CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Dear Shareholder:
The Board of Directors and management of Investment Series Funds, Inc. (the
"Corporation") are pleased to submit for your vote a proposal to transfer all of
the assets of Capital Growth Fund (the "Portfolio") to Federated Growth
Strategies Fund (the "Fund"), a portfolio of Federated Equity Funds, a mutual
fund advised by Federated Management. The Fund has an investment objective
similar to that of the Portfolio 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 Class A Shares and Class C Shares in the Portfolio would receive
Class A Shares and Class C Shares, respectively, of the Fund equal in value to
their Class A Shares or Class C Shares in the Portfolio and the Portfolio would
be liquidated.
The Board of Directors of the Corporation, as well as Federated Advisers,
the Corporation's adviser, and Federated Securities Corp., the Corporation's
principal underwriter, believe the proposed agreement and plan of reorganization
is in the best interests of Portfolio shareholders for the following reasons:
- The reorganization of the Portfolio into the Fund may provide operating
efficiencies as a result of the size of the Fund which were not available
to Portfolio shareholders due to the smaller size of the Portfolio.
- The Fund has an investment objective similar to that of the Portfolio and
offers an investment portfolio which invests primarily in equity
securities of companies with prospects for above-average growth in
earnings and dividends.
We believe the transfer of the Portfolio's assets in this transaction will
present an excellent investment opportunity for our shareholders. Your vote on
the transaction is critical to its success. The transfer will be effected only
if approved by the lesser of (i) 67% of all Portfolio shares present at the
Special Meeting, if the holders of more than 50% of the outstanding shares are
present or represented by proxy, or (ii) a majority of all of the Portfolio'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
person, or by proxy if you are unable to attend the meeting. Please read the
enclosed prospectus/proxy statement carefully before you vote.
Thank you for your prompt attention and participation.
Sincerely,
LOGO
J. Christopher Donahue
President
CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO CLASS C SHAREHOLDERS OF CAPITAL GROWTH FUND:
A Special Meeting of Shareholders of Capital Growth Fund (the "Portfolio"),
a portfolio of Investment Series Funds, Inc. (the "Corporation") will be held at
2:30 p.m. on May 31, 1996 at the office of the Corporation, Federated Investors
Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following
purposes:
(1) To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Corporation, on behalf of the Portfolio, and
Federated Equity Funds, on behalf of its portfolio, Federated Growth
Strategies Fund (the "Fund"), whereby the Fund would acquire all of the
assets of the Portfolio in exchange for the Fund's Class A Shares and
Class C Shares to be distributed pro rata by the Portfolio to the
holders of its Class A Shares and Class C Shares, respectively, in
complete liquidation of the Portfolio; 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,
John W. McGonigle
Secretary
Dated: April 19, 1996
Shareholders of record at the close of business on March 25, 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
APRIL 7, 1996
ACQUISITION OF THE ASSETS OF
CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051
BY AND IN EXCHANGE FOR SHARES OF
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051
This Prospectus/Proxy Statement describes the proposed Agreement and Plan
of Reorganization (the "Plan") whereby Federated Growth Strategies Fund (the
"Fund"), a portfolio of Federated Equity Funds, a Massachusetts business trust,
would acquire all of the assets of Capital Growth Fund (the "Portfolio"), a
portfolio of Investment Series Funds, Inc., a Maryland corporation (the
"Corporation"), in exchange for the Fund's Class A and Class C Shares to be
distributed pro rata by the Portfolio to the holders of its Class A and Class C
Shares, respectively, in complete liquidation of the Portfolio. As a result of
the Plan, each Class C shareholder of the Portfolio will become the owner of the
Fund's Class C Shares having a total net asset value equal to the total net
asset value of his or her Class C Share holdings in the Portfolio.
The Fund and the Portfolio each are diversified portfolios of securities of
an open-end management investment company whose investment objective is
appreciation of capital. The Fund pursues this investment objective by investing
primarily in equity securities of companies with prospects for above-average
growth in earnings and dividends. The Portfolio pursues this objective by
investing primarily in equity securities of companies with prospects for
above-average growth in earnings or dividends or of companies where significant
fundamental changes are taking place. For a comparison of the investment
policies of the Fund and the Portfolio, see "Summary-Investment Objectives and
Policies."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Fund that a prospective investor
should know before investing. This Prospectus/Proxy Statement is accompanied by
the Prospectus of the Fund dated December 31, 1995 which is incorporated herein
by reference. Statements of Additional Information for the Fund dated December
31, 1995 (relating to the Fund's prospectus of the same date) and April 7, 1996
(relating to this Prospectus/Proxy Statement) and the Annual Report to
Shareholders dated October 31, 1995, 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 and
Annual Report may be obtained without charge by writing or calling the 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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses............................................................. 4
Summary......................................................................... 5
About the Proposed Reorganization............................................. 5
Investment Objectives and Policies............................................ 5
Advisory and Other Fees....................................................... 7
Distribution Arrangements..................................................... 8
Purchase and Redemption Procedures............................................ 9
Tax Consequences.............................................................. 10
Risk Factors.................................................................... 11
Information About the Reorganization............................................ 11
Background and Reasons for the Proposed Reorganization........................ 11
Description of the Plan of Reorganization..................................... 12
Description of Fund Shares.................................................... 12
Federal Income Tax Consequences............................................... 12
Comparative Information on Shareholder Rights and Obligations................. 13
Capitalization................................................................ 14
Information About the Fund, the Trust, the Portfolio and the Corporation........ 14
Federated Growth Strategies Fund, a portfolio of Federated Equity Funds....... 14
Capital Growth Fund, a portfolio of Investment Series Funds, Inc.............. 15
Management's Discussion of Fund Performance..................................... 16
Voting Information.............................................................. 18
Outstanding Shares and Voting Requirements.................................... 19
Dissenter's Right of Appraisal................................................ 20
Other Matters and Discretion of Attorneys Named in the Proxy.................... 20
Agreement and Plan of Reorganization............................................ Exhibit A
</TABLE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
FUND PORTFOLIO
------ ---------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).... None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)............................................ None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)....................... 1.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............... None None
Exchange Fee..................................................................... None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................... 0.75% 0.00%(2)
12b-1 Fee........................................................................ 0.75% 0.75%
Total Other Expenses............................................................. 0.51% 1.19%
Shareholder Services Fee(3).................................................... 0.25% 0.19%
Total Operating Expenses..................................................... 2.01%(4) 1.94%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Class C Shares redeemed within
one year of their purchase date. For a more complete description, see
"Summary--Distribution Arrangements."
(2) The management fee has been waived to reflect state imposed expense
limitations. The maximum management fee is 0.55% of average daily net assets
plus 4.50% of gross income, excluding capital gains and losses.
(3) The maximum shareholder services fee is 0.25%.
(4) The Fund's adviser has agreed to waive its advisory fee and/or reimburse
operating expenses of the Fund so that the annual operating expenses applicable
to Class C Shares of the Fund will not exceed 1.93% of average daily net assets
for the year following the consummation of the Reorganization.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Class C Shares of each of the Fund and
the Portfolio 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 may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE-FUND 1 YEAR 3 YEARS
- --------------------------------------------------------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period.............. $31 $ 63
You would pay the following expenses on the same
investment, assuming no redemption..................... $20 $ 63
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE-PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period.............. $30 $ 61 $105 $ 226
You would pay the following expenses on the same
investment, assuming no redemption..................... $20 $ 61 $105 $ 226
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
About the Proposed Reorganization
The Board of Directors of Investment Series Funds, Inc. (the "Corporation")
has voted to recommend to holders of the Class A Shares and Class C Shares of
its portfolio, Capital Growth Fund (the "Portfolio"), the approval of an
Agreement and Plan of Reorganization (the "Plan") whereby Federated Growth
Strategies Fund (the "Fund"), a portfolio of Federated Equity Funds, a
Massachusetts business trust (the "Trust"), would acquire all of the assets of
the Portfolio in exchange for the Fund's Class A and Class C Shares to be
distributed pro rata by the Portfolio to its Class A and Class C shareholders,
respectively, in complete liquidation and dissolution of the Portfolio (the
"Reorganization"). As a result of the Reorganization, each shareholder of the
Portfolio will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the Portfolio on
the date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Trust and the
Corporation will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code so that no gain or loss will be recognized by either the
Fund or the Portfolio or their shareholders. The tax cost basis of the Fund
shares received by Portfolio shareholders will be the same as the tax cost basis
of their shares in the Portfolio. After the acquisition is completed, the
Portfolio will be liquidated.
Investment Objectives and Policies
The investment objective of the Fund is to provide appreciation of capital.
This investment objective may not be changed without the approval of
shareholders. The 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 Portfolio is appreciation of capital. This
investment objective may not be changed without the approval of shareholders.
The Portfolio pursues its investment objective by investing primarily in equity
securities of companies with prospects for above-average growth in earnings and
dividends or of companies where significant fundamental changes are taking
place. The Portfolio generally invests in companies with a market capitalization
of $100,000,000 or more.
The Fund invests primarily in equity securities of companies based on
traditional research techniques, including assessment of earnings and dividend
growth prospects and/or the risk and volatility of each company's business. The
Fund generally invests in companies with a market capitalization of $100,000,000
or more. The 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, Management (as
hereinafter defined) will reassess whether the continued holding of the security
is consistent with the Fund's investment objective. If necessary for temporary
defensive purposes, the Fund may also invest in short-term money market
instruments, securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities and repurchase agreements. Unless otherwise
designated, the investment policies of the Fund may be changed by the Board of
Trustees without shareholder approval, although shareholders will be notified
before any material change becomes effective.
Equity securities are selected by the Portfolio's adviser on the basis of
traditional research techniques, including assessment of earnings and dividend
growth prospects and/or the risk and volatility of each company's business. The
Portfolio may, at times, invest in securities which are deemed to be candidates
for acquisition by other entities. Under normal circumstances, at least 65% of
the value of the Portfolio's total assets will be invested in equity securities.
However, the Portfolio is not required to purchase or sell these securities if
the 65% investment level changes due to increases or decreases in the market
value of portfolio securities. The Portfolio may also invest in preferred
stocks, corporate bonds, debentures, notes, warrants and put options on stocks
and may invest up to 35% of its total assets in corporate debt obligations that
are rated B or better by a nationally recognized statistical rating
organization. Downgraded securities will be evaluated on a case by case basis by
Adviser (as hereinafter defined) to determine whether the security continues to
be an acceptable investment. If not, the security will be sold. If necessary for
temporary defensive purposes, the Portfolio may invest in short-term money
market instruments, U.S. government securities and may hold cash. Unless
otherwise designated, the investment policies of the Portfolio may be changed by
the Board of Directors without shareholder approval, although shareholders will
be notified before any material change becomes effective.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which prohibit
it from (1) borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the Fund may
borrow up to one-third of the value of its net assets; (2) selling securities
short except, under strict limitations, the Fund may maintain open short
positions so long as not more than 10% of the value of its net assets is held as
collateral for those positions; (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; and (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 Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or pledging
securities except that, under certain circumstances, the Portfolio may borrow up
to one-third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) selling securities short except,
under strict limitations, the Portfolio 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) lending any of its assets except portfolio securities
having a value of up to one-third of the value of its total assets; (4)
investing more than 5% of
its total assets in securities of one issuer (except cash and cash items,
repurchase agreements collateralized by U.S. government securities and U.S.
government obligations) or purchasing more than 10% of any class of voting
securities of any one issuer; (5) investing more than 5% of its total assets in
securities of issuers that have records of less than three years of continuous
operations including the operation of any predecessors; (6) committing more than
5% of its total assets to premiums on open put option positions; and (7)
investing more than 5% of its total assets in warrants. The Portfolio's first
four investment limitations cannot be changed without shareholder approval; the
last three may be changed by the Board of Directors without shareholder
approval, although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations, described in the Fund's Statement of Additional
Information dated December 31, 1995 and the Portfolio's Statement of Additional
Information dated December 31, 1995. Reference is hereby made to the Fund's
Prospectus and Statement of Additional Information, each dated December 31,
1995, and to the Portfolio's Prospectus and Statement of Additional Information,
each dated December 31, 1995, which set forth in full the investment objectives
and policies and investment limitations of each of the Fund and the Portfolio,
all of which are incorporated herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.75 of 1% of the Fund's
average daily net assets. Federated Management ("Management"), the investment
adviser to the Fund, may voluntarily choose to waive a portion of its advisory
fee. This voluntary waiver of fees may be terminated by Management at any time
in its sole discretion. Management has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states. The
maximum annual investment advisory fee for the Portfolio is 0.55 of 1% of the
Portfolio's average daily net assets plus 4.50% of gross income, excluding
capital gains or losses. The Portfolio's investment adviser, Federated Advisers
("Adviser"), may similarly voluntarily choose to waive a portion of its advisory
fee or reimburse the Portfolio for certain operating expenses but may likewise
terminate such waiver at any time in its sole discretion. Adviser has also
undertaken to reimburse the Portfolio for operating expenses in excess of
limitations established by certain states. Without such waivers or
reimbursements, the expense ratio of the Fund and the Portfolio would be higher
by 0.00% and 3.10%, respectively, of average daily net assets.
Federated Administrative Services, an affiliate of Management and Adviser,
provides certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average aggregate
daily net assets of all funds advised by Management, Adviser and their
affiliates. The rate charged is 0.15 of 1% of 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 Administrative Services may choose voluntarily to
waive a portion of its fee. The administrative fee expense for the Fund's most
recent fiscal year was $197,711 and for the Portfolio's most recent fiscal year
was $159,192.
Each of the Fund and the Portfolio have entered into a Shareholder Services
Agreement under which each may make payments of up to 0.25 of 1% of its average
daily net asset value to obtain certain personal services for shareholders and
the maintenance of shareholder accounts. The Shareholder Services Agreement, in
each case, provides that Federated Shareholder Services ("FSS"), an affiliate of
Management and Adviser, 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 customers. The
schedule of such fees and the basis upon which such fees will be paid is
determined from time to time by the Fund or the Portfolio, respectively, and
Federated Shareholder Services.
The total annual operating expenses for Class C Shares of the Fund were
2.05% of average daily net assets for its most recent fiscal year. The total
annual operating expenses for Class C Shares of the Portfolio were 1.94% of
average daily net assets for its most recent fiscal year and would have been
5.04% of average daily net assets absent the voluntary waiver by the Adviser of
a portion of the investment advisory fee, state imposed limitations and
reimbursement of certain other operating expenses and a waiver of a portion of
the shareholder services fee. In connection with the Reorganization, Management
has agreed to waive its advisory fee and/or reimburse operating expenses of the
Fund so that the annual operating expenses applicable to Class C Shares of the
Fund will not exceed 1.93% of average daily net assets for the year following
the consummation of the Reorganization.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for shares
of the Fund and the Portfolio. The Fund has adopted a Rule 12b-1 Distribution
Plan (the "Distribution Plan") pursuant to which the Fund may pay to the
distributor an amount equal to an annual rate of 0.75 of 1% of the average daily
net asset value of the Fund to finance any activity which is principally
intended to result in the sale of shares subject to the Distribution Plan. FSC
may also, with respect to Class C Shares, select financial institutions to
provide sales services or distribution-related support services as agents for
their clients or customers. In addition, FSC may pay financial institutions at
the time of purchase, from its assets, an amount equal to 1% of the net asset
value of Class C Shares purchased by their customers. If a financial institution
elects to waive receipt of this payment, the Fund will waive any applicable
contingent deferred sales charge (such contingent deferred sales charges are
discussed below). The Distribution Plan is a compensation type plan and,
accordingly, no payments are made to FSC except as described above, and the Fund
does not pay FSC for unreimbursed expenses.
The Portfolio has also adopted a Rule 12b-1 Distribution Plan (the "Rule
12b-1 Plan") pursuant to which the Portfolio pays FSC an amount equal to an
annual rate of 0.75 of 1% of the average daily net asset value of the Class C
Shares to finance any activity which is principally intended to result in the
sale of shares subject to the Rule 12b-1 Plan. FSC may select financial
institutions to provide sales support services as agents for their clients or
customers. The Rule 12b-1 Plan is a compensation type plan and, accordingly, no
payments are made to FSC except as described above, and the Portfolio does not
pay FSC for unreimbursed expenses. The Fund will not assume any liabilities or
make any voluntary reimbursements on account of the Portfolio's Rule 12b-1 Plan.
In addition, FSC and FSS, from their 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 both the Fund and the Portfolio. Such
assistance will be predicated upon the amount of Class C 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 Management, Adviser or their affiliates.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund and the Portfolio are sold at their net
asset value next determined after an order is received. Absent an exemption,
shareholders redeeming Fund or Portfolio shares within one full year of the
purchase date will be charged a contingent deferred sales charge by FSC of
1.00%. 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 any redemptions (effected
subsequent to the Reorganization) of Fund shares received by shareholders of the
Portfolio as a result of the consummation of the Reorganization provided that
such shares were originally purchased by the Portfolio shareholder more than one
year from the date of redemption. 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 Fund dated December 31, 1995 and the
Prospectus of the Portfolio dated December 31, 1995, each of which is
incorporated herein by reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund and
the Portfolio is Federated Shareholder Services Company (formerly called
Federated Services Company). Procedures for the purchase and redemption of the
Fund's Class C Shares differ slightly from procedures applicable to the purchase
and redemption of the Portfolio's Class C Shares. Any questions about such
procedures may be directed to, and assistance in effecting purchases or
redemptions of the Fund's Class C Shares or Portfolio's Class C Shares, may be
obtained from, FSC, principal distributor for each of the Fund and the
Portfolio, at 800-245-5051.
Reference is made to the Prospectus of the Fund dated December 31, 1995,
and the Prospectus of the Portfolio dated December 31, 1995, for a complete
description of the purchase and redemption procedures applicable to purchases
and redemptions of Fund and Portfolio shares, respectively, each of which is
incorporated herein by reference thereto. Set forth below is a brief listing of
the significant purchase and redemption procedures applicable to the Fund's
Class C Shares and the Portfolio's Class C Shares.
Purchases of Class C Shares of the 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 Class C Shares of the Portfolio may
be made through a financial institution which has a sales agreement with FSC or
directly from FSC once an account has been established. The minimum initial
investment in the Fund and the Portfolio is $1,500, 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 Fund and the Portfolio each reserve the right to reject any purchase
request. In connection with the sale of Class C Shares of both the Fund and the
Portfolio, FSC may from time to time offer certain items of nominal value to any
shareholder.
The purchase price of shares of both the Fund and the Portfolio is based on
net asset value. The net asset value for each of the Fund and the Portfolio is
calculated as of the close of trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange, on each day on which the Fund and the Portfolio compute
their net asset value. Purchase and redemption orders for the Fund and the
Portfolio 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. 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. Portfolio purchase orders by wire are considered received
when the Portfolio's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. 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 Fund and Portfolio Class C Shares each have exchange privileges
with respect to Class C Shares in certain of the funds for which affiliates of
Management or Adviser serve as investment adviser or principal underwriter
(collectively, the "Federated Funds"), each of which has different investment
objectives and policies. Class C Shares in the Fund or the Portfolio may be
exchanged for Class C Shares of certain Federated Funds at net asset value
without a contingent deferred sales charge. To the extent a shareholder
exchanges Class C Shares of the Fund or Portfolio for Class C 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 C 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. 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 Fund or the Portfolio, as appropriate.
Redemptions of Fund Class C Shares may be made through a financial
institution, by telephone, by mailing a written request or through the Fund's
Systematic Withdrawal Program. Redemptions of Portfolio shares may be made
through a financial institution, by telephone, by mailing a written request or
through the Portfolio's Systematic Withdrawal Program. In each case, Class C
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the redemption request is received.
Proceeds will be distributed by check within seven days after receipt of a
redemption request.
Tax Consequences
As a condition to the Reorganization transactions, the Trust and the
Corporation will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code so that no gain or loss will be recognized by either the
Fund or the Portfolio or their shareholders. The tax cost basis of the Fund
shares received by Portfolio shareholders will be the same as the tax cost basis
of their shares in the Portfolio.
RISK FACTORS
Investment in the Fund and the Portfolio is subject to certain risks which
are set forth in the Fund's Prospectus dated December 31, 1995 and the Statement
of Additional Information dated December 31, 1995 and the Portfolio's Prospectus
dated December 31, 1995 and the Statement of Additional Information dated
December 31, 1995, each of which is incorporated herein by reference thereto.
Briefly, these risks include, but are not limited to, fluctuation in the value
of the securities held by the Fund or the Portfolio; gain or loss in the sale of
stocks held by the Fund or the Portfolio based on changes in the perceived
prospects of the issuer; and economic, political and regulatory developments
which affect these securities.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1987 to provide investors with an
opportunity to invest in a professionally-managed, diversified pool of equity
securities with prospects for above-average growth in earnings and dividends.
Although its investment objective and policies were similar to other funds
advised by the Adviser at the time of its creation, the Portfolio was created as
a separate unit in order to market it to particular groups of investors.
Subsequent to the Portfolio's creation, the Adviser and its affiliates
determined that a more economically efficient method of marketing to different
groups of investors was to create separate classes of stock within a single
portfolio. The classes are then individually marketed and bear different fees
and expenses.
The Portfolio had net assets of approximately $16.4 million, compared to
the Fund's net assets of $250.9 million as of January 31, 1996. For the last
several years, in an effort to remain competitive with other investment
companies, the Adviser has waived all of its investment advisory fee and
reimbursed the Portfolio for certain operating expenses, resulting in aggregate
fee waivers and expense reimbursements of $356,497 for the Portfolio's fiscal
year ended October 31, 1995. The Adviser has concluded that it will not be able
to continue indefinitely to waive such investment advisory fees and reimburse
operating expenses in order to allow the Portfolio to earn a return on its
investments competitive with other investment companies with similar investment
objectives. As a result, the Adviser has recommended to the Board of Directors
that it would be in the best interests of all of the Portfolio's shareholders to
combine its assets with those of the Fund. Such a combination may achieve
operating efficiencies and economies of scale as a result of the larger size of
the Fund while allowing shareholders to maintain an investment in a fund whose
investment objective is appreciation of capital.
The Corporation's Board of Directors, including a majority of the
independent Directors, determined that participation in the Reorganization is in
the best interests of the Portfolio and that the interests of Portfolio
shareholders would not be diluted as a result of its effecting the
Reorganization. Based upon the foregoing considerations, and the fact that
shareholders of the Portfolio will not suffer any adverse tax consequences as a
result of the Reorganization, the Board of Directors of the Corporation
unanimously voted to approve, and recommend to Portfolio shareholders the
approval of, the Reorganization.
The Board of Trustees of the Fund, including a majority of the independent
Trustees, have unanimously concluded that consummation of the Reorganization is
in the best interests of the Fund and the shareholders of the Fund and that the
interests of Fund shareholders would not be diluted as a result of effecting the
Reorganization and have unanimously approved the Plan.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for the Fund's Class A Shares and Class C Shares to be
distributed pro rata by the Portfolio to its Class A and Class C shareholders in
complete liquidation of the Portfolio on or about May 31, 1996 (the "Closing
Date"). Shareholders of the Portfolio will become shareholders of the Fund as of
the close of business on the Closing Date, and will be entitled to the Fund's
next dividend distribution. Shareholders of the Portfolio will earn their last
dividend from the Portfolio on the dividend 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 Corporation, on behalf of the Portfolio, and the Trust, on behalf of the
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 Portfolio 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.
Management is responsible for the payment of all 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,
legal 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 Portfolio's shareholders and the costs of holding
the Special Meeting of Shareholders.
The foregoing description of the Plan entered into between the Trust, on
behalf of the Fund, and the Corporation, on behalf of the Portfolio, 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 Fund Shares
Class C Shares of the Fund to be issued to Class C shareholders of the
Portfolio 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 Fund dated December
31, 1995 provided herewith for additional information about Class C Shares of
the Fund.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Trust, on behalf of
the Fund, and the Corporation, on behalf of the Portfolio, will receive an
opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Trust and the
Corporation, to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (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 Fund upon its receipt of the Portfolio's assets solely in
exchange for Fund shares;
(3) no gain or loss will be recognized by the Portfolio upon the transfer of its
assets to the Fund in exchange for Fund shares or upon the distribution (whether
actual or constructive) of the Fund shares to the Portfolio shareholders in
exchange for their shares of the Portfolio; (4) no gain or loss will be
recognized by shareholders of the Portfolio upon the exchange of their Portfolio
shares for Fund shares; (5) the tax basis of the Portfolio's assets acquired by
the Fund will be the same as the tax basis of such assets to the Portfolio
immediately prior to the Reorganization; (6) the tax basis of Fund shares
received by each shareholder of the Portfolio pursuant to the Plan will be the
same as the tax basis of Portfolio shares held by such shareholder immediately
prior to the Reorganization; (7) the holding period of the assets of the
Portfolio in the hands of the Fund will include the period during which those
assets were held by the Portfolio; and (8) the holding period of Fund shares
received by each shareholder of the Portfolio will include the period during
which the Portfolio shares exchanged therefor were held by such shareholder,
provided the Portfolio shares were held as capital assets on the date of the
Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Trust is organized as a business trust pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts. Set forth below is a
brief summary of the significant rights of shareholders of the Trust.
The Trust is not required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations or the
election of trustees under certain circumstances. A special meeting of
shareholders of the Trust for any permissible purpose is required to be called
by the Trustees upon the written request of the holders of at least 10% of the
Trust's outstanding shares of all series entitled to vote. Each share of the
Trust is entitled to one 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.
Under certain circumstances, shareholders of the Fund may be held
personally liable as partners under Massachusetts law for obligations of the
Trust on behalf of the Fund. To protect its shareholders, the Trust has filed
legal documents with the Commonwealth of Massachusetts that expressly disclaim
the liability of Fund 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 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 cannot meet its obligations to
indemnify shareholders and pay judgments against them.
The Corporation is organized as a corporation under the laws of the State
of Maryland and is not required to hold annual meetings of shareholders except
when required to do so under the 1940 Act. A special meeting of shareholders of
the Corporation is required to be called by the Directors upon the written
request of the holders of at least 10% of the outstanding shares of the
Corporation entitled to vote. Each share of the Corporation is entitled to one
vote at all meetings of shareholders except that in
matters affecting only a particular portfolio or class, only shares of that
portfolio or class are entitled to vote.
Capitalization
The following table sets forth the unaudited capitalization of the Class C
Shares of the Fund and the Class C Shares of the Portfolio as of February 29,
1996 and on a pro forma basis as of that date:
<TABLE>
<CAPTION>
PRO FORMA
FUND PORTFOLIO COMBINED
-------- ---------- ----------
<S> <C> <C> <C>
Class C Shares Net Assets (1)....................... $551,621 $1,743,283 $2,294,904
Net Asset Value Per Class C Share................... $ 23.29 $ 14.06 $ 23.29
</TABLE>
(1) Net Assets for Class A Shares for each of the Fund, the Portfolio and Pro
Forma Combined are $255,056,691, $15,198,147, and $270,254,838,
respectively. Net Asset Value Per Class A Share for each of the Fund, the
Portfolio and Pro Forma Combined are $23.31, $14.09, and $23.31,
respectively.
INFORMATION ABOUT THE FUND, THE TRUST,
THE PORTFOLIO AND THE CORPORATION
Federated Growth Strategies Fund, a portfolio of Federated Equity Funds
Information about the Trust and the Fund is contained in the Fund's current
Prospectus dated December 31, 1995, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund is
included in the Fund's Annual Report to Shareholders dated October 31, 1995, the
Statement of Additional Information dated December 31, 1995, and the Statement
of Additional Information dated April 7, 1996 relative to this Prospectus/Proxy
Statement, each of which is incorporated herein by reference. Copies of the
Annual Report and Statements of Additional Information, which have been filed
with the Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5051 or by writing the Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject to
the informational requirements of the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports
and other information with the SEC. Reports, proxy and information statements
and other information filed by the Trust or the Fund can be obtained by calling
or writing the 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 at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
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 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
documents filed with the SEC.
Capital Growth Fund, a portfolio of Investment Series Funds, Inc.
Information about the Portfolio and the Corporation is contained in the
Portfolio's current Prospectus dated December 31, 1995, the Annual Report to
Shareholders dated October 31, 1995, its Statement of Additional Information
dated December 31, 1995 and the Statement of Additional Information dated April
7, 1996 relating to this Prospectus/Proxy Statement, each of which is
incorporated herein by reference. Copies of such Prospectus, Annual Report, and
Statement(s) of Additional Information, which have been filed with the SEC, may
be obtained without charge from the Fund by calling 1-800-245-5051 or by writing
to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The
Corporation 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 and other
information filed by the Corporation or the Portfolio can be obtained by calling
or writing the 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.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FEDERATED GROWTH STRATEGIES FUND--
(CLASS C SHARES)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FEDERATED
GROWTH STRATEGIES FUND (CLASS C SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Growth Strategies Fund (Class C Shares) (the "Fund") from August 15,
1995 (start of performance) to October 31, 1995 compared to the Standard and
Poor's 500 Index (S&P 500)+ and the Lipper Growth Fund Index (LGFI).+
Growth of $10,000 as of October 31, 1995
[Graphic representation "A" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LGFI have been adjusted to reflect reinvestment of dividends on securities
in the indices.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The LGFI is
not adjusted to reflect sales charges. The indices are unmanaged.
The following information was included in the Fund's Annual Report to
Shareholders dated October 31, 1995. The Management Discussion is presented in a
question and answer format with the Fund's portfolio manager, Jim Grefenstette,
Assistant Vice President of Federated Research Corp., and is contained in its
entirety as follows:
Q
The stock market climbed to new heights during the period. Can you comment?
A
This year saw the confluence of a large number of positive situations come
together to drive the value of equities to new highs: a sharp drop in
interest rates, strong growth in Standard & Poor's 500 Stock Index ("S&P
500") earnings (aided by a weaker U.S. dollar), strong cash flows into mutual
funds, and a huge net reduction in the market value of equities outstanding (as
the result of mergers and acquisitions of public companies paid for with cash).
While we believe that cash flows into mutual funds will stay strong and that
interest rates will probably drift lower over time, we are not sure that we can
count on a similar reduction in the market value of equities, and we think that
S&P 500 earnings growth will be much lower over the next year or two.
Q
In this favorable environment, how did Federated Growth Strategies Fund
perform?
A
Federated Growth Strategies Fund had a very strong year. As of October 31,
1995, the Fund's total return was 29.03%,* which ranked it 83 out of 558
growth funds--among the top 15%--in the Lipper Growth Fund Universe for the
period ended October 31, 1995, according to Lipper Analytical Services, Inc.**
Q
What sectors drove the Fund's performance? Looking forward, do these
sectors continue to offer high growth potential?
A
The strongest performing sectors in our Fund were Technology, Health Care,
and Finance. These sectors offered the highest relative and absolute growth
rates in our universe last year and we believe that most of the fundamental
situations are in place for these sectors to repeat as high growers and strong
performers in 1996.
* Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
** Past performance is not indicative of future results. Lipper rankings are
based on total return and do not take sales charges into account. During the
ranking periods, certain Fund expenses were waived and/or advanced;
otherwise, total return would have been lower. For the period ended October
31, 1995, the Fund's five-year Lipper ranking was 91 out of 234 growth funds.
For the period ended October 31, 1995, the Fund's ten-year Lipper ranking was
51 out of 150 growth funds.
Q
Can you review some of your current top holdings, along with a brief
commentary on each?
A
Loral Corp.: This conglomerate of high-quality defense contractors
generates a large amount of cash flow per share. Loral also has an exciting
ownership interest in Globalstar, a company with plans to encircle the
globe with low-orbit telecommunication satellites.
MBNA Corp.: This firm is the second largest credit card provider in the U.S.
and #1 issuer of cards to common interest groups, which are also known as
affinity groups. MBNA should benefit from lower rates, the secular increase in
credit card usage, and the increasing penetration into the universe of affinity
groups.
SunAmerica, Inc.: A provider of fixed and variable annuities, SunAmerica is one
of the most leveraged beneficiaries of the shift towards increased savings in
the U.S.
Potash Corporation of Saskatchewan, Inc.: As a leading producer of potash, a
valuable ingredient in certain types of fertilizer, Potash should benefit from
an expected increase in the demand for fertilizers both domestically and abroad.
Johnson & Johnson: This leading diversified provider of pharmaceuticals and
health care products should experience strong sales growth from a mix of
successful new products and increasing margins from the continued cost cutting
of currently decentralized operations.
Q
With prices of large-company stocks at such high levels, where are you
looking for fairly priced growth potential?
A
We will favor those sectors mentioned above (Health Care, Technology, and
Finance), but we will look for those names that are attractive more in the
mid-cap area. So much money moved into the market last year, that many
large-fund managers had to invest in the large-cap names because they needed the
liquidity that these stocks offered. Consequently, better-priced growth may now
be found in mid-cap stocks.
Q
What is your outlook for growth stocks as we enter 1996?
A
At least relative to more value-driven stocks, we are very positive on
growth stocks. We anticipate a slower growing economy over the next twelve
to eighteen months, which should bode well for stocks that can offer
secular earnings growth. Investors should rotate away from more economically
sensitive companies and pay premiums for those companies that can grow earnings
despite the slower nature of the economy.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of the Corporation of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on May 31, 1996
and at any adjournment 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 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 Corporation an instrument revoking the
proxy, by submitting a proxy bearing a later date or by attending and voting at
the Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Management. In addition to solicitations through the
mails, proxies may be solicited by officers, employees and agents of the
Corporation and Management at no additional cost to the Corporation. Such
solicitations may be by telephone. 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 Corporation has fixed the close of business
on March 25, 1996 as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting of Shareholders and any
adjournment thereof. As of the record date, there were 1,114,651 Class A Shares
and 127,838 Class C Shares of the Portfolio outstanding. Each of the Portfolio's
Class A Shares and Class C Shares are entitled to one vote and fractional shares
have proportionate voting rights. On the record date, Merrill Lynch Pierce
Fenner & Smith (as record owner holding Class A Shares for its clients),
Jacksonville, Florida, owned approximately 93,697 shares, or 8.41%, of the
Portfolio's outstanding Class A Shares and Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class C Shares for its clients), Jacksonville, Florida,
owned approximately 23,657 shares, or 18.51%, of the Portfolio's outstanding
Class C Shares. On such date, no other person owned of record, or to the
knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's
outstanding Class A or Class C Shares. On the record date, the directors and
officers of the Corporation as a group owned less than 1% of the outstanding
Class A and Class C Shares of the Portfolio.
As of the record date, there were 10,821,925 Class A, 194,584 Class B, and
23,832 Class C Shares of the Fund outstanding. On the record date, no person
owned of record 5% or more of the Fund's outstanding Class A Shares; Donaldson
Lufkin Jenrette Securities Corporation Inc., Jersey City, New Jersey, owned
approximately 18,645 shares or 9.58% of the Fund's outstanding Class B Shares;
and Merrill Lynch Pierce Fenner & Smith (as record owner holding Class C Shares
for its clients), Jacksonville, Florida, owned approximately 10,507 shares or
44.09%, Kevin M. Boyd, Austin, Texas, owned approximately 4,734 shares or
19.87%, State Street Bank and Trust, Custodian for the IRA of Eugene S. Albin,
Arcata, California, owned approximately 1,674 shares or 7.02%, and Kenneth E.
Morrison and Christine C. Morrison, Marietta, Ohio, owned approximately 1,642
shares or 6.89%, of the Fund's outstanding Class C Shares. On such date, no
other person owned of record, or to the knowledge of the Management,
beneficially owned, 5% or more of the Fund's outstanding Class A, Class B or
Class C Shares. On the record date, the trustees and officers of the Fund as a
group owned less than 1% of the outstanding Class A, Class B and Class C Shares
of the Fund.
Approval of the Plan requires the affirmative vote of the lesser of (i) 67%
of the shares of the Portfolio present at the Special Meeting, if the holders of
more than 50% of the outstanding shares are
present or represented by proxy, or (2) a majority of the outstanding shares of
the Portfolio. The votes of shareholders of the Fund are not being solicited
since their approval is not required in order to effect the Reorganization.
One-third of the outstanding shares of the Portfolio, 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. Under the 1940 Act, however, which governs this transaction,
matters subject to the requirements of the 1940 Act, including the
Reorganization, are determined on the basis of a percentage of votes present at
the Special Meeting, which would have the effect of treating abstentions and
"broker non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Corporation's Articles of Incorporation or Maryland
law. Under the Plan, if approved by Portfolio shareholders, each Class C
Portfolio shareholder will become the owner of Class C Shares of the Fund having
a total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
Management of the Corporation 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.
So far as management is presently informed, there is no litigation pending
or threatened against the Fund.
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. A vote may be taken on one or more of the proposals in this
Prospectus/Proxy Statement prior to any such adjournment if sufficient votes for
its approval have been received and it is otherwise appropriate.
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 February 29, 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 INVESTMENT SERIES FUNDS, INC., a
Maryland corporation (hereinafter called the "Corporation") on behalf of its
portfolio CAPITAL GROWTH 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 assets of the
Acquired Fund in exchange solely for Class A and Class C Shares of the Acquiring
Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, 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, both the Acquired Fund and the Acquiring Fund have outstanding
Class A Shares and Class C Shares;
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 Acquiring Fund 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
Acquired Fund 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 and that the interests of the existing
shareholders of the Acquired Fund would not be diluted as a result of this
transaction;
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 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 Class
A and Class C Acquiring Fund Shares, respectively, including fractional Class A
and Class C 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 Class A and Class C Acquiring Fund Shares, the Acquiring
Fund shall credit the Class A and Class C Acquiring Fund Shares to the Acquired
Fund's account, for the benefit of its Class A and Class C shareholders,
respectively, 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 all of its liabilities and obligations
prior to 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. All cash delivered shall be in the form of
currency and 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
Class A and Class C shareholders of record, determined as of the close of
business on the Closing Date (the "Acquired Fund Shareholders"), the Class A and
Class C Acquiring Fund Shares, respectively, received by the Acquired Fund
pursuant to paragraph 1.1. In addition, each shareholder of record of the
Acquired Fund 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 Class A and Class C 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 Class A and Class C Acquired Fund Shareholders, respectively, and
representing the respective pro rata number of the Class A and Class C Acquiring
Fund Shares due such shareholders, based on their ownership of Class A and Class
C Shares, respectively, of the Acquired Fund on the Closing Date. All
issued and outstanding Class A and Class C Shares of the Acquired Fund will
simultaneously be canceled on the books of the Acquired Fund. Class A and Class
C Share certificates representing interests in the Acquired Fund will represent
a number of Class A and Class C Acquiring Fund Shares, respectively, after the
Closing Date as determined in accordance with Section 2.3. The Acquiring Fund
shall not issue certificates representing the Class A and Class C Acquiring Fund
Shares in connection with such exchange.
1.6 Ownership of Class A and Class C 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 Class A and Class C
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
Class A and Class C 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.
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 hereinafter 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 Class A and Class C 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 Class A and Class C Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
net assets shall be determined (a) by dividing the value of the net assets of
the Acquired Fund attributable to Class A Shares, determined using the same
valuation procedures referred to in paragraph 2.1, by the net asset value of one
Class A Acquiring Fund Share and (b) by dividing the value of the net assets of
the Acquired Fund attributable to Class C Shares, determined using the same
valuation procedures referred to in paragraph 2.1, by the net asset value of one
Class C Acquiring Fund Share, in each case 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 May 31, 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 Federated Shareholder Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the names
and addresses of the Class A and Class C Acquired Fund Shareholders and the
number and percentage ownership of outstanding Class A and Class C Shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Class A and Class C
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
Class A and Class C 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 By-Laws 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 Statements of Assets and Liabilities of the Acquired 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, 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) Since October 31, 1995, 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.
(i) 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 dates 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, 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.
(j) For each fiscal year of its operation, the Acquired 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 Class A and Class C 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
Class A and Class C 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 Class A or Class C Acquired Fund Shares, nor is there outstanding any
security convertible into any of the Class A or Class C Acquired Fund Shares.
(l) 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.
(m) 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's directors and, subject to the approval of the Acquired
Fund Shareholders, this Agreement will constitute 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).
(n) 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 (other than information therein that 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.
(o) The Acquired Fund has entered into an agreement under which Federated
Management will assume the expenses of the reorganization including accountants'
fees, legal 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.
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 By-Laws 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) Since October 31, 1995, 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.
(h) At the Closing Date, all Federal and other tax returns and reports of
the Acquiring Fund required by law to have been filed 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, 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.
(i) For each fiscal year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(j) All issued and outstanding Class A and Class C Shares of the Acquiring
Fund 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 Class A or Class C Acquiring Fund Shares, nor is there outstanding
any security convertible into any Class A or Class C Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trust's Trustees, and this Agreement will constitute 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).
(l) 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.
(m) The Acquiring Fund has entered into an agreement under which Federated
Management will assume the expenses of the reorganization including accountants'
fees, legal 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.
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
October 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 October 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 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 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, the other
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, L.L.P. 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 Board of Directors of the
Corporation) 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 Commonwealth of Pennsylvania, 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.
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.
<TABLE>
<S> <C>
Acquired Fund:
INVESTMENT SERIES FUNDS, INC.
on behalf of its portfolio,
Attest: CAPITAL GROWTH FUND
/s/ S. ELLIOTT COHAN By: /s/ J. CHRISTOPHER DONAHUE
- ----------------------------------------------
------------------------------------------
Assistant Secretary Name: J. Christopher Donahue
Title: President
Acquiring Fund:
FEDERATED EQUITY FUNDS
on behalf of its portfolio,
FEDERATED GROWTH
Attest: STRATEGIES FUND
/s/ S. ELLIOTT COHAN By: /s/ GLEN R. JOHNSON
- ----------------------------------------------
------------------------------------------
Assistant Secretary Name: Glen R. Johnson
Title: President
</TABLE>
Cusip 461444 40 8
G01188-05 (4/96)
CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Dear Shareholder:
The Board of Directors and management of Investment Series Funds, Inc. (the
"Corporation") are pleased to submit for your vote a proposal to transfer all of
the assets of Capital Growth Fund (the "Portfolio") to Federated Growth
Strategies Fund (the "Fund"), a portfolio of Federated Equity Funds, a mutual
fund advised by Federated Management. The Fund has an investment objective
similar to that of the Portfolio 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 Class A Shares and Class C Shares in the Portfolio would receive
Class A Shares and Class C Shares, respectively, of the Fund equal in value to
their Class A Shares or Class C Shares in the Portfolio and the Portfolio would
be liquidated.
The Board of Directors of the Corporation, as well as Federated Advisers,
the Corporation's adviser, and Federated Securities Corp., the Corporation's
principal underwriter, believe the proposed agreement and plan of reorganization
is in the best interests of Portfolio shareholders for the following reasons:
- The reorganization of the Portfolio into the Fund may provide operating
efficiencies as a result of the size of the Fund which were not available
to Portfolio shareholders due to the smaller size of the Portfolio.
- The Fund has an investment objective similar to that of the Portfolio and
offers an investment portfolio which invests primarily in equity
securities of companies with prospects for above-average growth in
earnings and dividends.
We believe the transfer of the Portfolio's assets in this transaction will
present an excellent investment opportunity for our shareholders. Your vote on
the transaction is critical to its success. The transfer will be effected only
if approved by the lesser of (i) 67% of all Portfolio shares present at the
Special Meeting, if the holders of more than 50% of the outstanding shares are
present or represented by proxy, or (ii) a majority of all of the Portfolio'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
person, or by proxy if you are unable to attend the meeting. Please read the
enclosed prospectus/proxy statement carefully before you vote.
Thank you for your prompt attention and participation.
Sincerely,
LOGO
J. Christopher Donahue
President
CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO CLASS A SHAREHOLDERS OF CAPITAL GROWTH FUND:
A Special Meeting of Shareholders of Capital Growth Fund (the "Portfolio"),
a portfolio of Investment Series Funds, Inc. (the "Corporation") will be held at
2:30 p.m. on May 31, 1996 at the office of the Corporation, Federated Investors
Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following
purposes:
(1) To approve or disapprove a proposed Agreement and Plan of
Reorganization between the Corporation, on behalf of the Portfolio, and
Federated Equity Funds, on behalf of its portfolio, Federated Growth
Strategies Fund (the "Fund"), whereby the Fund would acquire all of the
assets of the Portfolio in exchange for the Fund's Class A Shares and
Class C Shares to be distributed pro rata by the Portfolio to the
holders of its Class A Shares and Class C Shares, respectively, in
complete liquidation of the Portfolio; 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,
John W. McGonigle
Secretary
Dated: April 19, 1996
Shareholders of record at the close of business on March 25, 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
APRIL 7, 1996
ACQUISITION OF THE ASSETS OF
CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051
BY AND IN EXCHANGE FOR SHARES OF
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051
This Prospectus/Proxy Statement describes the proposed Agreement and Plan
of Reorganization (the "Plan") whereby Federated Growth Strategies Fund (the
"Fund"), a portfolio of Federated Equity Funds, a Massachusetts business trust,
would acquire all of the assets of Capital Growth Fund (the "Portfolio"), a
portfolio of Investment Series Funds, Inc., a Maryland corporation (the
"Corporation"), in exchange for the Fund's Class A and Class C Shares to be
distributed pro rata by the Portfolio to the holders of its Class A and Class C
Shares, respectively, in complete liquidation of the Portfolio. As a result of
the Plan, each Class A shareholder of the Portfolio will become the owner of the
Fund's Class A Shares having a total net asset value equal to the total net
asset value of his or her Class A Share holdings in the Portfolio.
The Fund and the Portfolio each are diversified portfolios of securities of
an open-end management investment company whose investment objective is
appreciation of capital. The Fund pursues this investment objective by investing
primarily in equity securities of companies with prospects for above-average
growth in earnings and dividends. The Portfolio pursues this objective by
investing primarily in equity securities of companies with prospects for
above-average growth in earnings or dividends or of companies where significant
fundamental changes are taking place. For a comparison of the investment
policies of the Fund and the Portfolio, see "Summary-Investment Objectives and
Policies."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Fund that a prospective investor
should know before investing. This Prospectus/Proxy Statement is accompanied by
the Prospectus of the Fund dated December 31, 1995 which is incorporated herein
by reference. Statements of Additional Information for the Fund dated December
31, 1995 (relating to the Fund's prospectus of the same date) and April 7, 1996
(relating to this Prospectus/Proxy Statement) and the Annual Report to
Shareholders dated October 31, 1995, 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 and
Annual Report may be obtained without charge by writing or calling the 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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses.............................................................. 4
Summary.......................................................................... 5
About the Proposed Reorganization.............................................. 5
Investment Objectives and Policies............................................. 5
Advisory and Other Fees........................................................ 7
Distribution Arrangements...................................................... 8
Purchase and Redemption Procedures............................................. 9
Tax Consequences............................................................... 11
Risk Factors..................................................................... 11
Information About the Reorganization............................................. 11
Background and Reasons for the Proposed Reorganization......................... 11
Description of the Plan of Reorganization...................................... 12
Description of Fund Shares..................................................... 12
Federal Income Tax Consequences................................................ 13
Comparative Information on Shareholders Rights and Obligations................. 13
Capitalization................................................................. 14
Information About the Fund, the Trust, the Portfolio and the Corporation......... 14
Federated Growth Strategies Fund, a portfolio of Federated Equity Funds........ 14
Capital Growth Fund, a portfolio of Investment Series Funds, Inc............... 15
Management's Discussion of Fund Performance...................................... 16
Voting Information............................................................... 19
Outstanding Shares and Voting Requirements..................................... 19
Dissenter's Right of Appraisal................................................. 20
Other Matters and Discretion of Attorneys Named in the Proxy..................... 20
Agreement and Plan of Reorganization............................................. Exhibit A
</TABLE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
FUND PORTFOLIO
------ ---------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).... 5.50% 5.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)............................................ None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)....................... 0.00% 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............... None None
Exchange Fee..................................................................... None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................... 0.75% 0.00%(2)
12b-1 Fee........................................................................ None 0.06%(3)
Total Other Expenses............................................................. 0.36% 1.19%
Shareholder Services Fee (4)................................................... 0.10% 0.19%
Total Operating Expenses..................................................... 1.11% 1.25%
</TABLE>
(1) Class A Shares purchased with 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 1.00% for redemptions made within one year of
purchase. See "Summary--Distribution Arrangements."
(2) The management fee has been waived to reflect state imposed expense
limitations. The maximum management fee is 0.55% of average daily net assets
plus 4.50% of gross income, excluding capital gains and losses.
(3) The maximum 12b-1 fee is 0.25%.
(4) The maximum shareholder services fee is 0.25%.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares of each of the
Fund and the Portfolio 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."
<TABLE>
<CAPTION>
EXAMPLE-FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period........................................ $71 $ 88 $113 $ 183
You would pay the following expenses on the same investment,
assuming no redemption..................................... $66 $ 88 $113 $ 183
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE-PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period........................................ $72 $ 92 $120 $ 198
You would pay the following expenses on the same investment,
assuming no redemption..................................... $67 $ 92 $120 $ 198
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
About the Proposed Reorganization
The Board of Directors of Investment Series Funds, Inc. (the "Corporation")
has voted to recommend to holders of the Class A Shares and Class C Shares of
its portfolio, Capital Growth Fund (the "Portfolio"), the approval of an
Agreement and Plan of Reorganization (the "Plan") whereby Federated Growth
Strategies Fund (the "Fund"), a portfolio of Federated Equity Funds, a
Massachusetts business trust (the "Trust"), would acquire all of the assets of
the Portfolio in exchange for the Fund's Class A and Class C Shares to be
distributed pro rata by the Portfolio to its Class A and Class C shareholders,
respectively, in complete liquidation and dissolution of the Portfolio (the
"Reorganization"). As a result of the Reorganization, each shareholder of the
Portfolio will become the owner of Fund shares having a total net asset value
equal to the total net asset value of his or her holdings in the Portfolio on
the date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, the Trust and the
Corporation will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code so that no gain or loss will be recognized by either the
Fund or the Portfolio or their shareholders. The tax cost basis of the Fund
shares received by Portfolio shareholders will be the same as the tax cost basis
of their shares in the Portfolio. After the acquisition is completed, the
Portfolio will be liquidated.
Investment Objectives and Policies
The investment objective of the Fund is to provide appreciation of capital.
This investment objective may not be changed without the approval of
shareholders. The 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 Portfolio is appreciation of capital. This
investment objective may not be changed without the approval of shareholders.
The Portfolio pursues its investment objective by investing primarily in equity
securities of companies with prospects for above-average growth in earnings and
dividends or of companies where significant fundamental changes are taking
place. The Portfolio generally invests in companies with a market capitalization
of $100,000,000 or more.
The Fund invests primarily in equity securities of companies based on
traditional research techniques, including assessment of earnings and dividend
growth prospects and/or the risk and volatility of each company's business. The
Fund generally invests in companies with a market capitalization of $100,000,000
or more. The 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, Management (as
hereinafter defined) will reassess whether the continued holding of the security
is consistent with the Fund's investment objective. If necessary for temporary
defensive purposes, the Fund may also invest in short-term money market
instruments, securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities and repurchase agreements. Unless otherwise
designated, the investment policies of the Fund may be changed by the Board of
Trustees without shareholder approval, although shareholders will be notified
before any material change becomes effective.
Equity securities are selected by the Portfolio's adviser on the basis of
traditional research techniques, including assessment of earnings and dividend
growth prospects and/or the risk and volatility of each company's business. The
Portfolio may, at times, invest in securities which are deemed to be candidates
for acquisition by other entities. Under normal circumstances, at least 65% of
the value of the Portfolio's total assets will be invested in equity securities.
However, the Portfolio is not required to purchase or sell these securities if
the 65% investment level changes due to increases or decreases in the market
value of portfolio securities. The Portfolio may also invest in preferred
stocks, corporate bonds, debentures, notes, warrants and put options on stocks
and may invest up to 35% of its total assets in corporate debt obligations that
are rated B or better by a nationally recognized statistical rating
organization. Downgraded securities will be evaluated on a case by case basis by
Adviser (as hereinafter defined) to determine whether the security continues to
be an acceptable investment. If not, the security will be sold. If necessary for
temporary defensive purposes, the Portfolio may invest in short-term money
market instruments, U.S. government securities and may hold cash. Unless
otherwise designated, the investment policies of the Portfolio may be changed by
the Board of Directors without shareholder approval, although shareholders will
be notified before any material change becomes effective.
Both the Fund and the Portfolio are subject to certain investment
limitations. For the Fund, these include investment limitations which prohibit
it from (1) borrowing money directly or through reverse repurchase agreements or
pledging securities except that, under certain circumstances, the Fund may
borrow up to one-third of the value of its net assets; (2) selling securities
short except, under strict limitations, the Fund may maintain open short
positions so long as not more than 10% of the value of its net assets is held as
collateral for those positions; (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; and (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 Portfolio has investment limitations which prohibit it from (1)
borrowing money directly or through reverse repurchase agreements or pledging
securities except that, under certain circumstances, the Portfolio may borrow up
to one-third of the value of its total assets and pledge up to 10% of the value
of those assets to secure such borrowings; (2) selling securities short except,
under strict limitations, the Portfolio 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) lending any of its assets except portfolio securities
having a value of up to one-third of the value of its total assets; (4)
investing more than 5% of
its total assets in securities of one issuer (except cash and cash items,
repurchase agreements collateralized by U.S. government securities and U.S.
government obligations) or purchasing more than 10% of any class of voting
securities of any one issuer; (5) investing more than 5% of its total assets in
securities of issuers that have records of less than three years of continuous
operations including the operation of any predecessors; (6) committing more than
5% of its total assets to premiums on open put option positions; and (7)
investing more than 5% of its total assets in warrants. The Portfolio's first
four investment limitations cannot be changed without shareholder approval; the
last three may be changed by the Board of Directors without shareholder
approval, although shareholders will be notified before any material change
becomes effective.
Both the Portfolio and the Fund are also subject to certain additional
investment limitations, described in the Fund's Statement of Additional
Information dated December 31, 1995 and the Portfolio's Statement of Additional
Information dated December 31, 1995. Reference is hereby made to the Fund's
Prospectus and Statement of Additional Information, each dated December 31,
1995, and to the Portfolio's Prospectus and Statement of Additional Information,
each dated December 31, 1995, which set forth in full the investment objectives
and policies and investment limitations of each of the Fund and the Portfolio,
all of which are incorporated herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Fund is 0.75 of 1% of the Fund's
average daily net assets. Federated Management ("Management"), the investment
adviser to the Fund, may voluntarily choose to waive a portion of its advisory
fee. This voluntary waiver of fees may be terminated by Management at any time
in its sole discretion. Management has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states. The
maximum annual investment advisory fee for the Portfolio is 0.55 of 1% of the
Portfolio's average daily net assets plus 4.50% of gross income, excluding
capital gains or losses. The Portfolio's investment adviser, Federated Advisers
("Adviser"), may similarly voluntarily choose to waive a portion of its advisory
fee or reimburse the Portfolio for certain operating expenses but may likewise
terminate such waiver at any time in its sole discretion. Adviser has also
undertaken to reimburse the Portfolio for operating expenses in excess of
limitations established by certain states. Without such waivers or
reimbursements, the expense ratio of the Fund and the Portfolio would be higher
by 0.00% and 3.10%, respectively, of average daily net assets.
Federated Administrative Services, an affiliate of Management and Adviser,
provides certain administrative personnel and services necessary to operate both
the Fund and the Portfolio at an annual rate based upon the average aggregate
daily net assets of all funds advised by Management, Adviser and their
affiliates. The rate charged is 0.15 of 1% of 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 Administrative Services may choose voluntarily to
waive a portion of its fee. The administrative fee expense for the Fund's most
recent fiscal year was $197,711 and for the Portfolio's most recent fiscal year
was $159,192.
Each of the Fund and the Portfolio have entered into a Shareholder Services
Agreement under which each may make payments of up to 0.25 of 1% of its average
daily net asset value to obtain certain personal services for shareholders and
the maintenance of shareholder accounts. The Shareholder Services Agreement, in
each case, provides that Federated Shareholder Services ("FSS"), an affiliate of
Management and Adviser, 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 customers. The
schedule of such fees and the basis upon which such fees will be paid is
determined from time to time by the Fund or the Portfolio, respectively, and
Federated Shareholder Services.
The total annual operating expenses for Class A Shares of the Fund were
1.11% of average daily net assets for its most recent fiscal year. The total
annual operating expenses for Class A Shares of the Portfolio were 1.25% of
average daily net assets for its most recent fiscal year and would have been
4.54% of average daily net assets absent the voluntary waiver by the Adviser of
a portion of the investment advisory fee, state imposed limitations and
reimbursement of certain other operating expenses and a waiver of a portion of
the shareholder services fee and the 12b-1 fee.
Distribution Arrangements
Federated Securities Corp. ("FSC") is the principal distributor for shares
of the Fund and the Portfolio. FSC may also, with respect to Class A Shares,
select financial institutions to provide substantial sales services,
distribution-related support services or shareholder services. In addition, FSC
may 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 customers under certain qualified retirement plans as approved by FSC.
Such payments are, however, subject to reclaim should the assets leave the Fund
within twelve months after purchase.
The Portfolio has adopted a Rule 12b-1 Distribution Plan (the "Distribution
Plan") pursuant to which the Portfolio pays FSC an amount equal to an annual
rate of up to 0.25 of 1% of the average daily net asset value of the Class A
Shares to finance any activity which is principally intended to result in the
sale of shares subject to the Distribution Plan. FSC may select financial
institutions to provide sales support services as agents for their clients or
customers. The Distribution Plan is a compensation type plan and, accordingly,
no payments are made to FSC except as described above, and the Portfolio does
not pay FSC for unreimbursed expenses. The Fund has not adopted a Rule 12b-1
Distribution Plan and accordingly does not make any payments for distribution of
shares. The Fund will not assume any liabilities or make any voluntary
reimbursements on account of the Portfolio's Distribution Plan.
In addition, FSC and FSS, from their 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 Portfolio. 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 Management,
Adviser or their affiliates but will not be reimbursed by the Portfolio.
Certain costs exist with respect to the purchase and sale of Fund and
Portfolio shares. Shares of the Fund and the Portfolio are sold at their net
asset value next determined after an order is received plus a
sales charge and are redeemed at net asset value; however, a contingent deferred
sales charge is imposed on certain Class A Shares. The sales charge for each of
the Fund and the Portfolio is as follows: 5.50% for transactions less than
$50,000; 4.50% for transactions of at least $50,000 but less than $100,000;
3.75% for transaction of at least $100,000 but less than $250,000; 2.50% for
transactions of at least $250,000 but less than $500,000; 2.00% for transactions
of at least $500,000 but less than $1 million. No sales charge is imposed for
transactions of at least $1 million or for Class A Shares of the Fund or the
Portfolio purchased through certain trust departments, investment advisers,
retirement plans or "wrap accounts," although such shareholders may be charged a
service fee by the institutions. For sales of Class A Shares of each of the Fund
and the Portfolio, a dealer will normally receive up to 90% of the applicable
sales charge. Any portion of the sales charge which is not paid to a dealer will
be retained by FSC. However, FSC may offer to pay certain dealers up to 100% of
the sales charge retained by it in the form of cash or promotional incentives.
FSC may also make payments to dealers with respect to transactions over $1
million for which no sales charge is payable and may make payments out of the
sales charge to banks in exchange for sales and/or administrative services
performed on behalf of the banks' customers in connection with the initiation of
customer accounts and the sales of Class A Shares.
The sales charge can be reduced or eliminated on the purchase of Class A
Shares through quantity discounts and accumulated purchases, concurrent
purchases, the signing of a letter of intent, using the reinvestment privilege
or purchasing with proceeds from the redemption of unaffiliated investment
company shares. The sales charges are not imposed in connection with the
exercise of exchange rights, nor will they be imposed in connection with the
receipt of Fund shares received by shareholders of the Portfolio as a result of
the consummation of the Reorganization.
Subject to certain exemptions, Class A Shares of each of the Fund and the
Portfolio which are purchased under a periodic special offering with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales charge and which are not distributed by FSC
may be charged a contingent deferred sales charge of 0.50 of 1.00% for
redemptions made within one full year of purchase. A contingent deferred sales
charge will not be charged in connection with the exercise of exchange rights,
nor will it be imposed on any redemption (effected subsequent to the
Reorganization) of Fund shares received by shareholders of the Portfolio as a
result of the consummation of the Reorganization provided that such shares were
originally purchased by the Portfolio shareholder more than one year from the
date of redemption. 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 Fund dated December 31, 1995 and the Prospectus of
the Portfolio dated December 31, 1995, each of which is incorporated herein by
reference thereto.
Purchase and Redemption Procedures
The transfer agent and dividend disbursing agent for each of the Fund and
the Portfolio is Federated Shareholder Services Company (formerly called
Federated Services Company). Procedures for the purchase and redemption of the
Fund's Class A Shares differ slightly from procedures applicable to the purchase
and redemption of the Portfolio's Class A Shares. Any questions about such
procedures may be directed to, and assistance in effecting purchases or
redemptions of the Fund's Class A Shares or Portfolio's Class A Shares, may be
obtained from FSC, principal distributor for each of the Fund and the Portfolio,
at 800-245-5051.
Reference is made to the Prospectus of the Fund dated December 31, 1995,
and the Prospectus of the Portfolio dated December 31, 1995, for a complete
description of the purchase and redemption procedures applicable to purchases
and redemptions of Fund and Portfolio shares, respectively, each of which is
incorporated herein by reference thereto. Set forth below is a brief listing of
the significant purchase and redemption procedures applicable to the Fund's
Class A Shares and the Portfolio's Class A Shares.
Purchases of Class A Shares of the Fund or Portfolio may be made through a
financial institution which has a sales agreement with FSC or directly from FSC
once an account has been established. The minimum initial investment in the Fund
and the Portfolio 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 Fund and the Portfolio
each reserve the right to reject any purchase request. In connection with the
sale of Class A Shares of both the Fund and the Portfolio, FSC may from time to
time offer certain items of nominal value to any shareholder.
The purchase price of shares of both the Fund and the Portfolio is based on
net asset value. The net asset value for each of the Fund and the Portfolio is
calculated as of the close of trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange, on each day on which the Fund and the Portfolio compute
their net asset value. Purchase and redemption orders for the Fund and the
Portfolio 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. 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. Portfolio purchase orders by wire are considered received
when the Portfolio's transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), receives payment by wire. 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 Fund and Portfolio Class A Shares each have exchange privileges
with respect to Class A Shares in certain of the funds for which affiliates of
Management or Adviser 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 Fund or the Portfolio may be
exchanged for Class A Shares of certain Federated Funds at net asset value with
no additional fees on exchange. 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. 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 Fund or the Portfolio, as appropriate.
Redemptions of Fund Class A Shares may be made through a financial
institution, by telephone, by mailing a written request or through the Fund's
Systematic Withdrawal Program. Redemptions of Portfolio shares may be made
through a financial institution, by telephone, by mailing a written request or
through the Portfolio's Systematic Withdrawal Program. In each case, Class A
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the redemption request is received.
Proceeds will be distributed by check within seven days after receipt of a
redemption request.
10
Tax Consequences
As a condition to the Reorganization transactions, the Trust and the
Corporation will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code so that no gain or loss will be recognized by either the
Fund or the Portfolio or their shareholders. The tax cost basis of the Fund
shares received by Portfolio shareholders will be the same as the tax cost basis
of their shares in the Portfolio.
RISK FACTORS
Investment in the Fund and the Portfolio is subject to certain risks which
are set forth in the Fund's Prospectus dated December 31, 1995 and the Statement
of Additional Information dated December 31, 1995 and the Portfolio's Prospectus
dated December 31, 1995 and the Statement of Additional Information dated
December 31, 1995, each of which is incorporated herein by reference thereto.
Briefly, these risks include, but are not limited to, fluctuation in the value
of the securities held by the Fund or the Portfolio; gain or loss in the sale of
stocks held by the Fund or the Portfolio based on changes in the perceived
prospects of the issuer; and economic, political and regulatory developments
which affect these securities.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
The Portfolio was established in 1987 to provide investors with an
opportunity to invest in a professionally-managed, diversified pool of equity
securities with prospects for above-average growth in earnings and dividends.
Although its investment objective and policies were similar to other funds
advised by the Adviser at the time of its creation, the Portfolio was created as
a separate unit in order to market it to particular groups of investors.
Subsequent to the Portfolio's creation, the Adviser and its affiliates
determined that a more economically efficient method of marketing to different
groups of investors was to create separate classes of stock within a single
portfolio. The classes are then individually marketed and bear different fees
and expenses.
The Portfolio had net assets of approximately $16.4 million, compared to
the Fund's net assets of $240.9 million as of January 31, 1996. For the last
several years, in an effort to remain competitive with other investment
companies, the Adviser has waived all of its investment advisory fee and
reimbursed the Portfolio for certain operating expenses, resulting in aggregate
fee waivers and expense reimbursements of $356,497 for the Portfolio's fiscal
year ended October 31, 1995. The Adviser has concluded that it will not be able
to continue indefinitely to waive such investment advisory fees and reimburse
operating expenses in order to allow the Portfolio to earn a return on its
investments competitive with other investment companies with similar investment
objectives. As a result, the Adviser has recommended to the Board of Directors
that it would be in the best interests of all of the Portfolio's shareholders to
combine its assets with those of the Fund. Such a combination may achieve
operating efficiencies and economies of scale as a result of the larger size of
the Fund while allowing shareholders to maintain an investment in a fund whose
investment objective is appreciation of capital.
The Corporation's Board of Directors, including a majority of the
independent Directors, determined that participation in the Reorganization is in
the best interests of the Portfolio and that the interests of Portfolio
shareholders would not be diluted as a result of its effecting the
Reorganization. Based upon the foregoing considerations, and the fact that
shareholders of the Portfolio will not suffer any adverse tax consequences as a
result of the Reorganization, the Board of Directors of the Corporation
unanimously voted to approve, and recommend to Portfolio shareholders the
approval of, the Reorganization.
The Board of Trustees of the Fund, including a majority of the independent
Trustees, have unanimously concluded that consummation of the Reorganization is
in the best interests of the Fund and the shareholders of the Fund and that the
interests of Fund shareholders would not be diluted as a result of effecting the
Reorganization and have unanimously approved the Plan.
Description of the Plan of Reorganization
The Plan provides that the Fund will acquire all of the assets of the
Portfolio in exchange for the Fund's Class A Shares and Class C Shares to be
distributed pro rata by the Portfolio to its Class A and Class C shareholders in
complete liquidation of the Portfolio on or about May 31, 1996 (the "Closing
Date"). Shareholders of the Portfolio will become shareholders of the Fund as of
the close of business on the Closing Date, and will be entitled to the Fund's
next dividend distribution. Shareholders of the Portfolio will earn their last
dividend from the Portfolio on the dividend 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 Corporation, on behalf of the Portfolio, and the Trust, on behalf of the
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 Portfolio 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.
Management is responsible for the payment of all 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,
legal 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 Portfolio's shareholders and the costs of holding
the Special Meeting of Shareholders.
The foregoing description of the Plan entered into between the Trust, on
behalf of the Fund, and the Corporation, on behalf of the Portfolio, 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 Fund Shares
Class A Shares of the Fund to be issued to Class A shareholders of the
Portfolio 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 Fund dated December
31, 1995 provided herewith for additional information about Class A Shares of
the Fund.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, the Trust, on behalf of
the Fund, and the Corporation, on behalf of the Portfolio, will receive an
opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to the Trust and the
Corporation, to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (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 Fund upon its receipt of the Portfolio's assets solely in
exchange for Fund shares; (3) no gain or loss will be recognized by the
Portfolio upon the transfer of its assets to the Fund in exchange for Fund
shares or upon the distribution (whether actual or constructive) of the Fund
shares to the Portfolio shareholders in exchange for their shares of the
Portfolio; (4) no gain or loss will be recognized by shareholders of the
Portfolio upon the exchange of their Portfolio shares for Fund shares; (5) the
tax basis of the Portfolio's assets acquired by the Fund will be the same as the
tax basis of such assets to the Portfolio immediately prior to the
Reorganization; (6) the tax basis of Fund shares received by each shareholder of
the Portfolio pursuant to the Plan will be the same as the tax basis of
Portfolio shares held by such shareholder immediately prior to the
Reorganization; (7) the holding period of the assets of the Portfolio in the
hands of the Fund will include the period during which those assets were held by
the Portfolio; and (8) the holding period of Fund shares received by each
shareholder of the Portfolio will include the period during which the Portfolio
shares exchanged therefor were held by such shareholder, provided the Portfolio
shares were held as capital assets on the date of the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Trust is organized as a business trust pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts. Set forth below is a
brief summary of the significant rights of shareholders of the Trust.
The Trust is not required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations or the
election of trustees under certain circumstances. A special meeting of
shareholders of the Trust for any permissible purpose is required to be called
by the Trustees upon the written request of the holders of at least 10% of the
Trust's outstanding shares of all series entitled to vote. Each share of the
Trust is entitled to one 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.
Under certain circumstances, shareholders of the Fund may be held
personally liable as partners under Massachusetts law for obligations of the
Trust on behalf of the Fund. To protect its shareholders, the Trust has filed
legal documents with the Commonwealth of Massachusetts that expressly disclaim
the liability of Fund 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 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 cannot meet its
obligations to indemnify shareholders and pay judgments against them.
The Corporation is organized as a corporation under the laws of the State
of Maryland and is not required to hold annual meetings of shareholders except
when required to to do so under the 1940 Act. A special meeting of shareholders
of the Corporation is required to be called by the Directors upon the written
request of the holders of at least 10% of the outstanding shares of the
Corporation entitled to vote. Each share of the Corporation is entitled to one
vote at all meetings of shareholders except that in matters affecting only a
particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
Capitalization
The following table sets forth the unaudited capitalization of the Class A
Shares of the Fund and the Class A Shares of the Portfolio as of February 29,
1996 and on a pro forma basis as of that date:
<TABLE>
<CAPTION>
PRO FORMA
FUND PORTFOLIO COMBINED
------------ ----------- ------------
<S> <C> <C> <C>
Class A Shares Net Assets (1)................... $255,056,691 $15,198,147 $270,254,838
Net Asset Value Per Class A Share............... $ 23.31 $ 14.09 $ 23.31
</TABLE>
(1) Net assets for Class C Shares of each of the Fund, the Portfolio and Pro
Forma Combined are $551,621, $1,743,283, and $2,294,904, respectively. Net
Asset Value Per Class C Share for each of the Fund, the Portfolio and Pro
Forma Combined are $23.29, $14.06, and $23.29, respectively.
INFORMATION ABOUT THE FUND, THE TRUST,
THE PORTFOLIO AND THE CORPORATION
Federated Growth Strategies Fund, a portfolio of Federated Equity Funds
Information about the Trust and the Fund is contained in the Fund's current
Prospectus dated December 31, 1995, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Fund is
included in the Fund's Annual Report to Shareholders dated October 31, 1995, the
Statement of Additional Information dated December 31, 1995, and the Statement
of Additional Information dated April 7, 1996 relative to this Prospectus/Proxy
Statement, each of which is incorporated herein by reference. Copies of the
Annual Report and Statements of Additional Information, which have been filed
with the Securities and Exchange Commission (the "SEC"), may be obtained without
charge by contacting the Fund at 1-800-245-5051 or by writing the Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject to
the informational requirements of the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act and in accordance therewith files reports
and other information with the SEC. Reports, proxy and information statements
and other information filed by the Trust or the Fund can be obtained by calling
or writing the 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 at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
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 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 documents filed with the
SEC.
Capital Growth Fund, a portfolio of Investment Series Funds, Inc.
Information about the Portfolio and the Corporation is contained in the
Portfolio's current Prospectus dated December 31, 1995, the Annual Report to
Shareholders dated October 31, 1995, its Statement of Additional Information
dated December 31, 1995 and the Statement of Additional Information dated April
7, 1996 relating to this Prospectus/Proxy Statement, each of which is
incorporated herein by reference. Copies of such Prospectus, Annual Report, and
Statement(s) of Additional Information, which have been filed with the SEC, may
be obtained without charge from the Fund by calling 1-800-245-5051 or by writing
to the Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779. The
Corporation 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 and other
information filed by the Corporation or the Portfolio can be obtained by calling
or writing the 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.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FEDERATED GROWTH STRATEGIES FUND--
(CLASS A SHARES)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FEDERATED
GROWTH STRATEGIES FUND (CLASS A SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Growth Strategies Fund (Class A Shares) (the "Fund") from October 31,
1985 to October 31, 1995 compared to the Standard and Poor's 500 Index (S&P
500)+ and the Lipper Growth Fund Index (LGFI).+
Growth of $10,000 as of October 31, 1995
[Graphic representation "B" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund with no sales
charge. As of August 15, 1995, the maximum sales charge was 5.50%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 and the LGFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The LGFI is
not adjusted to reflect sales charges. The indices are unmanaged.
The following information was included in the Fund's Annual Report to
Shareholders dated October 31, 1995. The Management Discussion is presented in a
question and answer format with the Fund's portfolio manager, Jim Grefenstette,
Assistant Vice President of Federated Research Corp., and is contained in its
entirety as follows:
Q
The stock market climbed to new heights during the period. Can you comment?
A
This year saw the confluence of a large number of positive situations come
together to drive the value of equities to new highs: a sharp drop in
interest rates, strong growth in Standard & Poor's 500 Stock Index ("S&P
500") earnings (aided by a weaker U.S. dollar), strong cash flows into mutual
funds, and a huge net reduction in the market value of equities outstanding (as
the result of mergers and acquisitions of public companies paid for with cash).
While we believe that cash flows into mutual funds will stay strong and that
interest rates will probably drift lower over time, we are not sure that we can
count on a similar reduction in the market value of equities, and we think that
S&P 500 earnings growth will be much lower over the next year or two.
Q
In this favorable environment, how did Federated Growth Strategies Fund
perform?
A
Federated Growth Strategies Fund had a very strong year. As of October 31,
1995, the Fund's total return was 29.03%,* which ranked it 83 out of 558
growth funds--among the top 15%--in the Lipper Growth Fund Universe for the
period ended October 31, 1995, according to Lipper Analytical Services, Inc.**
Q
What sectors drove the Fund's performance? Looking forward, do these
sectors continue to offer high growth potential?
A
The strongest performing sectors in our Fund were Technology, Health Care,
and Finance. These sectors offered the highest relative and absolute growth
rates in our universe last year and we believe that most of the fundamental
situations are in place for these sectors to repeat as high growers and strong
performers in 1996.
* Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
** Past performance is not indicative of future results. Lipper rankings are
based on total return and do not take sales charges into account. During the
ranking periods, certain Fund expenses were waived and/or advanced;
otherwise, total return would have been lower. For the period ended October
31, 1995, the Fund's five-year Lipper ranking was 91 out of 234 growth funds.
For the period ended October 31, 1995, the Fund's ten-year Lipper ranking was
51 out of 150 growth funds.
Q
Can you review some of your current top holdings, along with a brief
commentary on each?
A
Loral Corp.: This conglomerate of high-quality defense contractors
generates a large amount of cash flow per share. Loral also has an exciting
ownership interest in Globalstar, a company with plans to encircle the
globe with low-orbit telecommunication satellites.
MBNA Corp.: This firm is the second largest credit card provider in the U.S. and
#1 issuer of cards to common interest groups, which are also known as affinity
groups. MBNA should benefit from lower rates, the secular increase in credit
card usage, and the increasing penetration into the universe of affinity groups.
SunAmerica, Inc.: A provider of fixed and variable annuities, SunAmerica is one
of the most leveraged beneficiaries of the shift towards increased savings in
the U.S.
Potash Corporation of Saskatchewan, Inc.: As a leading producer of potash, a
valuable ingredient in certain types of fertilizer, Potash should benefit from
an expected increase in the demand for fertilizers both domestically and abroad.
Johnson & Johnson: This leading diversified provider of pharmaceuticals and
health care products should experience strong sales growth from a mix of
successful new products and increasing margins from the continued cost cutting
of currently decentralized operations.
Q
With prices of large-company stocks at such high levels, where are you
looking for fairly priced growth potential?
A
We will favor those sectors mentioned above (Health Care, Technology, and
Finance), but we will look for those names that are attractive more in the
mid-cap area. So much money moved into the market last year, that many
large-fund managers had to invest in the large-cap names because they needed the
liquidity that these stocks offered. Consequently, better-priced growth may now
be found in mid-cap stocks.
Q
What is your outlook for growth stocks as we enter 1996?
A
At least relative to more value-driven stocks, we are very positive on
growth stocks. We anticipate a slower growing economy over the next twelve
to eighteen months, which should bode well for stocks that can offer
secular earnings growth. Investors should rotate away from more economically
sensitive companies and pay premiums for those companies that can grow earnings
despite the slower nature of the economy.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of the Corporation of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on May 31, 1996
and at any adjournment 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 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 Corporation an instrument revoking the proxy, by submitting
a proxy bearing a later date or by attending and voting at the Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Management. In addition to solicitations through the
mails, proxies may be solicited by officers, employees and agents of the
Corporation and Management at no additional cost to the Corporation. Such
solicitations may be by telephone. 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 Corporation has fixed the close of business
on March 25, 1996 as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting of Shareholders and any
adjournment thereof. As of the record date, there were 1,114,651 Class A Shares
and 127,838 Class C Shares of the Portfolio outstanding. Each of the Portfolio's
Class A Shares and Class C Shares are entitled to one vote and fractional shares
have proportionate voting rights. On the record date, Merrill Lynch Pierce
Fenner & Smith (as record owner holding Class A Shares for its clients),
Jacksonville, Florida, owned approximately 93,697 shares, or 8.41%, of the
Portfolio's outstanding Class A Shares and Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class C Shares for its clients), Jacksonville Florida,
owned approximately 23,657 shares, or 18.51%, of the Portfolio's outstanding
Class C Shares. On such date, no other person owned of record, or to the
knowledge of the Adviser, beneficially owned, 5% or more of the Portfolio's
outstanding Class A or Class C Shares. On the record date, the directors and
officers of the Corporation as a group owned less than 1% of the outstanding
Class A and Class C Shares of the Portfolio.
As of the record date, there were 10,821,925 Class A, 194,584 Class B, and
23,832 Class C Shares of the Fund outstanding. On the record date, no person
owned of record 5% or more of the Fund's outstanding Class A Shares; Donaldson
Lufkin Jenrette Securities Corporation Inc., Jersey City, New Jersey, owned
approximately 18,645 shares or 9.58% of the Fund's outstanding Class B Shares;
and Merrill Lynch Pierce Fenner & Smith (as record owner holding Class C Shares
for its clients), Jacksonville, Florida, owned approximately 10,507 shares or
44.09%, Kevin M. Boyd, Austin, Texas, owned approximately 4,734 shares or
19.87%, State Street Bank and Trust, Custodian for the IRA of Eugene S. Albin,
Arcata, California, owned approximately 1,674 shares or 7.02%, and Kenneth E.
Morrison and Christine C. Morrison, Marietta, Ohio, owned approximately 1,642
shares or 6.89%, of the Fund's outstanding Class C Shares. On such date, no
other person owned of record, or to the knowledge of the Management,
beneficially owned, 5% or more of the Fund's outstanding Class A,
Class B or Class C Shares. On the record date, the trustees and officers of the
Fund as a group owned less than 1% of the outstanding Class A, Class B and Class
C Shares of the Fund.
Approval of the Plan requires the affirmative vote of the lesser of (i) 67%
of the shares of the Portfolio present at the Special Meeting, if the holders of
more than 50% of the outstanding shares are present or represented by proxy, or
(2) a majority of the outstanding shares of the Portfolio. The votes of
shareholders of the Fund are not being solicited since their approval is not
required in order to effect the Reorganization.
One-third of the outstanding shares of the Portfolio, 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. Under the 1940 Act, however, which governs this transaction,
matters subject to the requirements of the 1940 Act, including the
Reorganization, are determined on the basis of a percentage of votes present at
the Special Meeting, which would have the effect of treating abstentions and
"broker non-votes" as if they were votes against the proposal.
Dissenter's Right of Appraisal
Shareholders of the Portfolio objecting to the Reorganization have no
appraisal rights under the Corporation's Articles of Incorporation or Maryland
law. Under the Plan, if approved by Portfolio shareholders, each Class A
Portfolio shareholder will become the owner of Class A Shares of the Fund having
a total net asset value equal to the total net asset value of his or her
holdings in the Portfolio at the Closing Date.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
Management of the Corporation 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.
So far as management is presently informed, there is no litigation pending
or threatened against the Fund.
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. A vote may be taken on one or more of the proposals in this
Prospectus/Proxy Statement prior to any such adjournment if sufficient votes for
its approval have been received and it is otherwise appropriate.
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 February 29, 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 INVESTMENT SERIES FUNDS, INC., a
Maryland corporation (hereinafter called the "Corporation") on behalf of its
portfolio CAPITAL GROWTH 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 assets of the
Acquired Fund in exchange solely for Class A and Class C Shares of the Acquiring
Fund (the "Acquiring Fund Shares") and the distribution, after the Closing Date
hereinafter referred to, 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, both the Acquired Fund and the Acquiring Fund have outstanding
Class A Shares and Class C Shares;
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 Acquiring Fund 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
Acquired Fund 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 and that the interests of the existing
shareholders of the Acquired Fund would not be diluted as a result of this
transaction;
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 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 Class
A and Class C Acquiring Fund Shares, respectively, including fractional Class A
and Class C 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 Class A and Class C Acquiring Fund Shares, the Acquiring
Fund shall credit the Class A and Class C Acquiring Fund Shares to the Acquired
Fund's account, for the benefit of its Class A and Class C shareholders,
respectively, 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 all of its liabilities and obligations
prior to 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. All cash delivered shall be in the form of
currency and 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
Class A and Class C shareholders of record, determined as of the close of
business on the Closing Date (the "Acquired Fund Shareholders"), the Class A and
Class C Acquiring Fund Shares, respectively, received by the Acquired Fund
pursuant to paragraph 1.1. In addition, each shareholder of record of the
Acquired Fund 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 Class A and Class C 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 Class A and Class C Acquired Fund Shareholders, respectively, and
representing the respective pro rata number of the Class A and Class C Acquiring
Fund Shares due such shareholders, based on their ownership of Class A and Class
C Shares, respectively, of the Acquired Fund on the Closing Date. All
issued and outstanding Class A and Class C Shares of the Acquired Fund will
simultaneously be canceled on the books of the Acquired Fund. Class A and Class
C Share certificates representing interests in the Acquired Fund will represent
a number of Class A and Class C Acquiring Fund Shares, respectively, after the
Closing Date as determined in accordance with Section 2.3. The Acquiring Fund
shall not issue certificates representing the Class A and Class C Acquiring Fund
Shares in connection with such exchange.
1.6 Ownership of Class A and Class C 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 Class A and Class C
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
Class A and Class C 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.
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 New York Stock Exchange (normally 4:00 p.m., Eastern time) on the
Closing Date (such time and date being hereinafter 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 Class A and Class C 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 Class A and Class C Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the Acquired Fund's
net assets shall be determined (a) by dividing the value of the net assets of
the Acquired Fund attributable to Class A Shares, determined using the same
valuation procedures referred to in paragraph 2.1, by the net asset value of one
Class A Acquiring Fund Share and (b) by dividing the value of the net assets of
the Acquired Fund attributable to Class C Shares, determined using the same
valuation procedures referred to in paragraph 2.1, by the net asset value of one
Class C Acquiring Fund Share, in each case 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 May 31, 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 Federated Shareholder Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the names
and addresses of the Class A and Class C Acquired Fund Shareholders and the
number and percentage ownership of outstanding Class A and Class C Shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Class A and Class C
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
Class A and Class C 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 By-Laws 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 Statements of Assets and Liabilities of the Acquired 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, 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) Since October 31, 1995, 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.
(i) 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 dates 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, 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.
(j) For each fiscal year of its operation, the Acquired 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 Class A and Class C 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
Class A and Class C 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 Class A or Class C Acquired Fund Shares, nor is there outstanding any
security convertible into any of the Class A or Class C Acquired Fund Shares.
(l) 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.
(m) 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's directors and, subject to the approval of the Acquired
Fund Shareholders, this Agreement will constitute 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).
(n) 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 (other than information therein that 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.
(o) The Acquired Fund has entered into an agreement under which Federated
Management will assume the expenses of the reorganization including accountants'
fees, legal 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.
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 By-Laws 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) Since October 31, 1995, 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.
(h) At the Closing Date, all Federal and other tax returns and reports of
the Acquiring Fund required by law to have been filed 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, 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.
(i) For each fiscal year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(j) All issued and outstanding Class A and Class C Shares of the Acquiring
Fund 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 Class A or Class C Acquiring Fund Shares, nor is there outstanding
any security convertible into any Class A or Class C Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trust's Trustees, and this Agreement will constitute 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).
(l) 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.
(m) The Acquiring Fund has entered into an agreement under which Federated
Management will assume the expenses of the reorganization including accountants'
fees, legal 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.
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
October 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 October 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 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 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, the other
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, L.L.P. 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 Board of Directors of the
Corporation) 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 Commonwealth of Pennsylvania, 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.
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.
<TABLE>
<S> <C>
Acquired Fund:
INVESTMENT SERIES FUNDS, INC.
on behalf of its portfolio,
Attest: CAPITAL GROWTH FUND
/s/ S. ELLIOTT COHAN By: /s/ J. CHRISTOPHER DONAHUE
- ----------------------------------------------
------------------------------------------
Assistant Secretary Name: J. Christopher Donahue
Title: President
Acquiring Fund:
FEDERATED EQUITY FUNDS
on behalf of its portfolio,
FEDERATED GROWTH
Attest: STRATEGIES FUND
/s/ S. ELLIOTT COHAN By: /s/ GLEN R. JOHNSON
- ----------------------------------------------
------------------------------------------
Assistant Secretary Name: Glen R. Johnson
Title: President
</TABLE>
Cusip 461444 20 0
G01188-03 (4/96)
STATEMENT OF ADDITIONAL INFORMATION
APRIL 7, 1996
ACQUISITION OF THE ASSETS OF
CAPITAL GROWTH FUND
(A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051
BY AND IN EXCHANGE FOR SHARES OF
FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-5051
This Statement of Additional Information dated April 7, 1996 is not a
prospectus. A Prospectus/Proxy Statement dated April 7, 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.
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
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 Capital Growth Fund, a portfolio
of Investment Series Funds, Inc., dated December 31, 1995.
3.Financial Statements of Federated Growth Strategies Fund, a portfolio of
Federated Equity Funds, dated October 31, 1995.
4.Financial Statements of Capital Growth Fund, a portfolio of Investment
Series Funds, Inc., dated October 31, 1995.
The Statement of Additional Information of Federated Growth Strategies Fund,
Inc. (the "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 from the
Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone
number: 1-800-245-5051.
The Statement of Additional Information of Capital Growth Fund (the
"Portfolio"), a portfolio of Investment Series Funds, Inc. (the
"Corporation"), dated December 31, 1995, is incorporated herein by reference
to Post-Effective Amendment No. 9 to the Corporation's Registration Statement
on Form N-1A (File Nos. 33-48847 and 811-07021) which was filed with the
Securities and Exchange Commission on or about December 28, 1995.
The audited financial statements of the Fund, dated October 31, 1995, are
incorporated herein by reference to the Fund's Prospectus dated December 31,
1995 which was filed with the Securities and Exchange Commission in Post-
Effective Amendment No. 29 to the Trust's Registration Statement on Form N-1A
(File Nos. 2-91090 and 811-4017) on or about December 27, 1995.
The audited financial statements of the Portfolio, dated October 31, 1995,
are incorporated herein by reference to the Portfolio's Prospectus dated
December 31, 1995, which was filed with the Securities and Exchange
Commission in Post-Effective Amendment No. 9 to the Corporation's
Registration Statement on Form N-1A (File Nos. 33-48847 and 811-07021) on or
about December 28, 1995.
Pro forma financial statements are not included herein as the total net
assets of the Portfolio do not exceed 10% of the total net assets of the
Fund. At February 29, 1996, the total net assets of the Portfolio were
$16,941,430 and the total net assets of the Fund were $259,976,791.
FEDERATED SECURITIES CORP.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CAPITAL GROWTH FUND, CLASS C SHARES
A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.
CUSIP NO. 461444 40 8
SPECIAL MEETING OF SHAREHOLDERS MAY 31, 1996
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholder(s) of
Capital Growth Fund (the "Portfolio"), a portfolio of Investment Series
Funds, Inc. (the "Corporation"), hereby appoint(s) Gia Albanowski, Patricia
Conner, Patricia Godlewski, Suzanne Land and S. Elliott Cohan, or any of
them, true and lawful attorneys, with power of substitution of each, to vote
all Class C Shares of Capital Growth Fund, a portfolio of Investment Series
Funds, Inc., which the undersigned is entitled to vote, at the Special
Meeting of Shareholders to be held on
May 31, 1996, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:30
p.m. (Eastern Time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
Cusip 461444 20 0
Cusip 461444 40 8
G01188-06 (4/96)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE ATTORNEYS
NAMED WILL VOTE THE SHARES REPRESENTED BY THIS PROXY IN ACCORDANCE WITH THE
CHOICES MADE ON THIS BALLOT. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER.
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
CAPITAL GROWTH FUND, DETACH AND RETURN THIS PORTION ONLY
CLASS C SHARES
VOTE ON PROPOSAL
FOR AGAINST ABSTAIN1. TO APPROVE OR DISAPPROVE AN AGREEMENT
AND PLAN OF REORGANIZATION BETWEEN THE
- --- --- ---
CORPORATION, ON BEHALF OF THE PORTFOLIO, AND
FEDERATED EQUITY FUNDS, ON BEHALF OF FEDERATED
GROWTH STRATEGIES FUND.
Please sign EXACTLY as your name(s) appear(s) above. When signing as
attorney, executor, administrator, guardian, trustee, custodian, etc., please
give 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 parties should sign.
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
FEDERATED SECURITIES CORP.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CAPITAL GROWTH FUND, CLASS C SHARES
A PORTFOLIO OF INVESTMENT SERIES FUNDS, INC.
CUSIP NO. 461444 40 8
SPECIAL MEETING OF SHAREHOLDERS MAY 31, 1996
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholder(s) of
Capital Growth Fund (the "Portfolio"), a portfolio of Investment Series
Funds, Inc. (the "Corporation"), hereby appoint(s) Gia Albanowski, Patricia
Conner, Patricia Godlewski, Suzanne Land and S. Elliott Cohan, or any of
them, true and lawful attorneys, with power of substitution of each, to vote
all Class C Shares of Capital Growth Fund, a portfolio of Investment Series
Funds, Inc., which the undersigned is entitled to vote, at the Special
Meeting of Shareholders to be held on
May 31, 1996, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:30
p.m. (Eastern 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 ATTORNEYS
NAMED WILL VOTE THE SHARES REPRESENTED BY THIS PROXY IN ACCORDANCE WITH THE
CHOICES MADE ON THIS BALLOT. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER.
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
CAPITAL GROWTH FUND, DETACH AND RETURN THIS PORTION ONLY
CLASS C SHARES
VOTE ON PROPOSAL
FOR AGAINST ABSTAIN1. TO APPROVE OR DISAPPROVE AN AGREEMENT
AND PLAN OF REORGANIZATION BETWEEN THE
- --- --- ---
CORPORATION, ON BEHALF OF THE PORTFOLIO, AND
FEDERATED EQUITY FUNDS, ON BEHALF OF FEDERATED
GROWTH STRATEGIES FUND.
Please sign EXACTLY as your name(s) appear(s) above. When signing as
attorney, executor, administrator, guardian, trustee, custodian, etc., please
give 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 parties should sign.
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
Appendix
A. The graphic presentation here displayed consists of a legend at the
middle of the graphic illustration indicating the components of the
corresponding graph. Federated Growth Strategies Fund (Class C Shares) is
indicated by a solid line. Standard & Poor's 500 Index (S&P 500) is indicated
by a broken line. Lipper Growth Fund Index (LGFI) is indicated by a dotted
line. The line graph is a visual representation of a comparison of change in
value of a hypothetical $10,000 investment in Class C Shares of the Fund, the
S&P 500 and the LFGI. The `y' axis of the graph represents the cost of
investment. The `x' axis represents the computation period from the Class C
Shares' start of performance, August 15, 1995, through October 31, 1995. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class C Shares as compared to the S&P 500 and the LGFI; the ending
values are $10,176, $10,473 and $10,160, respectively. There is also a legend
in the bottom center of the graphic presentation which indicates the average
annual total return for the Class C Shares for the period ended October 31,
1995, beginning with the start of performance of the Class C Shares, August
15, 1995; the cumulative total return is 1.76%.
B. The graphic presentation here displayed consists of a legend at the
middle of the graphic illustration indicating the components of the
corresponding graph. Federated Growth Strategies Fund (Class A Shares) is
indicated by a solid line. Standard & Poor's 500 Index (S&P 500) is indicated
by a broken line. Lipper Growth Fund Index (LGFI) is indicated by a dotted
line. The line graph is a visual representation of a comparison of change in
value of a hypothetical $10,000 investment in Class A Shares of the Fund, the
S&P 500 and the LFGI. The `y' axis of the graph represents the cost of
investment. The `x' axis represents computation periods from October 31,
1985, through October 31, 1995. The right margin reflects the ending value of
the hypothetical investment in the Fund's Class A Shares as compared to the
S&P 500 and the LGFI; the ending values are $39,531, $42,018 and $37,458,
respectively. There is also a legend in the bottom center of the graphic
presentation which indicates the average annual total returns of the Fund's
Class A Shares for the period ended October 31, 1995, beginning with the one
year, five year, and ten year periods ended October 31, 1995 and the period
from the start of performance of the Class A Shares, August 23, 1984, to
October 31, 1995; the average total returns are 21.92%, 13.57%, 14.09%, and
