. 4,632,500 ------ 4,632,500
93,600 ------ 93,600 TCF Financial Corp. 3,311,100 ------ 3,311,100
65,000 15,000 80,000 Travelers Group, Inc. 3,997,500 922,500 4,920,000
Total 29,510,324 12,549,281 42,059,605
HEALTH CARE--13.7%
------ 30,000 30,000 Abbott Laboratories ------ 1,218,750 1,218,750
52,900 ------ 52,900 (a) Amgen, Inc. 3,041,750 ------ 3,041,750
------ 15,000 15,000 Bristol-Myers Squibb Co. ------ 1,233,750 1,233,750
------ 15,000 15,000 Columbia HCA Healthcare Corp. ------ 796,875 796,875
55,000 ------ 55,000 (a) Foundation Health Corp. 2,151,875 ------ 2,151,875
29,800 ------ 29,800 (a) Geltex Pharmaceuticals, Inc. 700,300 ------ 700,300
53,400 ------ 53,400 (a) Genzyme Corp. 3,003,750 ------ 3,003,750
28,100 ------ 28,100 Johnson & Johnson 2,599,250 ------ 2,599,250
38,600 ------ 38,600 (a) KeraVision, Inc. 612,775 ------ 612,775
58,000 ------ 58,000 Lilly (Eli) & Co. 3,422,000 ------ 3,422,000
51,500 40,000 91,500 Medtronic, Inc. 2,735,938 2,125,000 4,860,938
53,000 ------ 53,000 Merck & Co., Inc. 3,206,500 ------ 3,206,500
105,000 ------ 105,000 Mylan Laboratories, Inc. 2,047,500 ------ 2,047,500
143,200 ------ 143,200 (a) Ornda Healthcorp 3,938,000 ------ 3,938,000
50,000 ------ 50,000 Pfizer, Inc. 3,443,750 ------ 3,443,750
30,000 ------ 30,000 (a) Quintiles Transnational Corp. 2,197,500 ------ 2,197,500
20,000 20,000 Schering-Plough Corp. ------ 1,147,500 1,147,500
60,000 ------ 60,000 Teva Pharmaceutical Industries, 2,692,500 ------ 2,692,500
Ltd., ADR
100,000 ------ 100,000 (a) Thermedics, Inc. $3,025,000 $------ $3,025,000
74,100 ------ 74,100 (a) Veterinary Centers of America 2,260,050 ------ 2,260,050
Total 41,078,438 6,521,875 47,600,313
PRODUCER MANUFACTURING--4.8%
82,000 ------ 82,000 (a) American Standard Cos. 2,316,500 ------ 2,316,500
71,300 ------ 71,300 (a) Cable Design Technologies, Class 2,352,900 ------ 2,352,900
A
------ 40,000 40,000 General Electric Co. ------ 3,100,000 3,100,000
81,600 ------ 81,600 Greenfield Industries, Inc. 3,100,800 ------ 3,100,800
49,400 ------ 49,400 Magna International, Inc., Class A 2,290,925 ------ 2,290,925
60,000 ------ 60,000 (a) Thermo Electron Corp. 3,697,500 ------ 3,697,500
Total 13,758,625 3,100,000 16,858,625
RETAIL TRADE--4.9%
------ 11,000 11,000 Dayton-Hudson Corp. ------ 1,050,500 1,050,500
------ 16,100 16,100 Fingerhut Companies ------ 205,275 205,275
131,600 ------ 131,600 (a) General Nutrition Cos., Inc. 2,566,200 ------ 2,566,200
------ 10,000 10,000 Home Depot, Inc. ------ 473,750 473,750
69,800 ------ 69,800 (a) Kohl's Corp. 2,399,375 ------ 2,399,375
102,700 ------ 102,700 (a) MSC Industrial Direct Co. 3,735,713 ------ 3,735,713
124,900 ------ 124,900 (a) Safeway, Inc. 4,215,375 ------ 4,215,375
75,600 ------ 75,600 TJX Cos., Inc. 2,230,200 ------ 2,230,200
------ 8,000 8,000 Wal-Mart Stores, Inc. ------ 191,000 191,000
Total 15,146,863 1,920,525 17,067,388
SERVICES--7.3%
122,000 ------ 122,000 (a) Calenergy, Inc. 3,172,000 ------ 3,172,000
------ 10,000 10,000 Carnival Corp. ------ 290,000 290,000
35,500 ------ 35,500 (a) Corrections Corp. America 2,263,125 ------ 2,263,125
------ 15,000 15,000 (a) CUC International, Inc. ------ 493,125 493,125
------ 6,000 6,000 Hewlett-Packard Co. $------ $635,250 $635,250
48,800 ------ 48,800 (a) HFS, Inc. 2,507,100 ------ 2,507,100
------ 20,000 20,000 Marriott International, Inc. ------ 975,000 975,000
89,550 ------ 89,550 Olsten Corp. 2,720,081 ------ 2,720,081
62,500 ------ 62,500 Reynolds & Reynolds Co., Class A 2,890,625 ------ 2,890,625
61,500 ------ 61,500 Service Corp. International 3,267,188 ------ 3,267,188
------ 15,000 15,000 (a) Tele-Communications, Inc. ------ 287,813 287,813
------ 20,000 20,000 The Walt Disney Co. ------ 1,240,000 1,240,000
------ 25,000 25,000 Time Warner, Inc. ------ 1,021,875 1,021,875
------ 5,000 5,000 Tribune Co. ------ 348,750 348,750
127,400 ------ 127,400 (a) USA Waste Services, Inc. 3,312,400 ------ 3,312,400
Total 20,132,519 5,291,813 25,424,332
TECHNOLOGY--18.2%
49,000 ------ 49,000 (a) Altera Corp. 2,584,750 ------ 2,584,750
------ 10,000 10,000 (a) Arrow Electronics, Inc. ------ 501,250 501,250
43,000 ------ 43,000 (a) Atmel Corp. 1,720,000 ------ 1,720,000
------ 8,000 8,000 Autodesk, Inc. ------ 328,000 328,000
9,500 ------ 9,500 (a) Cascade Communications Corp. 952,375 ------ 952,375
113,500 ------ 113,500 (a) Cheyenne Software, Inc. 2,582,125 ------ 2,582,125
63,900 20,000 83,900 (a) Cisco Systems, Inc. 3,314,812 1,038,750 4,353,562
------ 20,000 20,000 DSC Communications Corp. ------ 627,500 627,500
35,300 ------ 35,300 (a) Digital Equipment Corp. 2,109,175 ------ 2,109,175
79,400 ------ 79,400 (a) DST Systems, Inc. 2,917,950 ------ 2,917,950
10,000 10,000 (a) EMC Corp. ------ 205,000 205,000
129,000 ------ 129,000 Ericsson LM 2,628,375 ------ 2,628,375
73,200 ------ 73,200 (a) ESS Technology, Inc. 1,656,150 ------ 1,656,150
27,800 15,000 42,800 First Data Corp., Class 2,112,800 1,140,000 3,252,800
35,000 ------ 35,000 (a) FORE Systems, Inc. $2,765,000 $------ $2,765,000
------ 20,000 20,000 (a) General Instrument Corp. ------ 655,000 655,000
38,500 ------ 38,500 HMC Software 1,434,125 ------ 1,434,125
46,100 ------ 46,100 (a) Informix Corp. 1,215,887 ------ 1,215,887
50,000 ------ 50,000 Intel Corp. 3,387,500 ------ 3,387,500
102,300 ------ 102,300 Lucent Technologies, Inc. 3,593,287 ------ 3,593,287
62,700 ------ 62,700 MEMC Electronic Materials 3,127,162 ------ 3,127,162
48,000 ------ 48,000 Micron Technology, Inc. 1,746,000 ------ 1,746,000
28,000 12,000 40,000 (a) Microsoft Corp. 3,174,500 1,358,250 4,532,750
------ 20,000 20,000 Motorola, Inc. ------ 1,225,000 1,225,000
------ 8,000 8,000 Newbridge Networks Corp. ------ 515,000 515,000
41,400 45,000 86,400 (a) Oracle Corp. 1,397,250 1,515,937 2,913,187
54,200 ------ 54,200 (a) Solectron Corp. 2,411,900 ------ 2,411,900
65,400 ------ 65,400 (a) StorMedia, Inc. 2,779,500 ------ 2,779,500
44,300 ------ 44,300 (a) Sun Microsystems, Inc. 2,403,275 ------ 2,403,275
39,600 ------ 39,600 Varian Association, Inc. 2,262,150 ------ 2,262,150
Total 54,276,048 9,109,687 63,385,735
TRANSPORTATION--1.1%
34,000 ------ 34,000 (a) Continental Airlines, Inc., 1,929,500 ------ 1,929,500
Class B
103,000 ------ 103,000 (a) Trans World Airlines, Inc. 1,841,125 ------ 1,841,125
Total 3,770,625 ------ 3,770,625
UTILITIES--8.0%
------ 6,850 6,850 360 Communications Corp. ------ 160,975 160,975
103,000 ------ 103,000 CMS Energy Corp. 2,999,875 ------ 2,999,875
------ 25,000 25,000 El Paso Natural Gas Co. ------ 925,000 925,000
29,000 ------ 29,000 FPL Group, Inc. 1,250,625 ------ 1,250,625
------ 7,000 7,000 (a) Lin Television Corp. ------ 231,875 231,875
94,800 40,000 134,800 MCI Communications Corp. $2,790,675 $1,175,000 $3,965,675
------ 20,000 20,000 (a) Nextel Communication ------ 360,000 360,000
115,700 ------ 115,700 (a) Paging Network, Inc. 2,718,950 ------ 2,718,950
123,000 ------ 123,000 (a) PanAmSat Corp. 4,089,750 ------ 4,089,750
91,300 ------ 91,300 Sonat, Inc. 3,982,963 ------ 3,982,963
------ 20,550 20,550 Sprint Corp. ------ 865,669 865,669
------ 10,000 10,000 Telefonos De Mexico, S.A. ------ 340,000 340,000
------ 10,000 10,000 Telephone & Data Systems, Inc. ------ 465,000 465,000
76,500 10,000 86,500 Vodafone Group PLC, ADR 3,069,563 401,250 3,470,813
42,300 ------ 42,300 Williams Cos., Inc. (The) 2,162,588 ------ 2,162,588
Total 23,064,989 4,924,769 27,989,758
TOTAL COMMON STOCKS 263,227,024 61,435,674 324,662,698
(IDENTIFIED COST $226,607,749)
CONVERTIBLE SECURITIES--1.6%
FINANCE--1.0%
$71,200 $------ $71,200 First USA, Inc., Cumulative 3,471,000 ------ 3,471,000
PRIDES, $1.99
SERVICES--0.6%
6,870,000 ------ 6,870,000 Boston Chicken, Inc., Conv. LYON,
.08% accrual, 6/1/2015 2,026,650 ------ 2,026,650
TOTAL CORPORATE BONDS 5,497,650 ------ 5,497,650
(IDENTIFIED COST $3,806,807)
SHORT-TERM SECURITIES-1.7%
FINANCE--1.7%
------ 2,125,000 2,125,000 American Express Credit Corp., ------ 2,124,392 2,124,392
5.15%, due 5/3/1996
------ 1,875,000 1,875,000 American General Corp., 5.27%, due ------ 1,875,000 1,875,000
5/1/1996
$------ $2,100,000 $2,100,000 Ford Motor Credit Company, $------ $2,098,159 $2,098,159
5.26%, due 5/7/1996
TOTAL SHORT-TERM ------ 6,097,551 6,097,551
SECURITIES(AT AMORTIZED COST)
(B) REPURCHASE AGREEMENT--3.8%
13,330,000 ------ 13,330,000 BT Securities Corporation,
5.35%, dated 4/30/1996, due
5/1/1996 13,330,000 ------ 13,330,000
(AT AMORTIZED COST)
TOTAL INVESTMENTS $282,054,674 $67,533,225 $349,587,899
(IDENTIFIED COST
$249,842,107)(C)
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio.
The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to
$249,842,107. The net unrealized appreciation of investments on a
federal tax basis amounts to $99,745,792 which is comprised of
$101,888,744 appreciation and $2,142,952 depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($348,485,113) at April 30, 1996.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
LYON --Liquid Yield Option Note
PLC --Public Limited Company
PRIDES --Preferred Redeemable Increased Dividend Equity Securities
(See Notes to Pro Forma Financial Statements)
<TABLE>
<CAPTION>
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
FEDERATED STATE BOND
GROWTH COMMON PRO FORMA PRO FORMA
STRATEGIES FUND STOCK FUND ADJUSTMENT COMBINED
ASSETS:
Investments in $ 282,054,674 $ 67,533,225 ----$ 349,587,899
securities, at value
Cash ---- 28,820 ---- 28,820
Receivables for:
Investments ---- 50,425 ---- 50,425
sold
Shares of beneficial 390,933 ---- ---- 390,933
interest sold
Income 156,277 70,906 ---- 227,183
Total 282,601,884 67,683,376 ---- 350,285,260
assets
LIABILITIES:
Payables for/to:
Shares of beneficial
interest
redeemed 1,038 ---- ---- 1,038
Investments 1,721,833 ---- ---- 1,721,833
purchased
Taxes withheld 7,257 ---- ---- 7,257
Accrued expenses and 10,086 59,933 ---- 70,019
other liabilities
Total 1,740,214 59,933 ---- 1,800,147
liabilities
TOTAL NET ASSETS $ 280,861,670 $ 67,623,443 ----$ 348,485,113
NET ASSETS CONSIST OF:
Paid in capital $ 199,433,838 $ 31,701,047 ----$ 231,134,885
Net unrealized
appreciation of
investments 64,980,492 34,765,300 ---- 99,745,792
Accumulated net realized gain (loss)
on 16,463,686 1,034,826 ---- 17,498,512
investments
Undistributed (Distributions in
excess
of) net investment (16,346) 122,270 ---- 105,924
income
TOTAL NET ASSETS $ 280,861,670 $ 67,623,443$ $ 348,485,113
Class A Shares $ 273,758,200 $ 67,623,443$ $ 341,381,643
Class B Shares $ 6,490,546 $ ----$ ----$ 6,490,546
Class C Shares $ 612,924 $ ----$ ----$ 612,924
SHARES OUTSTANDING
Class A Shares 11,002,704 6,685,292 (3,967,216)(a) 13,720,780
Class B Shares 261,369 ---- ---- 261,369
Class C Shares 24,688 ---- ---- 24,688
TOTAL SHARES 11,288,761 6,685,292 (3,967,216) 14,006,837
OUTSTANDING
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
CLASS A SHARES:
Net Asset Value Per $ 24.88 $ 10.12 $ 24.88
Share
Offering Price Per $ 26.33 $ 10.62*** $ 26.33
Share*
Redemption Proceeds
Per Share** $ 24.88 $ 10.12 $ 24.88
CLASS B SHARES:
Net Asset Value Per $ 24.83 $ N/A $ 24.83
Share
Offering Price Per $ 24.83 $ N/A $ 24.83
Share*
Redemption Proceeds
Per Share** $ 23.46 $ N/A $ 23.46
CLASS C SHARES:
Net Asset Value Per $ 24.83 $ N/A $ 24.83
Share
Offering Price Per $ 24.83 $ N/A $ 24.83
Share*
Redemption Proceeds
Per Share** $ 24.58 $ N/A $ 24.58
TOTAL INVESTMENTS, AT
IDENTIFIED COST $ 217,074,182 $ 32,767,925 $ 249,842,107
(a) Adjustment to reflect share balance as a result of the combination, based on
the exchange ratio of 0.40657550934.
* See "How to Purchase Shares" in the Federated Growth Strategies Fund
Prospectus, as of December 31, 1995.
** See "How to Redeem Shares" in the Federated Growth Strategies Fund
Prospectus, as of December 31, 1995.
*** See "How are the Fund's Sales Charges Determined?" in the State Bond
Common Stock Fund Prospectus, as of May 1, 1996.
(See Notes to Pro Forma Financial
Statements)
</TABLE>
<TABLE>
<CAPTION>
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST FUND)
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 FOR FEDERATED GROWTH STRATEGIES FUND
AND
THE SIX MONTHS ENDED JUNE 30, 1996 FOR STATE BOND COMMON STOCK FUND
<S> <C> <C> <C> <C>
FEDERATED STATE BOND
GROWTH COMMON
STRATEGIES STOCK PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
INVESTMENT
INCOME:
Dividends $1,256,732 $439,481 $---- $1,696,213
Interest 451,207 168,622 619,829
----
Total Investment 1,707,939 608,103 ---- 2,316,042
Income
EXPENSES:
Investment 940,146 217,199 39,959 (a) 1,197,304
advisory fee
Administrative personnel 94,789 ---- 25,900 (b) 120,689
and services fee
Custodian 19,849 16,202 (4,666) (c) 31,385
fees
Transfer and dividend
disbursing agent fees and 79,077 32,290 (1,469) (d) 109,898
expenses
Directors'/Trustees' 4,006 ---- ---- 4,006
fees
Professional 12,922 17,044 (17,044) (e) 12,922
fees
Portfolio 45,328 ---- ---- 45,328
accounting fees
Distribution services fee -
State Bond Common Stock Fund ---- 83,538 (83,538) (f) ----
Distribution services fee - 12,828 ---- ---- 12,828
Class B Shares
Distribution services fee - 1,493 ---- ---- 1,493
Class C Shares
Shareholder services fee - 308,610 ---- 83,538 (f) 392,148
Class A Shares
Shareholder services fee - 4,276 ---- ---- 4,276
Class B Shares
Shareholder services fee - 498 ---- ---- 498
Class C Shares
Share 15,106 ---- ---- 15,106
registration
costs
Printing and 19,058 20,548 (3,851)(g) 35,755
postage
Insurance 3,821 ---- ---- 3,821
premiums
Taxes 6,309 ---- ---- 6,309
Miscellaneous 4,975 18,731 12,313 (h) 36,019
Total 1,573,091 405,552 51,142 2,029,785
expenses
Deduct-
Waiver of shareholder
services fee--Class A (185,166) ---- ---- (185,166)
Shares
Net 1,387,925 405,552 51,142 1,844,619
expenses
Net 320,014 202,551 (51,142) 471,423
investment income
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on 16,464,514 1,294,939 ---- 17,759,453
investments
Net change in unrealized
appreciation of investments 27,546,495 5,802,490 ---- 33,348,985
Net realized and
unrealized gain on 44,011,009 7,097,429 ---- 51,108,438
investments
Change in net
assets resulting from $44,331,02 $7,299,980 ($51,142) $51,579,861
operations 3
(See Legend on following page)
(See Notes to Pro Forma Financial Statements)
</TABLE>
Federated Growth Strategies Fund
(formerly, Federated Growth Trust)
State Bond Common Stock Fund
Pro Forma Combining Statement of Operations
(continued)
For the Six Months Ended April 30, 1996 for Federated
Growth Strategies Fund and
the Six Months Ended June 30, 1996 for State Bond
Common Stock Fund
(unaudited)
(a) Federated Management (the "Adviser") receives for
its services an annual investment advisory fee equal
to 0.75% of Federated Growth Strategies Fund's (the
"Fund") average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver
at any time at its sole discretion. ARM Capital
Advisors charged an annual rate of 0.65% on the first
$100 million of the average daily net assets, 0.60% of
the next $100 million of the average daily net assets,
and 0.55% of the average daily net assets in excess of
$200 million of the State Bond Common Stock Fund for
its advisory fee.
(b) Federated Administrative Services ("FAS")
provides the Fund with certain administrative
personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Fund for
the period.
(c) State Street Bank and Trust Company is custodian
for the securities and cash of the Fund. The
custodian fee is based on a percentage of assets, plus
out-of-pocket expenses.
(d) Federated Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee is
based on the size, type, and number of accounts and
transactions made by shareholders.
(e) Adjustment to reflect the audit fee and legal fee
reductions due to the combining of two portfolios into
one.
(f) Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services (`FSS'')
the Fund will pay FSS up to 0.25% of average daily net
assets of the Fund for the period. The fee paid to
FSS is used to finance certain services for
shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive a portion of its
fee. FSS can modify or terminate this voluntary
waiver at any time at its sole discretion. SBM
Financial Services, Inc. received 0.25% of the average
daily net assets of State Bond Common Stock Fund under
the terms of a distribution plan pursuant to Rule 12b-
1 of the Investment Company Act of 1940, as amended,
to finance activities intended to result in the sale
of State Bond Common Stock Fund's shares and to
provide certain services for shareholders and to
maintain shareholder accounts. Class A Shares of
Federated Growth Strategies Fund does not have a
distribution plan.
(g) Adjustment to reflect the printing and postage
expense reduction due to the combining of two
portfolios into one.
(h) Adjustment to reflect the elimination of the
Directors/Trustees fees for State Bond Common Stock
Fund and the reduction of state registration fees and
insurance fees due to the combining of two portfolios
into one.
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining
Portfolio of Investments and Statement of Assets
and Liabilities reflect the accounts of Federated
Growth Strategies Fund and State Bond Common
Stock Fund, collectively (the `Funds'') as of
April 30, 1996. These statements have been
derived from the books and records utilized in
calculating daily net asset values at April 30,
1996. The Statement of Operations reflects the
accounts of Federated Growth Strategies Fund and
State Bond Common Stock Fund for the six months
ended April 30, 1996, and the six months ended
June 30, 1996, respectively, the most recent
semi-annual periods of the Funds.
The Pro Forma Financial Statements should be read
in conjunction with the historical financial
statements of the Funds which are incorporated by
reference in the Statement of Additional
Information. The Funds follow generally accepted
accounting principles applicable to management
investment companies which are disclosed in the
historical financial statements of each fund.
The Pro Forma Financial Statements give effect to
the proposed transfer of the assets of State Bond
Common Stock Fund in exchange for Class A Shares
of Federated Growth Strategies Fund. Under
generally accepted accounting principles,
Federated Growth Strategies Fund will be the
surviving entity for accounting purposes with its
historical cost of investment securities and
results of operations being carried forward.
The Pro Forma Financial Statements have been
adjusted to reflect the anticipated advisory and
administration fee arrangements for the surviving
entity. Certain other operating costs have also
been adjusted to reflect anticipated expenses of
the combined entity. Other costs which may change
as a result of the reorganization are currently
undeterminable.
For the six months ended April 30, 1996 and the
six months ended June 30, 1996, Federated Growth
Strategies Fund and State Bond Common Stock Fund,
respectively, paid investment advisory fees
computed at the annual rate of each Fund's
average net assets as follows:
FUND PERCENT OF EACH FUND'S AVERAGE NET ASSETS
Federated Growth Strategies Fund 0.75%
State Bond Common Stock Fund 0.65% on the first
$100 million
0.60% on the next $100 million
0.55% in excess of $200 million
The adviser may voluntarily choose to waive a
portion of their fees and reimburse certain
operating expenses.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes
the issuance of 2,718,076 shares of Federated
Growth Strategies Fund Class A shares in exchange
for 6,685,292 shares of State Bond Common Stock
Fund which would have been issued at April 30,
1996 in conjunction with the proposed
reorganization.
PART C - OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to trustees and officers of the Registrant
pursuant to the Registrant's Declaration of Trust, except where such
indemnification is not permitted by law. However, the Declaration of Trust does
not protect the trustees or officers from liability based on willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office.
Trustees and officers of the Registrant are insured against certain
liabilities, including liabilities arising under the Securities Act of 1933 (the
"Act").
Insofar as indemnification for liabilities arising under the Act may be
permitted to trustees, officers, and controlling persons of the Registrant by
the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by trustees, officers, or controlling persons of the Registrant in
connection with the successful defense of any act, suit, or proceeding) is
asserted by such trustees, officers, or controlling persons in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for trustees, officers, or
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware of the position of
the Securities and Exchange Commission as set forth in Investment Company Act
Release No. IC-11330. Therefore, the Registrant undertakes that in addition to
complying with the applicable provisions of the Declaration of Trust or
otherwise, in the absence of a final decision on the merits by a court or other
body before which the proceeding was brought, that an indemnification payment
will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a majority vote of
a quorum of non-party trustees who are not interested persons of the Registrant
or (ii) by independent legal counsel in a written opinion that the indemnitee
was not liable for an act of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties. The Registrant further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an officer, trustee, or controlling
person of the Registrant will not be made absent the fulfillment of at least one
of the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Registrant is insured against losses arising by reason of
any lawful advances; or (iii) a majority of a quorum of disinterested non-party
trustees or independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be entitled to
indemnification.
Item 16. Exhibits
1.1 Conformed Copy of Declaration of Trust of the Registrant(1)
2.1 Bylaws of the Registrant, as amended(1)
2.2 Amendment No. 2 to Bylaws of the Registrant effective February 2, 1987(2)
2.3 Amendment No. 3 to Bylaws of the Registrant effective August 25, 1988(3)
3 Not Applicable
4 Agreement and Plan of Reorganization dated September 23, 1996, between
State Bond Equity Funds, Inc., a Maryland corporation, on behalf of its
portfolio, State Bond Common Stock Fund, and Federated Equity Funds, a
Massachusetts business trust, on behalf of its portfolio Federated Growth
Strategies Fund*
5 Copy of Specimen Certificate for Shares of Beneficial Interest of Federated
Growth Strategies Fund(4)
6.1 Conformed Copy of Investment Advisory Contract on behalf of Federated
Growth Trust(5)
6.2 Conformed Copy of Investment Advisory Contract on behalf of Federated
Equity Funds(6)
7.1 Conformed Copy of Distributor's Contract on behalf of Federated Growth
Trust(5)
7.2 Conformed Copy of Distributor's Contract on behalf of Federated Equity
Funds(6)
7.3 The Registrant hereby incorporates the conformed copy of the specimen
Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement; and
Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of the Cash Trust
Series II Registration Statement on Form N-1A, filed with the Commission on July
24, 1995. (File Nos. 33-38550 and 811-6269)
8 Not Applicable
9 Conformed Copy of Custodian Agreement of the Registrant(7)
10.1 Conformed Copy of Distribution Plan of the Registrant(6)
10.2 The Registrant hereby incorporates the conformed copy of the specimen
Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the Commission on January 26,
1996. (File Nos. 33-52149 and 811-07141)
10.3 The responses described in Item 16 (7.3) are hereby incorporated by
reference
11 Opinion of S. Elliott Cohan, Deputy General Counsel, Federated Investors
regarding legality of shares being issued*
12 Opinion of Dickstein Shapiro Morin & Oshinsky LLP regarding tax
consequences of Reorganization(8)
13.1 Conformed Copy of Shareholder Services Agreement of the Registrant(7)
13.2 Conformed Copy of Administrative Services Agreement of the Registrant(7)
13.3 Conformed Copy of Agreement for Fund Accounting, Shareholder Recordkeeping
and Custody Services Procurement(7)
13.4 The responses described in Item 16 (7.3) and Item 16 (10.2) are hereby
incorporated by reference
14.1 Conformed copy of Consent of Independent Auditors of Federated Equity
Funds, Ernst & Young LLP*
14.2 Conformed copy of Consent of Independent Auditors of State Bond Common
Stock Fund, Ernst & Young LLP*
15 Not Applicable
16 Conformed Copy of Power of Attorney*
17.1 Declaration under Rule 24f-2*
17.2 Form of Proxy of State Bond Common Stock Fund*
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on July 9, 1984. (File Nos. 2-91090 and 811-
4017)
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed on July 21, 1987. (File Nos. 2-91090 and
811-4017)
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment
No. 10 on Form N-1A filed on December 31, 1988. (File Nos. 2-91090 and 811-
4017)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment
No. 22 on Form N-1A filed July 17, 1995. (File Nos. 2-91090 and 811-4017)
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed October 23, 1989. (File Nos. 2-91090 and
811-4017)
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed on September 12, 1995. (File Nos. 2-91090
and 811-4017)
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed on December 29, 1994. (File Nos. 2-91090
and 811-4017)
(8) To be filed by Post-Effective Amendment pursuant to `Dear Registrant''
letter dated February 15, 1996.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Federated Equity Funds, has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Pittsburgh, Commonwealth of Pennsylvania on September 24, 1996.
FEDERATED EQUITY FUNDS
(Registrant)
By: *
Glen R. Johnson
President
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on September 24, 1996:
* Chairman and Trustee
John F. Donahue
(Chief Executive Officer)
* President
Glen R. Johnson
* Treasurer and Executive Vice President
John W. McGonigle
(Principal Financial and
Accounting Officer)
* Trustee
Thomas G. Bigley
* Trustee
- ---------
John T. Conroy, Jr.
* Trustee
William J. Copeland
* Trustee
James E. Dowd
* Trustee
Lawrence D. Ellis, M.D.
* Trustee
Edward L. Flaherty, Jr.
* Trustee
Peter E. Madden
* Trustee
Gregor F. Meyer
* Trustee
John E. Murray, Jr., J.D., S.J.D.
* Trustee
Wesley W. Posvar
* Trustee
Marjorie P. Smuts
1* By: /s/ S. Elliott Cohan
Attorney in Fact
EXHIBIT 11
FEDERATED GROWTH STRATEGIES FUND
A Portfolio of Federated Equity Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
September 23, 1996
The Trustees of
Federated Equity Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Federated Growth Strategies Fund (the `Fund''), a portfolio of Federated
Equity Funds, a Massachusetts business trust (`Trust''), proposes to issue
shares of beneficial interest (such shares of beneficial interest being
herein referred to as `Shares'') in connection with the acquisition of the
assets of State Bond Common Stock Fund, a portfolio of State Bond Equity
Funds, Inc., a Maryland corporation, pursuant to the Agreement and Plan of
Reorganization dated as of September 23, 1996 (`Agreement''), filed as an
exhibit to the registration statement of the Trust filed on Form N-14
(Securities Act of 1933 No. to be assigned) under the Securities Act of
1933 as amended (`N-14 Registration'').
As counsel I have participated in the organization of the Trust, its
registration under the Investment Company Act of 1940, the registration of
its securities on Form N-1A under the Securities Act of 1933 and its N-14
Registration. I have examined and am familiar with the written Declaration
of Trust dated April 17, 1984 (`Declaration of Trust''), the Bylaws of the
Trust, the Agreement and such other documents and records deemed relevant.
I have also reviewed questions of law and consulted with counsel thereon
as deemed necessary or appropriate for the purposes of this opinion.
Based upon the foregoing, it is my opinion that:
1. The Trust is duly organized and validly existing pursuant to the
Declaration of Trust.
2. The Shares which are currently being registered by the N-14
Registration may be legally and validly issued in accordance with the
provisions of the Agreement and the Declaration of Trust upon receipt of
consideration sufficient to comply with the provisions of Article III,
Section 3, of the Declaration of Trust and subject to compliance with the
Investment Company Act of 1940, as amended, and applicable state laws
regulating the sale of securities. Such Shares, when so issued, will be
fully paid and non-assessable.
I consent to your filing this opinion as an exhibit to the N-14
Registration referred to above and to any application or registration
statement filed under the securities laws of any of the states of the
United States.
Very truly yours,
FEDERATED GROWTH STRATEGIES FUND
A Portfolio of Federated Equity Funds
By:/s/ S. Elliott Cohan
S. Elliott Cohan
Title: Assistant Secretary
Exhibit 14.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated September 12, 1995, with respect
to the financial statements and financial highlights of Federated Growth
Strategies Fund (a portfolio of Federated Equity Funds)
incorporated by reference in the Registration Statement on Form N-14
and related Prospectus/Proxy Statement and Statement of Additional Information.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 23, 1996
Exhibit 14.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and the use of our report dated
January 26, 1996 on the financial statements of State Bond Common Stock Fund
(the "Fund") in the Registration Statement (Form N-1A) of the Fund which is
incorporated by reference in, and reference to out firm in Exhibit A of,
the Registration Statement (Form N-14) of Federated Equity Funds filed
with the Securities and Exchange Commission.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Kansas City, Missouri
September 23, 1996
EXHIBIT 16
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FEDERATED EQUITY FUND and
the Deputy General Counsel of Federated Investors, and each of them, their
true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed
with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, by means of the Securities and Exchange Commission's electronic
disclosure system known as EDGAR; and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and TrusteeAugust 20, 1996
John F. Donahue (Chief Executive Officer)
/s/Glen R. Johnson President August 20, 1996
Glen R. Johnson
/s/John W. McGonigle Treasurer and ExecutiveAugust 20, 1996
John W. McGonigle Vice President
(Principal Financial and
Accounting Officer)
/s/Thomas G. Bigley Trustee August 20, 1996
Thomas G. Bigley
/s/John T. Conroy, Jr. Trustee August 20, 1996
John T. Conroy, Jr.
SIGNATURES TITLE DATE
/s/William J. Copeland Trustee August 20, 1996
William J. Copeland
/s/James E. Dowd Trustee August 20, 1996
James E. Dowd
/s/Lawrence D. Ellis, M.D. Trustee August 20, 1996
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Trustee August 20, 1996
Edward L. Flaherty, Jr.
/s/Peter E. Madden Trustee August 20, 1996
Peter E. Madden
/s/Gregor F. Meyer Trustee August 20, 1996
Gregor F. Meyer
/s/John E. Murray, Jr. Trustee August 20, 1996
John E. Murray, Jr.
/s/Wesley W. Posvar Trustee August 20, 1996
Wesley W. Posvar
/s/Marjorie P. Smuts Trustee August 20, 1996
Marjorie P. Smuts
Sworn to and subscribed before me this 20th day of August , 1996
/s/Marie M. Hamm
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996
Member, Pennsylvania Association of Notaries
EXHIBIT 17.1
1933 Act File No. 2-91090
1940 Act File No. 811-4017
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
-- --
Post-Effective Amendment No. 19 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 Amendment No.
--
FEDERATED GROWTH TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
-- -----------------
60 days after filing pursuant to paragraph (a)
--
on pursuant to paragraph (a) of Rule 485.
--
Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the Investment Company
Act of 1940, and:
X filed the Notice required by that Rule on December 15,
1994;
or
intends to file the Notice required by that Rule on or
--
about;
or
during the most recent fiscal year did not sell any
--
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2),
need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES
ACT OF 1933
Proposed
Title of Proposed Maximum
Securities Amount Maximum Aggregate Amount of
Being Being Offering Price Offering Registration
Registered Registered Per Unit Price* Fee
Shares of $20.27 $90,462,983 $100.00
Beneficial 4,462,900
Interest
(No Par Value)
- ------------------------------------------------------------
*Registrant has elected to calculate its filing fee in the
manner described in Rule 24e-2 of the Investment Company Act
of 1940. The total amount of securities redeemed during the
previous fiscal year was 11,526,631. The total amount of
redeemed securities used for reductions pursuant to paragraph
(a) of Rule 24e-2 or paragraph (c) of Rule 24f-2 during the
current year was 7,063,731. The amount of redeemed securities
being used for reduction of the registration fee in this
Amendment is 4,462,900.
CONTENTS OF AMENDMENT
This Post-Effective Amendment No. 19 to the Registration
Statement of FEDERATED GROWTH TRUST is comprised of the
following papers and documents:
1. The facing sheet to register a definite number
of shares of beneficial interest, no par
value,of FEDERATED GROWTH TRUST;
2. The opinion of Houston, Houston & Donnelly,
counsel for the Registrant, as to the legality
of shares being offered and as to the eligibility
to become effective pursuant to Paragraph (b)
of Rule 485; and
3. Signature page.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant,
FEDERATED GROWTH TRUST, certifies that it meets all of the requirements for
effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City
of Pittsburgh and Commonwealth of Pennsylvania on the 15th
day of December, 1994.
FEDERATED GROWTH TRUST
BY: /s/ Robert C. Rosselot
Robert C. Rosselot, Assistant Secretary
Attorney in Fact for John F. Donahue
December 15, 1994
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to its Registration Statement has been signed
below by the following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Robert C. Rosselot
Robert C. Rosselot Attorney In Fact December 15, 1994
Assistant Secretary For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Edward L. Flaherty, Jr.* Trustee
Gregor F. Meyer* Trustee
Marjorie P. Smuts* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Wesley W. Posvar* Trustee
Peter E. Madden* Trustee
John T. Conroy, Jr.* Trustee
* By Power of Attorney
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.
----------
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
December 15, 1994
Federated Growth Trust
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
You have requested our opinion in connection with the
registration by Federated Growth Trust ("Trust") of an
additional 4,462,900 Shares of Beneficial Interest
("Shares") pursuant to Post-effective Amendment No. 19
to the Trust's registration statement filed with the
ecurities and Exchange Commission under the Securities
Act of 1933 (File No. 2-91090). The subject Post-
effective Amendment will be filed pursuant to Paragraph
(b) of Rule 485 and become effective pursuant to said
Rule immediately upon filing.
As counsel we have participated in the organization of
the Trust and its registration under the Investment
Company Act. We have also participated in the preparation
and filing of the Trust's amended registration statement
under the Securities Act of 1933 referred to above. We
have examined and are familiar with the provisions of
the written Declaration of Trust dated April 17, 1984,
("Declaration of Trust"), the Bylaws of the Trust and
such other documents and records deemed relevant. We
have also reviewed questions of law and consulted with
counsel thereon as deemed necessary or appropriate by us
for the purposes of this opinion.
On the basis of the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing
pursuant to the Declaration of Trust.
2. The Shares which are currently being registered
by the Registration Statement referred to above may be
legally and validly issued from time to time in accordance
with the Declaration of Trust upon receipt of consideration
sufficient to comply with the provisions of Article III,
Section 3, of the Declaration of Trust and subject to
compliance with the Securities Act of 1933, as amended,
the Investment Company Act of 1940, as amended, and
applicable state laws regulating the sale of securities.
Such Shares, when so issued, will be fully paid and
non-assessable.
3. Post-effective Amendment No. 19 does not contain
disclosures which would render it ineligible to become
effective pursuant to Paragraph (b) of Rule 485.
We hereby consent to the filing of this opinion as
a part of the Trust's registration statement filed with
the Securities and Exchange Commission under the Securities
Act of 1933 and as a part of any application or registration
statement filed under the securities laws of the States of
the United States. We further consent to the reference to
this opinion and the reference to us as counsel to the Trust
in the prospectus, registration statements and applications.
Very truly yours,
Houston, Houston & Donnelly
By: /s/ Thomas J. Donnelly
TJD:heh
<TABLE>
<S> <C>
[ARTICLE] 6
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1994
[PERIOD-END] OCT-31-1994
[INVESTMENTS-AT-COST] 289,891,919
[INVESTMENTS-AT-VALUE] 319,296,878
[RECEIVABLES] 22,891,182
[ASSETS-OTHER] 3,135
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 342,191,195
[PAYABLE-FOR-SECURITIES] 20,712,645
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 848,802
[TOTAL-LIABILITIES] 21,561,447
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 281,344,946
[SHARES-COMMON-STOCK] 15,063,856
[SHARES-COMMON-PRIOR] 19,267,476
[ACCUMULATED-NII-CURRENT] 508,103
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 9,371,740
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 29,404,959
[NET-ASSETS] 320,629,748
[DIVIDEND-INCOME] 4,183,916
[INTEREST-INCOME] 3,586,170
[OTHER-INCOME] 0
[EXPENSES-NET] 4,093,924
[NET-INVESTMENT-INCOME] 3,676,162
[REALIZED-GAINS-CURRENT] 9,370,805
[APPREC-INCREASE-CURRENT] (51,582,544)
[NET-CHANGE-FROM-OPS] (38,535,577)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 3,448,745
[DISTRIBUTIONS-OF-GAINS] 9,252,795
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 7,063,731
[NUMBER-OF-SHARES-REDEEMED] 11,526,631
[SHARES-REINVESTED] 259,280
[NET-CHANGE-IN-ASSETS] (140,181,645)
[ACCUMULATED-NII-PRIOR] 280,686
[ACCUMULATED-GAINS-PRIOR] 9,253,729
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3,112,641
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4,093,924
[AVERAGE-NET-ASSETS] 413,347
[PER-SHARE-NAV-BEGIN] 23.92
[PER-SHARE-NII] .21
[PER-SHARE-GAIN-APPREC] (2.18)
[PER-SHARE-DIVIDEND] .19
[PER-SHARE-DISTRIBUTIONS] .48
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 21.28
[EXPENSE-RATIO] 99
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
FEDERATED GROWTH TRUST
Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
December 15, 1994
EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549
RE: FEDERATED GROWTH TRUST
1933 Act File No. 2-91090
1940 Act File No. 811-4017
Dear Sir or Madam:
Enclosed is Post-Effective Amendment No. 19 under the
Securities Act of 1933 which has been filed electronically
via EDGAR. A certified check in the amount of $100.00 has
been remitted to the U.S. Treasury Lockbox at Mellon Bank in Pittsburgh.
This Post-Effective Amendment is being submitted
for the purpose of registering additional shares of beneficial interest, no
par value, of the Registrant pursuant to the
provisions of Section 24(e)(1) and Rule 24e-2 of the
Investment Company Act of 1940.
As indicated on the facing page of the Amendment, the
Registrant has specified that this filing become effective
immediately upon filing pursuant to the provisions of Rule
485(b) of the Securities Act of 1933. As required by that
Rule, a conformed written representation of counsel to the
Registrant that the Amendment does not contain disclosure
which would render it ineligible to become effective pursuant
to paragraph (b) thereof has been submitted electronically
with this filing.
Very truly yours,
/s/ Robert C. Rosselot
Robert C. Rosselot
Assistant Secretary
Enclosures
cc: Thomas J. Donnelly, Esquire
Charles H. Morin, Esquire
Matthew G. Maloney, Esquire
Linda L. Banas
EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated September 23, 1996 (the
"Agreement"), between FEDERATED EQUITY FUNDS, a Massachusetts business
trust (the "Trust"), on behalf of its portfolio FEDERATED GROWTH STRATEGIES
FUND (hereinafter called the "Acquiring Fund"), and STATE BOND EQUITY
FUNDS, INC., a Maryland corporation (hereinafter called the "Corporation")
on behalf of its portfolio STATE BOND COMMON STOCK FUND (hereinafter called
the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C)
of the United States Internal Revenue Code of 1986, as amended (the
"Code"). The reorganization (the "Reorganization") will consist of the
transfer of all of the net assets of the Acquired Fund in exchange solely
for Class A Shares of the Acquiring Fund (the "Acquiring Fund Shares") and
the distribution, after the Closing Date (as hereinafter defined), of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Corporation and the Trust are registered open-end
management investment companies and the Acquired Fund owns securities in
which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Trustees, including a majority of the
trustees who are not "interested persons" (as defined under the Investment
Company Act of 1940, as amended (the "1940 Act")), of the Trust has
determined that the exchange of all of the assets of the Acquired Fund for
Acquiring Fund Shares is in the best interests of the Acquiring Fund
shareholders and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of this transaction; and
WHEREAS, the Board of Directors, including a majority of the
directors who are not "interested persons" (as defined under the 1940 Act),
of the Corporation has determined that the exchange of all of the assets of
the Acquired Fund for Acquiring Fund Shares is in the best interests of the
Acquired Fund shareholders;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1.TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund
all of the net assets of the Acquired Fund, including all securities and
cash, other than cash in an amount necessary to pay any unpaid dividends
and distributions as provided in paragraph 1.5, beneficially owned by the
Acquired Fund, and the Acquiring Fund agrees in exchange therefor to
deliver to the Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3.
Such transaction shall take place at the closing (the "Closing") on the
closing date (the "Closing Date") provided for in paragraph 3.1. In lieu
of delivering certificates for the Acquiring Fund Shares, the Acquiring
Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account,
for the benefit of its shareholders, on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the Acquired
Fund.
1.2 The Acquired Fund will discharge or make provision for the
discharge of all of its liabilities and obligations prior to or on the
Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred
shall be made on the Closing Date and shall be delivered to State Street
Bank and Trust Company (hereinafter called "State Street"), Boston,
Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the
account of the Acquiring Fund, together with proper instructions and all
necessary documents to transfer to the account of the Acquiring Fund, free
and clear of all liens, encumbrances, rights, restrictions and claims
created by the Acquired Fund. All cash delivered shall be in the form of
immediately available funds payable to the order of the Custodian for the
account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring
Fund any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund thereunder. The
Acquired Fund will transfer to the Acquiring Fund any distributions, rights
or other assets received by the Acquired Fund after the Closing Date as
distributions on or with respect to the securities transferred. Such
assets shall be deemed included in assets transferred to the Acquiring Fund
on the Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable,
the Acquired Fund will liquidate and distribute pro rata to the Acquired
Fund's shareholders of record, determined as of the close of business on
the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund
Shares received by the Acquired Fund pursuant to paragraph 1.1. In
addition, each Acquired Fund Shareholder shall have the right to receive
any unpaid dividends or other distributions which were declared before the
Valuation Date (as hereinafter defined) with respect to the shares of the
Acquired Fund that are held by the shareholder on the Valuation Date. Such
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund to open accounts on the share record books
of the Acquiring Fund in the names of the Acquired Fund Shareholders, and
representing the respective pro rata number of the Acquiring Fund Shares
due such shareholders, based on their ownership of shares of the Acquired
Fund on the Closing Date. All issued and outstanding Shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with Section 2.3. The Acquiring Fund shall not
issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's current prospectus
and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund
shares on the books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Corporation up to and including the
Closing Date and such later dates, with respect to dissolution and
deregistration of the Corporation, on which the Corporation is dissolved
and deregistered.
1.9 The Corporation shall be deregistered as an investment company
under the 1940 Act and dissolved as a Maryland corporation as promptly as
practicable following the Closing Date and the making of all distributions
pursuant to paragraph 1.5.
2.VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of
the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on the Closing Date (such time and date being herein called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's
then-current prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net
asset value per share computed as of the close of the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on the Valuation Date, using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the Acquired
Fund determined using the same valuation procedures referred to in
paragraph 2.1, by the net asset value of one Acquiring Fund Share
determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund.
3.CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be December , 1996 or such later date as
--
the parties may mutually agree. All acts taking place at the Closing Date
shall be deemed to take place simultaneously as of the close of business on
the Closing Date unless otherwise provided. The Closing shall be held at
4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated
Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place
as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading or
the reporting of trading shall be disrupted so that accurate appraisal of
the value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
3.3 ARM Transfer Agency, Inc., as transfer agent for the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired
Fund Shareholders and the number and percentage ownership of outstanding
shares owned by each such shareholder immediately prior to the Closing.
The Acquiring Fund shall issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Secretary
of the Acquired Fund, or provide evidence satisfactory to the Acquired Fund
that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments,
assumption agreements, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request.
4.REPRESENTATIONS AND WARRANTIES.
4.1 The Corporation represents and warrants to the Trust as follows:
(a) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Maryland and has power to own all of its properties and assets and to carry
out this Agreement.
(b) The Corporation is registered under the 1940 Act, as an
open-end, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Corporation is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Corporation's Articles of Incorporation or Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will result in
liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings, and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired
Fund at December 31, 1994 has been audited by other auditors and at
December 31, 1995 has been audited by Ernst & Young LLP, independent
auditors, and have been prepared in accordance with generally accepted
accounting principles, consistently applied, and such statements (copies of
which have been furnished to the Acquiring Fund) fairly reflect the
financial condition of the Acquired Fund as of such dates, and there are no
known contingent liabilities of the Acquired Fund as of such dates not
disclosed therein.
(h) The unaudited Statement of Assets and Liabilities of
the Acquired Fund at June 30, 1996 has been prepared in accordance with
generally accepted accounting principles, consistently applied, although
subject to year-end adjustments, and on a basis consistent with the
Statement of Assets and Liabilities of the Acquired Fund at December 31,
1995 which has been audited by Ernst & Young LLP, independent auditors, and
such statement (copies of which have been furnished to the Acquiring Fund)
fairly reflects the financial condition of the Acquired Fund as of such
date, and there are no known liabilities of the Acquired Fund, contingent
or otherwise, as of such date not disclosed therein.
(i) Since June 30, 1996, there has not been any material
adverse change in the Acquired Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by the Acquiring Fund.
(j) At the Closing Date, all Federal and other tax returns
and reports of the Acquired Fund required by law to have been filed by such
date shall have been filed or an appropriate extension obtained, and all
Federal and other taxes shall have been paid so far as due, or provision
shall have been made for the payment thereof or contest in good faith, and
to the best of the Acquired Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns.
(k) For each fiscal year of its operation, subject to
applicable statute of limitation periods, the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company.
(l) All issued and outstanding shares of the Acquired Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. All of the issued and
outstanding shares of the Acquired Fund will, at the time of the Closing,
be held by the persons and in the amounts set forth in the records of the
transfer agent as provided in paragraph 3.3. The Acquired Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
(m) On the Closing Date, the Acquired Fund will have full
right, power and authority to sell, assign, transfer and deliver the assets
to be transferred by it hereunder.
(n) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Corporation and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes the
valid and legally binding obligation of the Acquired Fund enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(o) The prospectus/proxy statement of the Acquired Fund
(the "Prospectus/Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.5 (only insofar as it relates to the
Acquired Fund) will, on the effective date of the Registration Statement
and on the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which such statements were made, not misleading.
4.2 The Trust represents and warrants to the Corporation as follows:
(a) The Trust is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has the power to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act as an open-
end, diversified, management investment company, and such registration has
not been revoked or rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery
and performance of this Agreement will not result, in material violation of
the Trust's Declaration of Trust or Bylaws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquiring
Fund is a party or by which it is bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings, and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) The Statement of Assets and Liabilities of the
Acquiring Fund at October 31, 1994 and 1995, have been audited by Ernst &
Young LLP, independent auditors, and have been prepared in accordance with
generally accepted accounting principles, and such statements (copies of
which have been furnished to the Acquired Fund) fairly reflect the
financial condition of the Acquiring Fund as of such dates, and there are
no known contingent liabilities of the Acquiring Fund as of such dates not
disclosed therein.
(g) The unaudited Statement of Assets and Liabilities of
the Acquiring Fund at April 30, 1996 has been prepared in accordance with
generally accepted accounting principles, consistently applied, although
subject to year-end adjustments, and on a basis consistent with the
Statement of Assets and Liabilities of the Acquiring Fund at October 31,
1995 which has been audited by Ernst & Young LLP, independent auditors, and
such statement (copies of which have been furnished to the Acquired Fund)
fairly reflects the financial condition of the Acquiring Fund as of such
date, and there are no known liabilities of the Acquiring Fund, contingent
or otherwise, as of such date not disclosed therein.
(h) Since April 30, 1996, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business, or any incurrence by the Acquiring Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as disclosed to and accepted by the Acquired Fund.
(i) At the Closing Date, all Federal and other tax returns
and reports of the Acquiring Fund required by law to have been filed or an
appropriate extension obtained, by such date shall have been filed, and all
Federal and other taxes shall have been paid so far as due, or provision
shall have been made for the payment thereof or contest in good faith, and
to the best of the Acquiring Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, subject to
applicable statute of limitation periods, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company.
(k) All issued and outstanding Acquiring Fund Shares are,
and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares.
(l) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the part of
the Trust, and this Agreement constitutes the valid and legally binding
obligation of the Acquiring Fund enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and court decisions with respect
thereto, and to general principles of equity and the discretion of the
court (regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(m) The Prospectus/Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring Fund)
will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading.
12
5.COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 The Corporation will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated
herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement.
5.4 As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund,
in such form as is reasonably satisfactory to the Acquiring Fund, a
statement of the earnings and profits of the Acquired Fund for Federal
income tax purposes which will be carried over to the Acquiring Fund as a
result of Section 381 of the Code and which will be certified by the
Corporation's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of the
Prospectus/Proxy Statement, referred to in paragraph 4.1(m), all to be
included in a Registration Statement on Form N-14 of the Acquiring Fund
(the "Registration Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934, as amended, and the 1940 Act in connection
with the meeting of the Acquired Fund Shareholders to consider approval of
this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have
declared a dividend or dividends, with a record date and ex-dividend date
prior to the Valuation Date, which, together with all previous dividends,
shall have the effect of distributing to its shareholders all of its
investment company taxable income, if any, plus the excess of its interest
income, if any, excludable from gross income under Code section 103(a) over
its deductions disallowed under Code sections 265 and 171(a)(2) for the
taxable periods or years ended on or before December 31, 1995 and for the
period from said date to and including the Closing Date (computed without
regard to any deduction for dividends paid), and all of its net capital
gain, if any, realized in taxable periods or years ended on or before
December 31, 1995 and in the period from said date to and including the
Closing Date.
6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquired Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of the Corporation contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on
the Closing Date a certificate executed in its name by its President or
Vice President and its Treasurer, in form and substance satisfactory to the
Acquiring Fund, to the effect that the representations and warranties of
the Corporation made in this Agreement are true and correct in all material
respects at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
7.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on
the Closing Date a certificate executed in its name by its President or
Vice President and its Treasurer, in form and substance satisfactory to the
Acquired Fund, to the effect that the representations and warranties of the
Trust made in this Agreement are true and correct in all material respects
at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters
as the Acquired Fund shall reasonably request.
15
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business since
the date hereof other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of any indebtedness,
except as otherwise disclosed to and accepted by the Acquired Fund.
8.FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund,
either party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the
Corporation's Articles of Incorporation and the 1940 Act.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Acquired
Fund, provided that either party hereto may for itself waive any of such
conditions.
16
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act.
8.5 The Trust and the Corporation shall have received an opinion of
Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
Federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets in
exchange for the Acquiring Fund Shares and the distribution of the
Acquiring Fund Shares to the Acquired Fund Shareholders in liquidation of
the Acquired Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by
the Acquiring Fund upon the receipt of the assets of the Acquired Fund
solely in exchange for the Acquiring Fund Shares; (c) No gain or loss will
be recognized by the Acquired Fund upon the transfer of the Acquired Fund
assets to the Acquiring Fund in exchange for the Acquiring Fund Shares or
upon the distribution (whether actual or constructive) of the Acquiring
Fund Shares to Acquired Fund Shareholders in exchange for their shares of
the Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for the
Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the same
as the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Acquired Fund; and
17
(h) The holding period of the Acquiring Fund Shares to be received by each
Acquired Fund Shareholder will include the period during which the Acquired
Fund shares exchanged therefor were held by such shareholder (provided the
Acquired Fund shares were held as capital assets on the date of the
Reorganization).
9.TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Directors of the
Corporation or the Board of Trustees of the Trust at any time prior to the
Closing Date (and notwithstanding any vote of the Acquired Fund
Shareholders) if circumstances should develop that, in the opinion of
either of the parties' Board, make proceeding with the Agreement
inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this
Agreement shall become void and have no effect, without any liability on
the part of any party hereto or the directors, trustees or officers of the
Corporation or the Trust or the shareholders of the Acquiring Fund or of
the Acquired Fund, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing
conditions may be waived by the Board of Trustees of the Trust or the Board
of Directors of the Corporation, if, in the judgment of either, such waiver
will not have a material adverse effect on the benefits intended under this
Agreement to the shareholders of the Acquiring Fund or of the Acquired
Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided
for herein shall survive consummation of the transactions contemplated
hereby.
18
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements, and understandings
of every kind and nature between them relating to the subject matter
hereof. Neither party shall be bound by any condition, definition,
warranty or representation, other than as set forth or provided in this
Agreement or as may be set forth in a later writing signed by the party to
be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with
the internal laws of the State of New York, without giving effect to
principles of conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be an
original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Trust and agrees that the obligations assumed by the Acquiring
Fund pursuant to this Agreement shall be limited in any case to the
Acquiring Fund and its assets and the Acquired Fund shall not seek
satisfaction of any such obligation from the shareholders of the Acquiring
Fund, the trustees, officers, employees or agents of the Trust or any of
them.
11.7 An agreement has been entered into under which Federated
Management will assume substantially all of the expenses of the
reorganization including accountants' fees, registration fees, transfer
taxes (if any), the fees of banks and transfer agents and the costs of
preparing, printing, copying and mailing proxy solicitation materials to
the Acquired Fund's shareholders and the costs of holding the Special
Meeting of Shareholders. ARM Financial Group, Inc. will assume the legal
fees of the Acquired Fund.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have
each caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
STATE BOND EQUITY FUNDS, INC.,
on behalf of its portfolio,
STATE BOND COMMON STOCK FUND
Attest:
By: /s/ Kevin L. Howard
Name: Kevin L. Howard
Title: Secretary and Treasurer
/s/ Sheri Bean
Name: Sheri Bean
Title: Assistant Secretary
Acquiring Fund:
FEDERATED EQUITY FUNDS
cbrx01!.doc/575133
20
on behalf of its portfolio,
FEDERATED GROWTH
STRATEGIES FUND
Attest:
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: Executive vice President
/s/ S. Elliott Cohan
Name: S. Elliott Cohan
Title: Assistant Secretary
EXHIBIT 17.2
STATE BOND COMMON STOCK FUND,
a Portfolio of
STATE BOND EQUITY FUNDS, INC.,
SPECIAL MEETING OF SHAREHOLDERS
December , 1996
==
STATE BOND COMMON STOCK FUND,
a Portfolio of
STATE BOND EQUITY FUNDS, INC.
CUSIP NO. 856572102
The undersigned shareholder(s) of State Bond Common Stock Fund, a portfolio
of State Bond Equity Funds, Inc. (the `State Bond Fund''), hereby
appoint(s) Kevin L. Howard, Keith O. Martens and Dale C. Bauman, or any of
them true and lawful proxies, with power of substitution of each, to vote
all shares of the State Bond Fund which the undersigned is entitled to
vote, at the Special Meeting of Shareholders to be held on December ,
--
1996, at 100 North Minnesota Street, New Ulm, Minnesota 56073-0069, at 3:00
p.m. (local time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The proxies
named will vote the shares represented by this proxy in accordance with the
choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED AFFIRMATIVELY ON THAT MATTER.
PROPOSAL
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
THE STATE BOND FUND AND FEDERATED EQUITY FUNDS, ON BEHALF OF FEDERATED
GROWTH STRATEGIES FUND.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
STATE BOND COMMON STOCK FUND,
a portfolio of State Bond
Equity Funds, Inc.
RECORD DATE SHARES:
-----------------
VOTE ON THE PROPOSAL
FOR AGAINST ABSTAIN
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
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Signature(s) of Shareholder(s)
Date:_____________________________
