FEDERATED CAPITAL APPRECIATION FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES
SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED DECEMBER 21, 1995.
A. Please delete the "Summary of Fund Expenses" table for Class A Shares on page
1 of the prospectus and replace it with the following table:
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... 5.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)(1)........................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)...................................................... 0.45%
12b-1 Fee(3).......................................................................... 0.00%
Total Other Expenses.................................................................. 0.70%
Shareholder Services Fee.......................................................... 0.25%
Total Operating Expenses(4).................................................. 1.15%
</TABLE>
(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. may be charged a contingent
deferred sales charge of 0.50 of 1% for redemptions made within one year of
purchase. See "Contingent Deferred Sales Charge."
(2) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(3) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the fiscal year ending October 31, 1996. If the Class A Shares were
paying or accruing the 12b-1, the Class A Shares would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Fund Information".
(4) The total operating expenses are estimated to be 1.45% absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Class A Operating Expenses in the table above are estimated based on
average expenses expected to be incurred during the period ending October 31,
1996. During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -------------------------------------------------------------------------------- ------- --------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............... $71 $ 90
You would pay the following expenses on the same investment, assuming no
redemption.................................................................... $66 $ 90
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS A SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
B. Please insert the following "Financial Highlights" table for Class A Shares
immediately following the Summary of Fund Expenses tables in the prospectus:
FEDERATED CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS-CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD
ENDED
(UNAUDITED) YEAR ENDED DECEMBER 31, (A)
APRIL 30, --------------------------------------------------------------------------------------
1996 (B) 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 87.58 $68.84 $71.39 $65.83 $61.65 $50.56 $54.93 $50.03 $46.19 $48.39
- -----------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -----------------------------
Net investment income 0.11 1.05 1.18 1.13 1.36 1.16 1.46 1.37 1.31 1.29
- -----------------------------
Net realized and unrealized
gain (loss) on investments 9.30 24.39 (1.39) 6.30 5.57 12.62 (3.86) 7.34 5.08 (0.45)
- ----------------------------- ------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 9.41 25.44 (0.21) 7.43 6.93 13.78 (2.40) 8.71 6.39 0.84
- ----------------------------- ------- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
- -----------------------------
Distributions from net
investment income (0.08) (1.09) (1.14) (1.16) (1.38) (1.15) (1.51) (1.32) (1.29) (1.30)
- -----------------------------
Distributions from net
realized gain on
investments -- (5.61) (1.20) (0.71) (1.37) (1.54) (0.46) (2.49) (1.26) (1.74)
- ----------------------------- ------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.08) (6.70) (2.34) (1.87) (2.75) (2.69) (1.97) (3.81) (2.55) (3.04)
- ----------------------------- ------- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD $ 96.91 $87.58 $68.84 $71.39 $65.83 $61.65 $50.56 $54.93 $50.03 $46.19
- ----------------------------- ------- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN (C) 10.75% 37.17% (0.30%) 11.31% 11.38% 27.42% (4.43%) 17.58% 13.97% 0.88%
- -----------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------
Expenses 1.18%* 1.08% 1.15% 1.15% 1.11% 1.12% 1.07% 1.13% 1.08% 0.92%*
- -----------------------------
Net investment income 0.35%* 1.29% 1.63% 1.59% 2.13% 1.97% 2.76% 2.45% 2.61% 2.29%*
- -----------------------------
Expense waiver/
reimbursement (d) 0.32%* 0.15% -- -- -- -- -- -- -- --
- -----------------------------
SUPPLEMENTAL DATA
- -----------------------------
Net assets, end of period
(000 omitted) $107,197 $98,200 $81,377 $88,949 $91,551 $90,503 $79,114 $95,422 $89,228 $89,371
- -----------------------------
Average commission rate
paid $0.05 -- -- -- -- -- -- -- -- --
- -----------------------------
Portfolio turnover 13% 81% 23% 26% 47% 54% 61% 41% 36% 39%
- -----------------------------
</TABLE>
* Computed on an annualized basis.
(a) Amounts presented prior to January 1, 1996 represent results of operations
for Federated Exchange Fund, Ltd.
(b) Reflects operations for the period from January 1, 1996 (the Fund's start of
business) to April 30, 1996.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
C. Under the Section entitled "Investment Policies", please replace the third
sentence under the sub-section entitled "Put and Call Options" on page 8 with
the following:
"The Fund may also write call options on all or any portion of its portfolio to
seek to generate income for the Fund."
D. Under the section entitled "Administration of the Fund", on page 25, delete
all references to "Federated Administrative Services" and replace them with
"Federated Services Company."
E. Please delete all references to "Federated Services Company" the former name
of the current transfer agent, and replace with "Federated Shareholder
Services Company," in the following sections of the prospectus; PURCHASING
SHARES BY CHECK, TELEPHONE INSTRUCTIONS, REDEEMING SHARES BY MAIL,
CERTIFICATES AND CONFIRMATIONS and TRANSFER AGENT AND DIVIDEND DISBURSING
AGENT, on pages 16, 18, 19, 21 and 25, respectively.
F. Please delete the last sentence in the section entitled "Making an Exchange"
on page 17 and replace it with the following:
"If a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail to: Federated Shareholder Services Company, 1099 Hingham
Street, Rockland, MA 02370-3317."
G. Please insert the following financial statements beginning on page 33 of the
prospectus:
FEDERATED CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--100.2%
- -----------------------------------------------------------------------------------
BASIC INDUSTRY--2.3%
------------------------------------------------------------------
59,000 Millipore Corp. $ 2,470,625
------------------------------------------------------------------ ------------
CONSUMER DURABLES--4.3%
------------------------------------------------------------------
34,500 Eastman Kodak Co. 2,639,250
------------------------------------------------------------------
80,500 Mattel, Inc. 2,093,000
------------------------------------------------------------------ ------------
Total 4,732,250
------------------------------------------------------------------ ------------
CONSUMER NON-DURABLES--11.6%
------------------------------------------------------------------
29,900 Avon Products, Inc. 2,657,362
------------------------------------------------------------------
72,000 IBP, Inc. 1,926,000
------------------------------------------------------------------
31,600 International Flavors & Fragrances, Inc. 1,552,350
------------------------------------------------------------------
35,000 Nike, Inc., Class B 3,062,500
------------------------------------------------------------------
37,600 Philip Morris Cos., Inc. 3,388,700
------------------------------------------------------------------ ------------
Total 12,586,912
------------------------------------------------------------------ ------------
ENERGY MINERALS--2.5%
------------------------------------------------------------------
46,900 Chevron Corp. 2,720,200
------------------------------------------------------------------ ------------
FINANCE--22.8%
------------------------------------------------------------------
173,500 (a) Acceptance Insurance Cos., Inc. 2,710,937
------------------------------------------------------------------
28,000 Allstate Corp. 1,088,500
------------------------------------------------------------------
25,000 American Express Co. 1,212,500
------------------------------------------------------------------
23,600 Chase Manhattan Corp. 1,625,450
------------------------------------------------------------------
31,097 Citicorp 2,448,889
------------------------------------------------------------------
23,145 Dean Witter, Discover & Co. 1,261,403
------------------------------------------------------------------
100,000 Executive Risk, Inc. 3,100,000
------------------------------------------------------------------
110,000 Leucadia National Corp. 2,860,000
------------------------------------------------------------------
42,500 Mellon Bank Corp. 2,284,375
------------------------------------------------------------------
15,000 NationsBank Corp. 1,196,250
------------------------------------------------------------------
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
FINANCE--CONTINUED
------------------------------------------------------------------
78,000 Pioneer Group, Inc. $ 2,086,500
------------------------------------------------------------------
14,500 Providian Corp. 668,813
------------------------------------------------------------------
36,266 Travelers Group, Inc. 2,230,359
------------------------------------------------------------------ ------------
Total 24,773,976
------------------------------------------------------------------ ------------
HEALTH CARE--7.5%
------------------------------------------------------------------
6,900 (a) Agouron Pharmaceuticals, Inc. 279,450
------------------------------------------------------------------
37,000 Becton, Dickinson & Co. 2,983,125
------------------------------------------------------------------
33,400 Bristol-Myers Squibb Co. 2,747,150
------------------------------------------------------------------
55,000 (a) Scherer (R.P.) Corp. 2,172,500
------------------------------------------------------------------ ------------
Total 8,182,225
------------------------------------------------------------------ ------------
PRODUCER MANUFACTURING--5.6%
------------------------------------------------------------------
100,000 (a) Oak Industries, Inc. 2,700,000
------------------------------------------------------------------
50,000 Philips Electronics N.V., ADR 1,793,750
------------------------------------------------------------------
19,000 Textron, Inc. 1,629,250
------------------------------------------------------------------ ------------
Total 6,123,000
------------------------------------------------------------------ ------------
RETAIL TRADE--2.2%
------------------------------------------------------------------
48,350 Sears, Roebuck & Co. 2,411,456
------------------------------------------------------------------ ------------
SERVICES--5.8%
------------------------------------------------------------------
16,000 Gannett Co., Inc. 1,094,000
------------------------------------------------------------------
50,000 Interpublic Group Cos., Inc. 2,337,500
------------------------------------------------------------------
63,300 Reynolds & Reynolds Co., Class A 2,927,625
------------------------------------------------------------------ ------------
Total 6,359,125
------------------------------------------------------------------ ------------
TECHNOLOGY--27.9%
------------------------------------------------------------------
50,000 (a) Ceridian Corp. 2,387,500
------------------------------------------------------------------
50,000 (a) Compuware Corp. 1,425,000
------------------------------------------------------------------
45,000 (a) DST Systems, Inc. 1,653,750
------------------------------------------------------------------
200,000 (a) Data General Corp. 3,075,000
------------------------------------------------------------------
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
------------------------------------------------------------------
50,000 ECI Telecommunications, Ltd. $ 1,306,250
------------------------------------------------------------------
103,500 Gandalf Technologies, Inc. 1,837,125
------------------------------------------------------------------
50,000 General Motors Corp., Class E 2,818,750
------------------------------------------------------------------
18,800 Hewlett-Packard Co. 1,990,450
------------------------------------------------------------------
75,000 (a) Intervoice, Inc. 2,100,000
------------------------------------------------------------------
40,200 Lockheed Martin Corp. 3,241,125
------------------------------------------------------------------
75,000 Lucent Technologies, Inc. 2,634,375
------------------------------------------------------------------
23,000 (a) Microsoft Corp. 2,607,625
------------------------------------------------------------------
25,000 (a) Sheldahl, Inc. 559,375
------------------------------------------------------------------
24,200 (a) Solectron Corp. 1,076,900
------------------------------------------------------------------
25,000 (a) Systeme, Anwendungen, Produkte in der Datevnerarbeitung, ADR 1,100,000
------------------------------------------------------------------
20,000 (a) Vanstar Corp. 272,500
------------------------------------------------------------------
5,000 (a) Wind River Systems, Inc. 195,000
------------------------------------------------------------------ ------------
Total 30,280,725
------------------------------------------------------------------ ------------
TRANSPORTATION--3.2%
------------------------------------------------------------------
50,000 Kansas City Southern Industries, Inc. 2,425,000
------------------------------------------------------------------
14,200 (a) Southern Pacific Railway Co. 355,000
------------------------------------------------------------------
10,400 Union Pacific Corp. 708,500
------------------------------------------------------------------ ------------
Total 3,488,500
------------------------------------------------------------------ ------------
UTILITIES--4.5%
------------------------------------------------------------------
60,000 (a) Columbia Gas System, Inc. 2,917,500
------------------------------------------------------------------
49,000 Enron Corp. 1,972,250
------------------------------------------------------------------ ------------
Total 4,889,750
------------------------------------------------------------------ ------------
TOTAL COMMON STOCKS (IDENTIFIED COST $77,220,861) 109,018,744
------------------------------------------------------------------ ------------
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
(B) REPURCHASE AGREEMENT--2.5%
- -----------------------------------------------------------------------------------
$2,695,000 BT Securities Corporation, 5.35%, dated 4/30/1996, due 5/1/1996
(at amortized cost) $ 2,695,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $79,915,861)(C) $111,713,744
----------------------------------------------------------------- ------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $79,915,861. The
net unrealized appreciation of investments on a federal tax basis amounts to
$31,797,883 which is comprised of $33,080,279 appreciation and $1,282,396
depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($108,745,314) at April 30, 1996.
The following acronym is used throughout this portfolio:
<TABLE>
<S> <C>
ADR -- American Depository Receipt
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $79,915,861) $111,713,744
- -----------------------------------------------------------------------------------------------
Income receivable 70,569
- -----------------------------------------------------------------------------------------------
Receivable for investments sold 380,625
- -----------------------------------------------------------------------------------------------
Receivable for shares sold 59,822
- ----------------------------------------------------------------------------------------------- -----------
Total assets 112,224,760
- -----------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------------------
Payable for investments purchased $3,198,945
- ----------------------------------------------------------------------------------
Payable to Bank 169,478
- ----------------------------------------------------------------------------------
Accrued expenses 111,023
- ---------------------------------------------------------------------------------- ---------
Total liabilities 3,479,446
- ----------------------------------------------------------------------------------------------- -----------
NET ASSETS for 1,122,131 shares outstanding $108,745,314
- ----------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------
Paid in capital $ 74,319,475
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 31,797,883
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 2,594,112
- -----------------------------------------------------------------------------------------------
Undistributed net investment income 33,844
- ----------------------------------------------------------------------------------------------- -----------
Total Net Assets $108,745,314
- ----------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -----------------------------------------------------------------------------------------------
CLASS A SHARES:
- -----------------------------------------------------------------------------------------------
Net Asset Value Per Share ($107,197,162 / 1,106,150 shares outstanding) $96.91
- ----------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $96.91)* $102.55
- ----------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $96.91
- ----------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- -----------------------------------------------------------------------------------------------
Net Asset Value Per Share ($1,526,163 / 15,754 shares outstanding) $96.87
- ----------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $96.87
- ----------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $96.87)** $91.54
- ----------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- -----------------------------------------------------------------------------------------------
Net Asset Value Per Share ($21,989 / 227 shares outstanding) $96.87
- ----------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $96.87
- ----------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $96.87)** $95.90
- ----------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "Investing in Class A Shares," "Investing in Class B Shares" and
"Investing in Class C Shares" in the Prospectuses.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
PERIOD ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Dividends $ 483,912
- -------------------------------------------------------------------------------------
Interest 37,643
- ------------------------------------------------------------------------------------- -----------
Total income 521,555
- -------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 256,275
- -------------------------------------------------------------------------
Administrative personnel and services fee 61,160
- -------------------------------------------------------------------------
Custodian fees 7,680
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 15,634
- -------------------------------------------------------------------------
Directors'/Trustees' fees 4,283
- -------------------------------------------------------------------------
Auditing fees 5,929
- -------------------------------------------------------------------------
Legal fees 3,993
- -------------------------------------------------------------------------
Portfolio accounting fees 23,529
- -------------------------------------------------------------------------
Distribution services fee--Class B Shares 1,262
- -------------------------------------------------------------------------
Distribution services fee--Class C Shares 22
- -------------------------------------------------------------------------
Shareholder services fee--Class A Shares 84,997
- -------------------------------------------------------------------------
Shareholder services fee--Class B Shares 421
- -------------------------------------------------------------------------
Shareholder services fee--Class C Shares 7
- -------------------------------------------------------------------------
Share registration costs 31,944
- -------------------------------------------------------------------------
Printing and postage 10,908
- -------------------------------------------------------------------------
Insurance premiums 2,783
- -------------------------------------------------------------------------
Miscellaneous 3,993
- ------------------------------------------------------------------------- ---------
Total expenses 514,820
- -------------------------------------------------------------------------
Waivers--
- -------------------------------------------------------------------------
Waiver of investment advisory fee (110,371)
- ------------------------------------------------------------------------- ---------
Net expenses 404,449
- ------------------------------------------------------------------------------------- -----------
Net investment income 117,106
- ------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------
Net realized gain on investments 2,594,112
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 7,816,619
- ------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 10,410,731
- ------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $10,527,837
- ------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996(A) DECEMBER 31, 1995(A)
----------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 117,106 $ 1,188,048
- ------------------------------------------------------------
Net realized gain (loss) on investments ($2,594,112 net gain
and $16,693,345 net gain, respectively, as computed for
federal tax purposes) 2,594,112 18,575,112
- ------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 7,816,619 9,195,528
- ------------------------------------------------------------ -------------- ---------------
Change in net assets resulting from operations 10,527,837 28,958,688
- ------------------------------------------------------------ -------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------
Class A Shares (88,613) (1,235,954)
- ------------------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------------------
Class B Shares (98) --
- ------------------------------------------------------------
Distributions from net realized gains
- ------------------------------------------------------------
Class A Shares -- (6,164,051)
- ------------------------------------------------------------ -------------- ---------------
Change in net assets resulting from distributions to
shareholders (88,711) (7,400,005)
- ------------------------------------------------------------ -------------- ---------------
SHARE TRANSACTIONS(B)--
- ------------------------------------------------------------
Proceeds from sale of shares 2,271,048 --
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 18,327 2,209,356
- ------------------------------------------------------------
Cost of shares redeemed (2,183,445) (6,944,798)
- ------------------------------------------------------------ -------------- ---------------
Change in net assets resulting from share transactions 105,930 (4,735,442)
- ------------------------------------------------------------ -------------- ---------------
Change in net assets 10,545,056 16,823,241
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 98,200,258 81,377,017
- ------------------------------------------------------------ -------------- ---------------
End of period (including undistributed net investment income
of $33,844 and $5,448, respectively) $ 108,745,314 $ 98,200,258
- ------------------------------------------------------------ -------------- ---------------
</TABLE>
(a) See the Organizational Note in the Notes to the Financial Statements.
(b) Includes transactions in shares of partnership interest for Federated
Exchange Fund, Ltd. through December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Equity Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Capital Appreciation Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is to provide capital appreciation.
The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares.
Pursuant to the terms of a merger agreement dated October 10, 1995, shareholders
of Federated Exchange Fund, Ltd. agreed to acquire shares of the Fund, effective
January 2, 1996. As part of the transaction, 1,121,204 Class A shares of the
Fund were issued in exchange for all the assets of Federated Exchange Fund,
Ltd., which amounted to $98,200,258. The shares issued as a result of this
transaction represented substantially all of the Fund's outstanding shares as of
the transaction date. Due to this, and due to the similarities in investment
objectives and policies between the Fund and Federated Exchange Fund, Ltd., the
historical performance of Federated Exchange Fund, Ltd. prior to January 2,
1996, has been incorporated into the Fund's financial statements.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31, 1995(B)
APRIL 30, 1996
---------------------- ----------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 7,780 $ 729,188 -- $ --
- ---------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 194 18,232 25,468 2,209,356
- ---------------------------------------------------------
Shares redeemed (23,028) (2,143,320) (86,324) (6,944,798)
- --------------------------------------------------------- ------- ----------- ------- -----------
Net change resulting from Class A share transactions (15,054) $(1,395,900) (60,856) $(4,735,442)
- --------------------------------------------------------- ------- ----------- ------- -----------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996(A)
----------------------
CLASS B SHARES SHARES AMOUNT
- --------------------------------------------------------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 16,172 $ 1,520,260
- ---------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 1 95
- ---------------------------------------------------------
Shares redeemed (419) (40,125)
- --------------------------------------------------------- ------- -----------
Net change resulting from Class B share transactions 15,754 $ 1,480,230
- --------------------------------------------------------- ------- -----------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996(A)
----------------------
CLASS C SHARES SHARES AMOUNT
- --------------------------------------------------------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 227 $ 21,600
- ---------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared -- --
- ---------------------------------------------------------
Shares redeemed -- --
- --------------------------------------------------------- ------- -----------
Net change resulting from Class C share transactions 227 $ 21,600
- --------------------------------------------------------- ------- -----------
Net change resulting from share transactions 927 $ 105,930
- --------------------------------------------------------- ------- -----------
</TABLE>
(a) For the period ended January 4, 1996 (date of initial public offering) to
April 30, 1996.
(b) Includes transactions in shares of partnership interest for Federated
Exchange Fund, Ltd. through December 31, 1995.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
net assets.The Adviser may voluntarily choose to waive any portion of its fee.
The Adviser can modify or terminate this voluntary waiver at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp.("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Class A Shares, Class B Shares and Class C Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
-------------------------------- --------------------------------
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its
subsidiary, Federated Shareholder Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FServ is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $13,248,556
- ------------------------------------------------------------------------------- -----------
SALES $16,950,673
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual Funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus which contains facts concerning
their objective and policies, management fees, expenses and other information.
LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSIP# 314172701
G01649-02 (5/96)
FEDERATED CAPITAL APPRECIATION FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED DECEMBER 21, 1995.
A. Please delete the "Summary of Fund Expenses" tables for Class A, Class B, and
Class C Shares on pages 1-3 of the prospectus and replace them with the
following table:
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... 5.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)(1)........................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)...................................................... 0.45%
12b-1 Fee(3).......................................................................... 0.00%
Total Other Expenses.................................................................. 0.70%
Shareholder Services Fee.......................................................... 0.25%
Total Operating Expenses(4).................................................. 1.15%
</TABLE>
(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. may be charged a contingent
deferred sales charge of 0.50 of 1% for redemptions made within one year of
purchase. See "Contingent Deferred Sales Charge."
(2) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(3) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the fiscal year ending October 31, 1996. If the Class A Shares were
paying or accruing the 12b-1, the Class A Shares would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Fund Information".
(4) The total operating expenses are estimated to be 1.45% absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Class A Operating Expenses in the table above are estimated based on
average expenses expected to be incurred during the period ending October 31,
1996. During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -------------------------------------------------------------------------------- ------- --------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............... $71 $ 90
You would pay the following expenses on the same investment, assuming no
redemption.................................................................... $66 $ 90
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS A SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)(1)........................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)...................................................... 0.45%
12b-1 Fee............................................................................. 0.75%
Total Other Expenses.................................................................. 0.70%
Shareholder Services Fee.......................................................... 0.25%
Total Operating Expenses(3)(4)............................................... 1.90%
</TABLE>
(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. See "Contingent Deferred Sales
Charge".
(2) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
(4) The total operating expenses are estimated to be 2.20% absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Class B Shares Operating Expenses in the table above are estimated based
on average expenses expected to be incurred during the period ending October 31,
1996. During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -------------------------------------------------------------------------------- ------- --------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............... $76 $104
You would pay the following expenses on the same investment, assuming no
redemption.................................................................... $19 $ 60
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS B SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)(1)........................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(2)...................................................... 0.45%
12b-1 Fee............................................................................. 0.75%
Total Other Expenses.................................................................. 0.70%
Shareholder Services Fee.......................................................... 0.25%
Total Operating Expenses(3).................................................. 1.90%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see "Contingent
Deferred Sales Charge".
(2) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(3) The total operating expenses are estimated to be 2.20% absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Class C Operating Expenses in the table above are estimated based on
average expenses expected to be incurred during the period ending October 31,
1996. During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -------------------------------------------------------------------------------- ------- --------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period........ $30 $ 60
You would pay the following expenses on the same investment, assuming no
redemption.................................................................... $19 $ 60
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR CLASS C SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
B. Please insert the following "Financial Highlights" tables for Class A, Class
B, and Class C Shares immediately following the Summary of Fund Expenses
tables in the prospectus:
FEDERATED CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS-CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED) YEAR ENDED DECEMBER 31, (A)
APRIL 30, --------------------------------------------------------------------------------------
1996 (B) 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 87.58 $68.84 $71.39 $65.83 $61.65 $50.56 $54.93 $50.03 $46.19 $48.39
- ---------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ---------------------------
Net investment income 0.11 1.05 1.18 1.13 1.36 1.16 1.46 1.37 1.31 1.29
- ---------------------------
Net realized and
unrealized gain (loss) on
investments 9.30 24.39 (1.39) 6.30 5.57 12.62 (3.86) 7.34 5.08 (0.45)
- --------------------------- -------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 9.41 25.44 (0.21) 7.43 6.93 13.78 (2.40) 8.71 6.39 0.84
- --------------------------- -------- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS
- ---------------------------
Distributions from net
investment income (0.08) (1.09) (1.14) (1.16) (1.38) (1.15) (1.51) (1.32) (1.29) (1.30)
- ---------------------------
Distributions from net
realized gain on
investments -- (5.61) (1.20) (0.71) (1.37) (1.54) (0.46) (2.49) (1.26) (1.74)
- --------------------------- -------- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.08) (6.70) (2.34) (1.87) (2.75) (2.69) (1.97) (3.81) (2.55) (3.04)
- --------------------------- -------- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD $ 96.91 $87.58 $68.84 $71.39 $65.83 $61.65 $50.56 $54.93 $50.03 $46.19
- --------------------------- -------- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN (C) 10.75% 37.17% (0.30%) 11.31% 11.38% 27.42% (4.43%) 17.58% 13.97% 0.88%
- ---------------------------
RATIOS TO AVERAGE NET
ASSETS
- ---------------------------
Expenses 1.18%* 1.08% 1.15% 1.15% 1.11% 1.12% 1.07% 1.13% 1.08% 0.92%*
- ---------------------------
Net investment income 0.35%* 1.29% 1.63% 1.59% 2.13% 1.97% 2.76% 2.45% 2.61% 2.29%*
- ---------------------------
Expense waiver/
reimbursement (d) 0.32%* 0.15% -- -- -- -- -- -- -- --
- ---------------------------
SUPPLEMENTAL DATA
- ---------------------------
Net assets, end of period
(000 omitted) $107,197 $98,200 $81,377 $88,949 $91,551 $90,503 $79,114 $95,422 $89,228 $89,371
- ---------------------------
Average commission rate
paid $0.05 -- -- -- -- -- -- -- -- --
- ---------------------------
Portfolio turnover 13% 81% 23% 26% 47% 54% 61% 41% 36% 39%
- ---------------------------
</TABLE>
* Computed on an annualized basis.
(a) Amounts presented prior to January 1, 1996 represent results of operations
for Federated Exchange Fund, Ltd.
(b) Reflects operations for the period from January 1, 1996 (the Fund's start of
business) to April 30, 1996.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS-CLASS B SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996 (A)
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $88.22
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income (0.04)
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.70
- ------------------------------------------------------------------------- -------
Total from investment operations 8.66
- ------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)
- ------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $96.87
- ------------------------------------------------------------------------- -------
TOTAL RETURN (B) 9.82%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 2.00%*
- -------------------------------------------------------------------------
Net investment income (0.42%)*
- -------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.29%*
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,526
- -------------------------------------------------------------------------
Average commission rate paid $ 0.05
- -------------------------------------------------------------------------
Portfolio turnover 13%
- -------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 4, 1996 (date of initial
public offering) to April 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS-CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996 (A)
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $88.22
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income (0.02)
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.64
- ------------------------------------------------------------------------- -------
Total from investment operations 8.62
- ------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $96.84
- ------------------------------------------------------------------------- -------
TOTAL RETURN (B) 9.81%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 1.95%*
- -------------------------------------------------------------------------
Net investment income (0.24%)*
- -------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.29%*
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 22
- -------------------------------------------------------------------------
Average commission rate paid $ 0.05
- -------------------------------------------------------------------------
Portfolio turnover 13%
- -------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 4, 1996 (date of initial
public offering) to April 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
C. Under the Section entitled "Investment Policies", please replace the third
sentence under the sub-section entitled "Put and Call Options" on page 10
with the following:
"The Fund may also write call options on all or any portion of its portfolio to
seek to generate income for the Fund."
D. Under the section entitled "Administration of the Fund", on page 30, delete
all references to "Federated Administrative Services" and replace them with
"Federated Services Company."
E. Please delete all references to "Federated Services Company" the former name
of the current transfer agent, and replace with "Federated Shareholder
Services Company", in the following sections of the prospectus; PURCHASING
SHARES BY CHECK, TELEPHONE INSTRUCTIONS, REDEEMING SHARES BY MAIL,
CERTIFICATES AND CONFIRMATIONS and TRANSFER AGENT AND DIVIDEND DISBURSING
AGENT, on pages 20, 22, 23, 26 and 30, respectively.
F. Please delete the last sentence in the section entitled "Making an Exchange"
on page 22 and replace it with the following:
"If a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail to: Federated Shareholder Services Company, 1099 Hingham
Street, Rockland, MA 02370-3317."
G. Please insert the following financial statements beginning on page 37 of the
prospectus:
FEDERATED CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--100.2%
- -----------------------------------------------------------------------------------
BASIC INDUSTRY--2.3%
------------------------------------------------------------------
59,000 Millipore Corp. $ 2,470,625
------------------------------------------------------------------ ------------
CONSUMER DURABLES--4.3%
------------------------------------------------------------------
34,500 Eastman Kodak Co. 2,639,250
------------------------------------------------------------------
80,500 Mattel, Inc. 2,093,000
------------------------------------------------------------------ ------------
Total 4,732,250
------------------------------------------------------------------ ------------
CONSUMER NON-DURABLES--11.6%
------------------------------------------------------------------
29,900 Avon Products, Inc. 2,657,362
------------------------------------------------------------------
72,000 IBP, Inc. 1,926,000
------------------------------------------------------------------
31,600 International Flavors & Fragrances, Inc. 1,552,350
------------------------------------------------------------------
35,000 Nike, Inc., Class B 3,062,500
------------------------------------------------------------------
37,600 Philip Morris Cos., Inc. 3,388,700
------------------------------------------------------------------ ------------
Total 12,586,912
------------------------------------------------------------------ ------------
ENERGY MINERALS--2.5%
------------------------------------------------------------------
46,900 Chevron Corp. 2,720,200
------------------------------------------------------------------ ------------
FINANCE--22.8%
------------------------------------------------------------------
173,500 (a) Acceptance Insurance Cos., Inc. 2,710,937
------------------------------------------------------------------
28,000 Allstate Corp. 1,088,500
------------------------------------------------------------------
25,000 American Express Co. 1,212,500
------------------------------------------------------------------
23,600 Chase Manhattan Corp. 1,625,450
------------------------------------------------------------------
31,097 Citicorp 2,448,889
------------------------------------------------------------------
23,145 Dean Witter, Discover & Co. 1,261,403
------------------------------------------------------------------
100,000 Executive Risk, Inc. 3,100,000
------------------------------------------------------------------
110,000 Leucadia National Corp. 2,860,000
------------------------------------------------------------------
42,500 Mellon Bank Corp. 2,284,375
------------------------------------------------------------------
15,000 NationsBank Corp. 1,196,250
------------------------------------------------------------------
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
FINANCE--CONTINUED
------------------------------------------------------------------
78,000 Pioneer Group, Inc. $ 2,086,500
------------------------------------------------------------------
14,500 Providian Corp. 668,813
------------------------------------------------------------------
36,266 Travelers Group, Inc. 2,230,359
------------------------------------------------------------------ ------------
Total 24,773,976
------------------------------------------------------------------ ------------
HEALTH CARE--7.5%
------------------------------------------------------------------
6,900 (a) Agouron Pharmaceuticals, Inc. 279,450
------------------------------------------------------------------
37,000 Becton, Dickinson & Co. 2,983,125
------------------------------------------------------------------
33,400 Bristol-Myers Squibb Co. 2,747,150
------------------------------------------------------------------
55,000 (a) Scherer (R.P.) Corp. 2,172,500
------------------------------------------------------------------ ------------
Total 8,182,225
------------------------------------------------------------------ ------------
PRODUCER MANUFACTURING--5.6%
------------------------------------------------------------------
100,000 (a) Oak Industries, Inc. 2,700,000
------------------------------------------------------------------
50,000 Philips Electronics N.V., ADR 1,793,750
------------------------------------------------------------------
19,000 Textron, Inc. 1,629,250
------------------------------------------------------------------ ------------
Total 6,123,000
------------------------------------------------------------------ ------------
RETAIL TRADE--2.2%
------------------------------------------------------------------
48,350 Sears, Roebuck & Co. 2,411,456
------------------------------------------------------------------ ------------
SERVICES--5.8%
------------------------------------------------------------------
16,000 Gannett Co., Inc. 1,094,000
------------------------------------------------------------------
50,000 Interpublic Group Cos., Inc. 2,337,500
------------------------------------------------------------------
63,300 Reynolds & Reynolds Co., Class A 2,927,625
------------------------------------------------------------------ ------------
Total 6,359,125
------------------------------------------------------------------ ------------
TECHNOLOGY--27.9%
------------------------------------------------------------------
50,000 (a) Ceridian Corp. 2,387,500
------------------------------------------------------------------
50,000 (a) Compuware Corp. 1,425,000
------------------------------------------------------------------
45,000 (a) DST Systems, Inc. 1,653,750
------------------------------------------------------------------
200,000 (a) Data General Corp. 3,075,000
------------------------------------------------------------------
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
------------------------------------------------------------------
50,000 ECI Telecommunications, Ltd. $ 1,306,250
------------------------------------------------------------------
103,500 Gandalf Technologies, Inc. 1,837,125
------------------------------------------------------------------
50,000 General Motors Corp., Class E 2,818,750
------------------------------------------------------------------
18,800 Hewlett-Packard Co. 1,990,450
------------------------------------------------------------------
75,000 (a) Intervoice, Inc. 2,100,000
------------------------------------------------------------------
40,200 Lockheed Martin Corp. 3,241,125
------------------------------------------------------------------
75,000 Lucent Technologies, Inc. 2,634,375
------------------------------------------------------------------
23,000 (a) Microsoft Corp. 2,607,625
------------------------------------------------------------------
25,000 (a) Sheldahl, Inc. 559,375
------------------------------------------------------------------
24,200 (a) Solectron Corp. 1,076,900
------------------------------------------------------------------
25,000 (a) Systeme, Anwendungen, Produkte in der Datevnerarbeitung, ADR 1,100,000
------------------------------------------------------------------
20,000 (a) Vanstar Corp. 272,500
------------------------------------------------------------------
5,000 (a) Wind River Systems, Inc. 195,000
------------------------------------------------------------------ ------------
Total 30,280,725
------------------------------------------------------------------ ------------
TRANSPORTATION--3.2%
------------------------------------------------------------------
50,000 Kansas City Southern Industries, Inc. 2,425,000
------------------------------------------------------------------
14,200 (a) Southern Pacific Railway Co. 355,000
------------------------------------------------------------------
10,400 Union Pacific Corp. 708,500
------------------------------------------------------------------ ------------
Total 3,488,500
------------------------------------------------------------------ ------------
UTILITIES--4.5%
------------------------------------------------------------------
60,000 (a) Columbia Gas System, Inc. 2,917,500
------------------------------------------------------------------
49,000 Enron Corp. 1,972,250
------------------------------------------------------------------ ------------
Total 4,889,750
------------------------------------------------------------------ ------------
TOTAL COMMON STOCKS (IDENTIFIED COST $77,220,861) 109,018,744
------------------------------------------------------------------ ------------
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
(B) REPURCHASE AGREEMENT--2.5%
- -----------------------------------------------------------------------------------
$2,695,000 BT Securities Corporation, 5.35%, dated 4/30/1996, due 5/1/1996
(at amortized cost) $ 2,695,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $79,915,861)(C) $111,713,744
----------------------------------------------------------------- ------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $79,915,861. The
net unrealized appreciation of investments on a federal tax basis amounts to
$31,797,883 which is comprised of $33,080,279 appreciation and $1,282,396
depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($108,745,314) at April 30, 1996.
The following acronym is used throughout this portfolio:
ADR -- American Depository Receipt
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $79,915,861) $111,713,744
- --------------------------------------------------------------------------------------------------
Income receivable 70,569
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 380,625
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 59,822
- -------------------------------------------------------------------------------------------------- -----------
Total assets 112,224,760
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $3,198,945
- -------------------------------------------------------------------------------------
Payable to Bank 169,478
- -------------------------------------------------------------------------------------
Accrued expenses 111,023
- ------------------------------------------------------------------------------------- ---------
Total liabilities 3,479,446
- -------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 1,122,131 shares outstanding $108,745,314
- -------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 74,319,475
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 31,797,883
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 2,594,112
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 33,844
- -------------------------------------------------------------------------------------------------- -----------
Total Net Assets $108,745,314
- -------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
CLASS A SHARES:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($107,197,162 / 1,106,150 shares outstanding) $96.91
- -------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $96.91)* $102.55
- -------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $96.91
- -------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($1,526,163 / 15,754 shares outstanding) $96.87
- -------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $96.87
- -------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $96.87)** $91.54
- -------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($21,989 / 227 shares outstanding) $96.87
- -------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $96.87
- -------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $96.87)** $95.90
- -------------------------------------------------------------------------------------------------- -----------
</TABLE>
* See "Investing in Class A Shares," "Investing in Class B Shares" and
"Investing in Class C Shares" in the Prospectuses.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
PERIOD ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------
Dividends $ 483,912
- ---------------------------------------------------------------------------------------------
Interest 37,643
- --------------------------------------------------------------------------------------------- -----------
Total income 521,555
- ---------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------
Investment advisory fee $ 256,275
- ---------------------------------------------------------------------------------
Administrative personnel and services fee 61,160
- ---------------------------------------------------------------------------------
Custodian fees 7,680
- ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 15,634
- ---------------------------------------------------------------------------------
Directors'/Trustees' fees 4,283
- ---------------------------------------------------------------------------------
Auditing fees 5,929
- ---------------------------------------------------------------------------------
Legal fees 3,993
- ---------------------------------------------------------------------------------
Portfolio accounting fees 23,529
- ---------------------------------------------------------------------------------
Distribution services fee--Class B Shares 1,262
- ---------------------------------------------------------------------------------
Distribution services fee--Class C Shares 22
- ---------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 84,997
- ---------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 421
- ---------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 7
- ---------------------------------------------------------------------------------
Share registration costs 31,944
- ---------------------------------------------------------------------------------
Printing and postage 10,908
- ---------------------------------------------------------------------------------
Insurance premiums 2,783
- ---------------------------------------------------------------------------------
Miscellaneous 3,993
- --------------------------------------------------------------------------------- ---------
Total expenses 514,820
- ---------------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------------
Waiver of investment advisory fee (110,371)
- --------------------------------------------------------------------------------- ---------
Net expenses 404,449
- --------------------------------------------------------------------------------------------- -----------
Net investment income 117,106
- --------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------
Net realized gain on investments 2,594,112
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 7,816,619
- --------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 10,410,731
- --------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $10,527,837
- --------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996(A) DECEMBER 31, 1995(A)
----------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------
Net investment income $ 117,106 $ 1,188,048
- ----------------------------------------------------------------
Net realized gain (loss) on investments ($2,594,112 net gain and
$16,693,345 net gain, respectively, as computed for federal tax
purposes) 2,594,112 18,575,112
- ----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 7,816,619 9,195,528
- ---------------------------------------------------------------- ------------- --------------
Change in net assets resulting from operations 10,527,837 28,958,688
- ---------------------------------------------------------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------
Class A Shares (88,613) (1,235,954)
- ----------------------------------------------------------------
Distributions in excess of net investment income
- ----------------------------------------------------------------
Class B Shares (98) --
- ----------------------------------------------------------------
Distributions from net realized gains
- ----------------------------------------------------------------
Class A Shares -- (6,164,051)
- ---------------------------------------------------------------- ------------- --------------
Change in net assets resulting from distributions to
shareholders (88,711) (7,400,005)
- ---------------------------------------------------------------- ------------- --------------
SHARE TRANSACTIONS(B)--
- ----------------------------------------------------------------
Proceeds from sale of shares 2,271,048 --
- ----------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 18,327 2,209,356
- ----------------------------------------------------------------
Cost of shares redeemed (2,183,445) (6,944,798)
- ---------------------------------------------------------------- ------------- --------------
Change in net assets resulting from share transactions 105,930 (4,735,442)
- ---------------------------------------------------------------- ------------- --------------
Change in net assets 10,545,056 16,823,241
- ----------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------
Beginning of period 98,200,258 81,377,017
- ---------------------------------------------------------------- ------------- --------------
End of period (including undistributed net investment income of
$33,844 and $5,448, respectively) $ 108,745,314 $ 98,200,258
- ---------------------------------------------------------------- ------------- --------------
</TABLE>
(a) See the Organizational Note in the Notes to the Financial Statements.
(b) Includes transactions in shares of partnership interest for Federated
Exchange Fund, Ltd. through December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Equity Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Capital Appreciation Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is to provide capital appreciation.
The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares.
Pursuant to the terms of a merger agreement dated October 10, 1995, shareholders
of Federated Exchange Fund, Ltd. agreed to acquire shares of the Fund, effective
January 2, 1996. As part of the transaction, 1,121,204 Class A shares of the
Fund were issued in exchange for all the assets of Federated Exchange Fund,
Ltd., which amounted to $98,200,258. The shares issued as a result of this
transaction represented substantially all of the Fund's outstanding shares as of
the transaction date. Due to this, and due to the similarities in investment
objectives and policies between the Fund and Federated Exchange Fund, Ltd., the
historical performance of Federated Exchange Fund, Ltd. prior to January 2,
1996, has been incorporated into the Fund's financial statements.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31, 1995(B)
APRIL 30, 1996
---------------------- ----------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 7,780 $ 729,188 -- $ --
- ---------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 194 18,232 25,468 2,209,356
- ---------------------------------------------------------
Shares redeemed (23,028) (2,143,320) (86,324) (6,944,798)
- --------------------------------------------------------- ------- ---------- ------- ----------
Net change resulting from Class A share transactions (15,054) $(1,395,900) (60,856) $(4,735,442)
- --------------------------------------------------------- ------- ----------- ------- -----------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996(A)
----------------------
CLASS B SHARES SHARES AMOUNT
- --------------------------------------------------------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 16,172 $ 1,520,260
- ---------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 1 95
- ---------------------------------------------------------
Shares redeemed (419) (40,125)
- --------------------------------------------------------- ------- -----------
Net change resulting from Class B share transactions 15,754 $ 1,480,230
- --------------------------------------------------------- ------- -----------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996(A)
----------------------
CLASS C SHARES SHARES AMOUNT
- --------------------------------------------------------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 227 $ 21,600
- ---------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared -- --
- ---------------------------------------------------------
Shares redeemed -- --
- --------------------------------------------------------- ------- -----------
Net change resulting from Class C share transactions 227 $ 21,600
- --------------------------------------------------------- ------- -----------
Net change resulting from share transactions 927 $ 105,930
- --------------------------------------------------------- ------- -----------
</TABLE>
(a) For the period ended January 4, 1996 (date of initial public offering) to
April 30, 1996.
(b) Includes transactions in shares of partnership interest for Federated
Exchange Fund, Ltd. through December 31, 1995.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
net assets.The Adviser may voluntarily choose to waive any portion of its fee.
The Adviser can modify or terminate this voluntary waiver at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp.("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Class A Shares, Class B Shares and Class C Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
-------------------------------- --------------------------------
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its
subsidiary, Federated Shareholder Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FServ is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
FEDERATED CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $13,248,556
- ------------------------------------------------------------------------------- -----------
SALES $16,950,673
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G, Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual Funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus which contains facts concerning
their objective and policies, management fees, expenses, and other information.
LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSIP# 314172701
CUSIP# 314172800
CUSIP# 314172883
G01649-01 (5/96)
FEDERATED SMALL CAP STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES
SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED NOVEMBER 1, 1995.
A. Please delete the "SUMMARY OF FUND EXPENSES" table on page 1 of the
prospectus and replace it with the following table:
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................. 5.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)....................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1).......................................................... 0.00%
Redemption Fees (as a percentage of amount redeemed, if applicable)......................................... None
Exchange Fee................................................................................................ None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(as a percentage of projected average net assets)*
Management Fee (after waiver) (2)........................................................................... 0.64%
12b-1 Fees (3).............................................................................................. 0.00%
Total Other Expenses........................................................................................ 0.71%
Shareholder Services Fee..................................................................... 0.25%
Total Class A Operating Expenses (4)................................................................ 1.35%
</TABLE>
(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased and sold with a sales load 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.
(2) The estimated management fee has been reduced to reflect the voluntary
waiver of a portion of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(3) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the period ending October 31, 1996. If the Class A Shares were
paying or accruing the 12b-1 fee, the Class A Shares would be able to pay up
to 0.25% of its average daily net assets for the 12b-1 fee. See "Class A
Information".
(4) The total Class A Shares operating expenses are estimated to be 1.46% absent
the anticipated voluntary waiver of a portion of the management fee.
* Total Class A operating expenses are estimated based on average expenses
expected to be incurred during the period ending October 31, 1996. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE CLASS A SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF VARIOUS COSTS
AND EXPENSES, SEE "INVESTING IN CLASS A SHARES" AND "TRUST INFORMATION".
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
--------- ---------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period. ........................ $73 $95
You would pay the following expenses on the same investment, assuming no redemption............. $68 $95
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE CLASS A SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
B. Please insert the following "FINANCIAL HIGHLIGHTS" table as page 2 of the
prospectus:
FEDERATED SMALL CAP STRATEGIES FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.00
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 4.07
- ------------------------------------------------------------------------------------------- -------
Total from investment operations 14.07
- ------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)
- ------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 14.05
- ------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 40.74%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 1.34%*
- -------------------------------------------------------------------------------------------
Net investment income (0.02%)*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 5.31%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,101
- -------------------------------------------------------------------------------------------
Average commission rate paid $ .05
- -------------------------------------------------------------------------------------------
Portfolio turnover 57%
- -------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 1, 1995 (date of initial
public investment) to April 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
C. Effective May 1, the dividend cycle for Federated Small Cap Strategies
Fund will be changed from quarterly to annually. Therefore no payment will
be made in June. The next regular dividend payment will be made this
December. Therefore, under the Section entitled "ACCOUNT AND SHARE
INFORMATION", please replace the first sentence under the sub-section
"DIVIDENDS" on page 20 with the following:
"Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date."
D. Under the section entitled "ADMINISTRATION OF THE FUND", on page 24,
delete all references to "Federated Administrative Services" and replace
them with "Federated Services Company".
E. Please delete all references to "Federated Services Company" the former
name of the current transfer agent, and replace with "Federated
Shareholder Services Company", in the following sections of the
prospectus; PURCHASING SHARES BY CHECK, TELEPHONE INSTRUCTIONS, REDEEMING
SHARES BY MAIL, CERTIFICATES AND CONFIRMATIONS and TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT, on pages 15, 16, 18, 20, and 24,
respectively.
F. Please delete the last sentence in the section entitled "MAKING AN
EXCHANGE" on page 16 and replace it with the following:
"If a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in writing
and sent by overnight mail to: Federated Shareholder Services Company, 1099
Hingham Street, Rockland, Massachusetts 02370-3317."
G. Please insert the following financial statements beginning on page 28 of
the prospectus:
FEDERATED SMALL CAP STRATEGIES FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--91.3%
- ---------------------------------------------------------------------------------------------------
BASIC INDUSTRY--4.9%
--------------------------------------------------------------------------------------
1,500 Cambrex Corp. $ 64,500
--------------------------------------------------------------------------------------
1,600 Carpenter Technology Corp. 60,200
--------------------------------------------------------------------------------------
1,000 (a)Cytec Industries, Inc. 82,875
--------------------------------------------------------------------------------------
2,200 (a)Fibreboard Corp. 56,375
--------------------------------------------------------------------------------------
8,500 Spartech Corp. 86,062
--------------------------------------------------------------------------------------
1,650 Texas Industries, Inc. 105,600
--------------------------------------------------------------------------------------
4,500 Universal Stainless & Alloy 49,500
-------------------------------------------------------------------------------------- -------------
Total 505,112
-------------------------------------------------------------------------------------- -------------
CONSUMER DURABLES--5.6%
--------------------------------------------------------------------------------------
2,500 Anthony Industries, Inc. 71,250
--------------------------------------------------------------------------------------
1,200 Bush Industries, Inc., Class A 36,300
--------------------------------------------------------------------------------------
1,500 (a)Cannondale Corp. 33,375
--------------------------------------------------------------------------------------
5,800 Cavalier Homes, Inc. 112,375
--------------------------------------------------------------------------------------
1,200 (a)Champion Enterprises, Inc. 45,600
--------------------------------------------------------------------------------------
5,000 (a)Equity Marketing, Inc. 64,375
--------------------------------------------------------------------------------------
900 Harman International Industries, Inc. 42,525
--------------------------------------------------------------------------------------
4,400 Norwood Promotional Products 100,100
--------------------------------------------------------------------------------------
2,300 (a)Toll Brothers, Inc. 37,375
--------------------------------------------------------------------------------------
1,350 Wynns International, Inc. 36,619
-------------------------------------------------------------------------------------- -------------
Total 579,894
-------------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--1.7%
--------------------------------------------------------------------------------------
6,300 (a)Morningstar Group, Inc. 63,000
--------------------------------------------------------------------------------------
2,300 Mossimo, Inc. 87,400
--------------------------------------------------------------------------------------
1,500 (a)The Boston Beer Co., Inc., Class A 28,313
-------------------------------------------------------------------------------------- -------------
Total 178,713
-------------------------------------------------------------------------------------- -------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
ENERGY MINERALS--1.5%
--------------------------------------------------------------------------------------
3,000 (a)American Exploration Co. $ 37,125
--------------------------------------------------------------------------------------
2,400 Getty Petroleum Corp. 34,200
--------------------------------------------------------------------------------------
7,920 Mercury Air Group, Inc. 79,200
-------------------------------------------------------------------------------------- -------------
Total 150,525
-------------------------------------------------------------------------------------- -------------
FINANCE--19.5%
--------------------------------------------------------------------------------------
1,100 Alex Brown, Inc. 59,537
--------------------------------------------------------------------------------------
2,500 (a)Amerin Corp. 56,562
--------------------------------------------------------------------------------------
2,500 BHC Financial, Inc. 34,688
--------------------------------------------------------------------------------------
1,200 Banknorth Group, Inc. 42,000
--------------------------------------------------------------------------------------
3,000 CapMAC Holdings, Inc. 87,375
--------------------------------------------------------------------------------------
3,000 Capital Re Corp. 112,500
--------------------------------------------------------------------------------------
3,300 Donegal Group, Inc. 59,400
--------------------------------------------------------------------------------------
7,000 Electro Rent Corp. 174,125
--------------------------------------------------------------------------------------
8,700 Executive Risk, Inc. 269,700
--------------------------------------------------------------------------------------
2,800 (a)IPC Holdings Ltd. 54,950
--------------------------------------------------------------------------------------
3,100 (a)Markel Corp. 248,000
--------------------------------------------------------------------------------------
6,000 Oriental Bank & Trust 108,750
--------------------------------------------------------------------------------------
5,500 Penn-America Group, Inc. 73,562
--------------------------------------------------------------------------------------
1,300 Penncorp Financial Group, Inc. 39,812
--------------------------------------------------------------------------------------
1,900 Peoples Heritage Financial Group 39,662
--------------------------------------------------------------------------------------
2,000 Quick & Reilly Group, Inc. 61,000
--------------------------------------------------------------------------------------
1,800 Selective Insurance Group, Inc. 56,475
--------------------------------------------------------------------------------------
2,400 (a)Silicon Valley Bancshares 55,800
--------------------------------------------------------------------------------------
4,100 TCF Financial Corp. 145,037
--------------------------------------------------------------------------------------
4,700 (a)United Insurance Cos., Inc. 99,287
--------------------------------------------------------------------------------------
2,700 Vesta Insurance Group, Inc. 86,737
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
--------------------------------------------------------------------------------------
1,800 Webster Financial Corp. Waterbury $ 49,950
-------------------------------------------------------------------------------------- -------------
Total 2,014,909
-------------------------------------------------------------------------------------- -------------
HEALTH CARE--11.3%
--------------------------------------------------------------------------------------
3,700 (a)Amrion, Inc. 57,350
--------------------------------------------------------------------------------------
1,800 (a)Assisted Living Concepts, Inc. 35,550
--------------------------------------------------------------------------------------
2,500 (a)Bio Rad Laboratories, Inc., Class A 116,250
--------------------------------------------------------------------------------------
2,000 (a)Geltex Pharmaceuticals, Inc. 47,000
--------------------------------------------------------------------------------------
1,700 (a)Health Management Systems, Inc. 43,775
--------------------------------------------------------------------------------------
3,400 (a)Heartport, Inc. 121,550
--------------------------------------------------------------------------------------
3,400 (a)KeraVision, Inc. 53,975
--------------------------------------------------------------------------------------
6,000 (a)OEC Medical Systems, Inc. 69,000
--------------------------------------------------------------------------------------
16,000 (a)PolyMedica Industries, Inc. 134,000
--------------------------------------------------------------------------------------
4,000 (a)Prime Medical Services 62,500
--------------------------------------------------------------------------------------
3,200 (a)Rotech Medical Corp. 132,800
--------------------------------------------------------------------------------------
1,000 (a)Sierra Health Services, Inc. 33,000
--------------------------------------------------------------------------------------
8,800 Synthetech, Inc. 66,000
--------------------------------------------------------------------------------------
1,200 (a)Universal Health Services, Inc., Class B 66,600
--------------------------------------------------------------------------------------
1,900 (a)Veterinary Centers of America 57,950
--------------------------------------------------------------------------------------
3,200 Vital Signs, Inc. 67,400
-------------------------------------------------------------------------------------- -------------
Total 1,164,700
-------------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--5.7%
--------------------------------------------------------------------------------------
2,400 AGCO Corp. 60,600
--------------------------------------------------------------------------------------
2,200 (a)Cable Design Technologies, Class A 72,600
--------------------------------------------------------------------------------------
2,500 Cascade Corp. 40,625
--------------------------------------------------------------------------------------
1,000 Gleason Corp. 39,375
--------------------------------------------------------------------------------------
3,200 (a)Intermet Corp. 47,200
--------------------------------------------------------------------------------------
1,700 JLG Industries, Inc. 92,650
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--CONTINUED
--------------------------------------------------------------------------------------
1,300 (a)Mueller Industries, Inc. $ 52,325
--------------------------------------------------------------------------------------
1,000 NACCO Industries, Inc., Class A 63,125
--------------------------------------------------------------------------------------
1,800 Regal Beloit Corp. 34,875
--------------------------------------------------------------------------------------
3,000 Titan Wheel International, Inc. 48,375
--------------------------------------------------------------------------------------
1,350 Tredegar Industries, Inc. 37,463
-------------------------------------------------------------------------------------- -------------
Total 589,213
-------------------------------------------------------------------------------------- -------------
RETAIL TRADE--2.9%
--------------------------------------------------------------------------------------
5,000 (a)MSC Industrial Direct Co. 181,875
--------------------------------------------------------------------------------------
1,400 (a)Orchard Supply Hardware 37,275
--------------------------------------------------------------------------------------
4,400 Riser Foods, Inc., Class A 83,600
-------------------------------------------------------------------------------------- -------------
Total 302,750
-------------------------------------------------------------------------------------- -------------
SERVICES--10.9%
--------------------------------------------------------------------------------------
2,000 (a)American Buildings Co. 50,812
--------------------------------------------------------------------------------------
2,500 American List Corp. 77,812
--------------------------------------------------------------------------------------
2,800 (a)BARRA, Inc. 93,100
--------------------------------------------------------------------------------------
2,000 (a)Catalina Marketing Corp. 155,750
--------------------------------------------------------------------------------------
1,700 (a)Day Runner, Inc. 52,913
--------------------------------------------------------------------------------------
2,300 ](a)Devon Group, Inc. 72,450
--------------------------------------------------------------------------------------
2,000 Employee Solutions, Inc. 77,500
--------------------------------------------------------------------------------------
2,250 Granite Construction, Inc. 44,438
--------------------------------------------------------------------------------------
2,000 (a)Newpark Resources, Inc. 62,750
--------------------------------------------------------------------------------------
5,900 (a)Prepaid Legal Services, Inc. 114,313
--------------------------------------------------------------------------------------
4,000 (a)Pride Petroleum Services, Inc. 65,500
--------------------------------------------------------------------------------------
4,500 (a)Right Management Consultants 154,125
--------------------------------------------------------------------------------------
1,000 (a)Scientific Games Holdings Corp. 32,750
--------------------------------------------------------------------------------------
200 (a)Sykes Enterprises, Inc. 7,100
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
SERVICES--CONTINUED
--------------------------------------------------------------------------------------
2,000 (a)Volt Information Science, Inc. $ 59,500
-------------------------------------------------------------------------------------- -------------
Total 1,120,813
-------------------------------------------------------------------------------------- -------------
TECHNOLOGY--23.1%
--------------------------------------------------------------------------------------
3,000 (a)Advent Software, Inc. 79,500
--------------------------------------------------------------------------------------
5,000 (a)Axent Technologies, Inc. 90,000
--------------------------------------------------------------------------------------
4,000 (a)Black Box Corp. 80,000
--------------------------------------------------------------------------------------
1,500 (a)Boca Research, Inc. 32,250
--------------------------------------------------------------------------------------
4,000 (a)Burr Brown Corp. 77,000
--------------------------------------------------------------------------------------
1,000 CTS Corp. 41,750
--------------------------------------------------------------------------------------
1,800 Computer Data Systems, Inc. 31,950
--------------------------------------------------------------------------------------
6,100 (a)Digital Systems Int., Inc. 120,475
--------------------------------------------------------------------------------------
2,000 (a)Documentum, Inc. 92,000
--------------------------------------------------------------------------------------
2,600 (a)ESS Technology, Inc. 58,825
--------------------------------------------------------------------------------------
3,200 (a)Encad, Inc. 110,000
--------------------------------------------------------------------------------------
1,000 (a)Engineering Animation, Inc. 23,250
--------------------------------------------------------------------------------------
2,400 (a)First USA Paymentech, Inc. 104,400
--------------------------------------------------------------------------------------
2,500 (a)Forte Software, Inc. 154,375
--------------------------------------------------------------------------------------
800 HMC Software 29,800
--------------------------------------------------------------------------------------
6,100 II-VI, Inc. 91,500
--------------------------------------------------------------------------------------
500 (a)Indus Group, Inc. 10,625
--------------------------------------------------------------------------------------
3,500 (a)Intervoice, Inc. 98,000
--------------------------------------------------------------------------------------
2,500 (a)JDA Software Group, Inc. 51,250
--------------------------------------------------------------------------------------
2,300 National Data Corp. 81,075
--------------------------------------------------------------------------------------
1,900 (a)Network Equipment Technologies, Inc. 48,450
--------------------------------------------------------------------------------------
3,400 (a)Photronic Labs, Inc. 89,675
--------------------------------------------------------------------------------------
2,500 (a)Planning Sciences International PLC, ADR 60,313
--------------------------------------------------------------------------------------
1,500 (a)SCI Systems, Inc. 64,313
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
--------------------------------------------------------------------------------------
3,000 (a)Sapient Corp. $ 158,250
--------------------------------------------------------------------------------------
1,000 (a)Sync Research, Inc. 19,750
--------------------------------------------------------------------------------------
2,600 Telxon Corp. 59,800
--------------------------------------------------------------------------------------
3,600 (a)Tollgrade Communications, Inc. 85,500
--------------------------------------------------------------------------------------
4,000 Trident International, Inc. 70,000
--------------------------------------------------------------------------------------
5,200 (a)Worldtalk Communications, Inc. 67,600
--------------------------------------------------------------------------------------
2,200 Wyle Labs 92,125
--------------------------------------------------------------------------------------
1,800 (a)Xylan Corp. 115,313
-------------------------------------------------------------------------------------- -------------
Total 2,389,114
-------------------------------------------------------------------------------------- -------------
TRANSPORTATION--2.4%
--------------------------------------------------------------------------------------
1,100 (a)Alaska Air Group, Inc. 27,913
--------------------------------------------------------------------------------------
800 Comair Holdings, Inc. 29,600
--------------------------------------------------------------------------------------
4,400 Expeditors International Washington, Inc. 130,900
--------------------------------------------------------------------------------------
5,700 (a)Frontier Airlines, Inc. 47,025
--------------------------------------------------------------------------------------
700 Werner Enterprises, Inc. 16,975
-------------------------------------------------------------------------------------- -------------
Total 252,413
-------------------------------------------------------------------------------------- -------------
UTILITIES--1.8%
--------------------------------------------------------------------------------------
3,300 Interstate Power Co. 101,063
--------------------------------------------------------------------------------------
2,200 Teppco Partners, L.P. 83,050
-------------------------------------------------------------------------------------- -------------
Total 184,113
-------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $7,786,626) 9,432,269
-------------------------------------------------------------------------------------- -------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
(B) REPURCHASE AGREEMENT--7.5%
- ---------------------------------------------------------------------------------------------------
$ 780,000 BT Securities Corporation, 5.35%, dated 4/30/1996, due 5/1/1996
(AT AMORTIZED COST) $ 780,000
-------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $8,566,626)(C) $ 10,212,269
-------------------------------------------------------------------------------------- -------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated Funds.
(c) The cost for federal income tax purposes amounts to $8,566,626. The net
unrealized appreciation on a federal tax basis amounts to $1,645,643, which
is comprised of $1,790,992 appreciation and $145,349 depreciation at April
30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($10,332,083) at April 30, 1996.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $8,566,626) $ 10,212,269
- ----------------------------------------------------------------------------------------------------
Cash 311
- ----------------------------------------------------------------------------------------------------
Income receivable 3,664
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 381,538
- ----------------------------------------------------------------------------------------------------
Prepaid expenses 42,309
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 10,640,091
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased $ 278,445
- -----------------------------------------------------------------------------------------
Accrued expenses 29,563
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 308,008
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 735,436 shares outstanding $ 10,332,083
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $ 8,043,480
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,645,643
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 660,095
- ----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (17,135)
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 10,332,083
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($6,101,033 / 434,100 shares outstanding) $14.05
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100 / 94.50 of $14.05)* $14.87
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share $14.05
- ---------------------------------------------------------------------------------------------------- ------------
CLASS B SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($3,631,606 / 258,619 shares outstanding) $14.04
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share $14.04
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share (94.50 / 100 of $14.04)** $13.27
- ---------------------------------------------------------------------------------------------------- ------------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($599,444 / 42,717 shares outstanding) $14.03
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share $14.03
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share (99.00 / 100 of $14.03)** $13.89
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
* See "How to Purchase Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $59) $ 22,190
- -----------------------------------------------------------------------------------------------------
Interest 18,733
- ----------------------------------------------------------------------------------------------------- -----------
Total income 40,923
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee $ 24,133
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 91,488
- -----------------------------------------------------------------------------------------
Custodian fees 12,123
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 17,343
- -----------------------------------------------------------------------------------------
Legal fees 2,053
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 34,583
- -----------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 4,149
- -----------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 553
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 6,477
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 1,383
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 184
- -----------------------------------------------------------------------------------------
Share registration costs 13,752
- -----------------------------------------------------------------------------------------
Printing and postage 5,282
- -----------------------------------------------------------------------------------------
Insurance premiums 2,776
- -----------------------------------------------------------------------------------------
Miscellaneous 600
- ----------------------------------------------------------------------------------------- ----------
Total expenses 216,879
- -----------------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $ (24,133)
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses (144,577)
- ----------------------------------------------------------------------------- ----------
Total waivers and reimbursements (168,710)
- ----------------------------------------------------------------------------------------- ----------
Net expenses 48,169
- ----------------------------------------------------------------------------------------------------- -----------
Net operating loss (7,246)
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments 660,095
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 1,645,643
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 2,305,738
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 2,298,492
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------------
Net operating loss $ (7,246)
- ----------------------------------------------------------------------------------------------
Net realized gain on investments
($660,095 net gain, as computed for federal tax purposes) 660,095
- ----------------------------------------------------------------------------------------------
Net change in unrealized appreciation 1,645,643
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets resulting from operations 2,298,492
- ---------------------------------------------------------------------------------------------- ------------------
NET EQUALIZATION CREDITS (DEBITS)-- (30)
- ---------------------------------------------------------------------------------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
- ----------------------------------------------------------------------------------------------
Class A Shares (9,859)
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets resulting from distributions to shareholders (9,859)
- ---------------------------------------------------------------------------------------------- ------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------------------
Proceeds from sale of shares 14,244,031
- ----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 1,448
- ----------------------------------------------------------------------------------------------
Cost of shares redeemed (6,201,999)
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets resulting from share transactions 8,043,480
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets 10,332,083
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------------- ------------------
End of period $ 10,332,083
- ---------------------------------------------------------------------------------------------- ------------------
</TABLE>
*For the period from November 1, 1995 (date of initial public investment) to
April 30, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Equity Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Small Cap Strategies Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated, and a shareholder's interest is limited to the portfolio in which
shares are held. The objective of the fund is to provide capital appreciation.
The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the
Internal Revenue Code, as amended (the "Code"). Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
EQUALIZATION--The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996*
CLASS A SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 941,591 $ 10,235,032
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 126 1,448
- ---------------------------------------------------------------------------------------
Shares redeemed (507,617) (5,889,400)
- --------------------------------------------------------------------------------------- --------- -------------
Net change resulting from Class A share transactions 434,100 $ 4,347,080
- --------------------------------------------------------------------------------------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996*
CLASS B SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 284,564 $ 3,479,188
- ----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 0 0
- ----------------------------------------------------------------------------------------
Shares redeemed (25,945) (310,770)
- ---------------------------------------------------------------------------------------- --------- ------------
Net change resulting from Class B share transactions 258,619 $ 3,168,418
- ---------------------------------------------------------------------------------------- --------- ------------
<CAPTION>
PERIOD ENDED
APRIL 30, 1996*
CLASS C SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 42,870 $ 529,811
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 0 0
- ---------------------------------------------------------------------------------------
Shares redeemed (153) (1,829)
- --------------------------------------------------------------------------------------- --------- -------------
Net change resulting from Class C share transactions 42,717 $ 527,982
- --------------------------------------------------------------------------------------- --------- -------------
Net change resulting from share transactions 735,436 8,043,480
- --------------------------------------------------------------------------------------- --------- -------------
</TABLE>
* For the period from November 1, 1995 (date of initial public investment) to
April 30, 1996.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp., the principal distributor, from the net
assets of the Fund to finance activities
intended to result in the sale of the Fund's Class B and Class C shares. The
Plan provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
SHARE CLASS NAME % OF AVG. DAILY NET ASSETS OF CLASS
<S> <C>
Class A 0.25%
Class B 0.75%
Class C 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
For the six months ended April 30, 1996, Class A did not incur a distrubtion
services fee.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services, the Fund will pay Federated Shareholder
Services up to 0.25% of average daily net assets of each class of shares for the
period. The fee paid to Federated Shareholder Services is used to finance
certain services for shareholders and to maintain shareholder accounts.
Federated Shareholder Services may voluntarily choose to waive any portion of
its fee. Federated Shareholder Services can modify or terminate this voluntary
waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its
subsidiary, Federated Shareholder Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FServ is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's
accounting records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($10,292) were initially borne
by Federated Securities Corp. The Trust has agreed to reimburse Federated
Securities Corp. for the organizational expenses during the five year period
following effective date. For the period ended April 30, 1996, the Trust paid
$57 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
April 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 10,780,232
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 3,653,702
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning their
objective and policies, management fees, expenses and other information.
FEDERATED
SMALL CAP
STRATEGIES
FUND
Class A Shares
Semi-Annual Report and
Supplement to Prospectus
dated November 1, 1995
[LOGO] FEDERATED INVESTORS
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
CUSIP# 314172404
G01658-02 (5/96)
FEDERATED SMALL CAP STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED NOVEMBER 1, 1995.
A. Please delete the "Summary of Fund Expenses" tables for Class A, Class B,
and Class C Shares on pages 1-3 of the prospectus and replace it with the
following tables:
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................. 5.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)....................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1).......................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).......................................... None
Exchange Fee................................................................................................ None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver) (2)........................................................................... 0.64%
12b-1 Fee (3)............................................................................................... 0.00%
Total Other Expenses........................................................................................ 0.71%
Shareholder Services Fee..................................................................... 0.25%
Total Class A Operating Expenses (4)................................................................ 1.35%
</TABLE>
(1) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased and sold with a sales load 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.
(2) The estimated management fee has been reduced to reflect the voluntary
waiver of a portion of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The maximum
management fee is 0.75%.
(3) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the period ending October 31, 1996. If the Class A Shares were
paying or accruing the 12b-1 fee, the Class A Shares would be able to pay
up to 0.25% of its average daily net assets for the 12b-1 fee. See "Class A
Information".
(4) The total Class A Shares operating expenses are estimated to be 1.46% absent
the anticipated voluntary waiver of a portion of the management fee.
* Total Class A operating expenses are estimated based on average expenses
expected to be incurred during the period ending October 31, 1996. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE CLASS A SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "INVESTING IN CLASS A SHARES" AND "TRUST INFORMATION".
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
--------- ---------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.......................... $73 $95
You would pay the following expenses on the same investment, assuming no redemption............. $68 $95
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE CLASS A SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)..................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)........................................................ 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None
Exchange Fee.............................................................................................. None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver) (2)......................................................................... 0.64%
12b-1 Fee................................................................................................. 0.75%
Total Other Expenses...................................................................................... 0.71%
Shareholder Services Fee................................................................... 0.25%
Total Class B Operating Expenses (3)(4).......................................................... 2.10%
</TABLE>
(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge").
(2) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.75%.
(3) The Class B Shares convert to Class A Shares (which pay lower ongoing
expenses) approximately eight years after purchase.
(4) The total Class B Shares operating expenses are estimated to be 2.21% absent
the anticipated voluntary waiver of a portion of the management fee.
* Total Class B operating expenses are estimated based on average expenses
expected to be incurred during the period ending October 31, 1996. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE CLASS B SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "INVESTING IN CLASS B SHARES" AND "TRUST INFORMATION".
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
--------- ---------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period......................... $78 $109
You would pay the following expenses on the same investment, assuming no redemption............ $21 $66
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE CLASS B SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)..................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)........................................................ 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None
Exchange Fee.............................................................................................. None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver) (2)......................................................................... 0.64%
12b-1 Fee................................................................................................. 0.75%
Total Other Expenses...................................................................................... 0.71%
Shareholder Services Fee................................................................... 0.25%
Total Class C Operating Expenses (3)............................................................. 2.10%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see "Redeeming
Class C Shares".
(2) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this anticipated voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.75%.
(3) The total Class C Shares operating expenses are estimated to be 2.21% absent
the anticipated voluntary waiver of a portion of the management fee.
* Total Class C operating expenses are estimated based on average expenses
expected to be incurred during the period ending October 31, 1996. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE CLASS C SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "INVESTING IN CLASS C SHARES" AND "TRUST INFORMATION".
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
--------- ---------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period......................... $32 $66
You would pay the following expenses on the same investment, assuming no redemption............ $21 $66
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE CLASS B SHARES' FISCAL YEAR ENDING
OCTOBER 31, 1996.
B. Please insert the following "Financial Highlights" tables for Class A,
Class B, and Class C Shares immediately following the Summary of Fund
Expenses tables in the prospectus:
FEDERATED SMALL CAP STRATEGIES FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.00
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 4.07
- ------------------------------------------------------------------------------------------- -------
Total from investment operations 14.07
- ------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)
- ------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 14.05
- ------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 40.74%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 1.34%*
- -------------------------------------------------------------------------------------------
Net investment income (0.02%)*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 5.31%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 6,101
- -------------------------------------------------------------------------------------------
Average commission rate paid $ .05
- -------------------------------------------------------------------------------------------
Portfolio turnover 57%
- -------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 1, 1995 (date of initial
public investment) to April 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income (0.02)
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 4.06
- ------------------------------------------------------------------------------------------- -------
Total from investment operations 14.04
- ------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income 0.00
- ------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 14.04
- ------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 40.40%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 2.13%*
- -------------------------------------------------------------------------------------------
Net investment income (1.09%)*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 5.00%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 3,632
- -------------------------------------------------------------------------------------------
Average commission rate paid $ 0.05
- -------------------------------------------------------------------------------------------
Portfolio turnover 57%
- -------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 1, 1995 (date of initial
public investment) to April 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income (0.02)
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 4.05
- ------------------------------------------------------------------------------------------- -------
Total from investment operations 14.03
- ------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income 0.00
- ------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 14.03
- ------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 40.30%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 2.13%*
- -------------------------------------------------------------------------------------------
Net investment income (1.13%)*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 4.87%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 599
- -------------------------------------------------------------------------------------------
Average commission rate paid $ 0.05
- -------------------------------------------------------------------------------------------
Portfolio turnover 57%
- -------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 1, 1995 (date of initial
public investment) to April 30, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
C. Effective May 1, the dividend cycle for Federated Small Cap Strategies
Fund will be changed from quarterly to annually. Therefore no payment will
be made in June. The next regular dividend payment will be made this
December. Therefore, under the Section entitled "ACCOUNT AND SHARE
INFORMATION", please replace the first sentence under the sub-section
"DIVIDENDS" on page 26 with the following:
"Dividends are declared and paid annually to all shareholders invested in
the Fund on the record date."
D. Under the section entitled "Administration of the Fund", on page 30,
delete all references to "Federated Administrative Services" and replace
them with "Federated Services Company".
E. Please delete all references to "Federated Services Company" the former
name of the current transfer agent, and replace with "Federated
Shareholder Services Company", in the following sections of the
prospectus; PURCHASING SHARES BY CHECK, TELEPHONE INSTRUCTIONS, REDEEMING
SHARES BY MAIL, CERTIFICATES AND CONFIRMATIONS and TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT, on pages 20, 22, 23, 26 and 30, respectively.
F. Please delete the last sentence in the section entitled "Making an
Exchange" on page 22 and replace it with the following:
"If a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in writing
and sent by overnight mail to: Federated Shareholder Services Company, 1099
Hingham Street, Rockland, MA 02370-3317."
G. Please insert the following financial statements beginning on page 34 of
the prospectus:
FEDERATED SMALL CAP STRATEGIES FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--91.3%
- ---------------------------------------------------------------------------------------------------
BASIC INDUSTRY--4.9%
--------------------------------------------------------------------------------------
1,500 Cambrex Corp. $ 64,500
--------------------------------------------------------------------------------------
1,600 Carpenter Technology Corp. 60,200
--------------------------------------------------------------------------------------
1,000 (a)Cytec Industries, Inc. 82,875
--------------------------------------------------------------------------------------
2,200 (a)Fibreboard Corp. 56,375
--------------------------------------------------------------------------------------
8,500 Spartech Corp. 86,062
--------------------------------------------------------------------------------------
1,650 Texas Industries, Inc. 105,600
--------------------------------------------------------------------------------------
4,500 Universal Stainless & Alloy 49,500
-------------------------------------------------------------------------------------- -------------
Total 505,112
-------------------------------------------------------------------------------------- -------------
CONSUMER DURABLES--5.6%
--------------------------------------------------------------------------------------
2,500 Anthony Industries, Inc. 71,250
--------------------------------------------------------------------------------------
1,200 Bush Industries, Inc., Class A 36,300
--------------------------------------------------------------------------------------
1,500 (a)Cannondale Corp. 33,375
--------------------------------------------------------------------------------------
5,800 Cavalier Homes, Inc. 112,375
--------------------------------------------------------------------------------------
1,200 (a)Champion Enterprises, Inc. 45,600
--------------------------------------------------------------------------------------
5,000 (a)Equity Marketing, Inc. 64,375
--------------------------------------------------------------------------------------
900 Harman International Industries, Inc. 42,525
--------------------------------------------------------------------------------------
4,400 Norwood Promotional Products 100,100
--------------------------------------------------------------------------------------
2,300 (a)Toll Brothers, Inc. 37,375
--------------------------------------------------------------------------------------
1,350 Wynns International, Inc. 36,619
-------------------------------------------------------------------------------------- -------------
Total 579,894
-------------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--1.7%
--------------------------------------------------------------------------------------
6,300 (a)Morningstar Group, Inc. 63,000
--------------------------------------------------------------------------------------
2,300 Mossimo, Inc. 87,400
--------------------------------------------------------------------------------------
1,500 (a)The Boston Beer Co., Inc., Class A 28,313
-------------------------------------------------------------------------------------- -------------
Total 178,713
-------------------------------------------------------------------------------------- -------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
ENERGY MINERALS--1.5%
--------------------------------------------------------------------------------------
3,000 (a)American Exploration Co. $ 37,125
--------------------------------------------------------------------------------------
2,400 Getty Petroleum Corp. 34,200
--------------------------------------------------------------------------------------
7,920 Mercury Air Group, Inc. 79,200
-------------------------------------------------------------------------------------- -------------
Total 150,525
-------------------------------------------------------------------------------------- -------------
FINANCE--19.5%
--------------------------------------------------------------------------------------
1,100 Alex Brown, Inc. 59,537
--------------------------------------------------------------------------------------
2,500 (a)Amerin Corp. 56,562
--------------------------------------------------------------------------------------
2,500 BHC Financial, Inc. 34,688
--------------------------------------------------------------------------------------
1,200 Banknorth Group, Inc. 42,000
--------------------------------------------------------------------------------------
3,000 CapMAC Holdings, Inc. 87,375
--------------------------------------------------------------------------------------
3,000 Capital Re Corp. 112,500
--------------------------------------------------------------------------------------
3,300 Donegal Group, Inc. 59,400
--------------------------------------------------------------------------------------
7,000 Electro Rent Corp. 174,125
--------------------------------------------------------------------------------------
8,700 Executive Risk, Inc. 269,700
--------------------------------------------------------------------------------------
2,800 (a)IPC Holdings Ltd. 54,950
--------------------------------------------------------------------------------------
3,100 (a)Markel Corp. 248,000
--------------------------------------------------------------------------------------
6,000 Oriental Bank & Trust 108,750
--------------------------------------------------------------------------------------
5,500 Penn-America Group, Inc. 73,562
--------------------------------------------------------------------------------------
1,300 Penncorp Financial Group, Inc. 39,812
--------------------------------------------------------------------------------------
1,900 Peoples Heritage Financial Group 39,662
--------------------------------------------------------------------------------------
2,000 Quick & Reilly Group, Inc. 61,000
--------------------------------------------------------------------------------------
1,800 Selective Insurance Group, Inc. 56,475
--------------------------------------------------------------------------------------
2,400 (a)Silicon Valley Bancshares 55,800
--------------------------------------------------------------------------------------
4,100 TCF Financial Corp. 145,037
--------------------------------------------------------------------------------------
4,700 (a)United Insurance Cos., Inc. 99,287
--------------------------------------------------------------------------------------
2,700 Vesta Insurance Group, Inc. 86,737
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
--------------------------------------------------------------------------------------
1,800 Webster Financial Corp. Waterbury $ 49,950
-------------------------------------------------------------------------------------- -------------
Total 2,014,909
-------------------------------------------------------------------------------------- -------------
HEALTH CARE--11.3%
--------------------------------------------------------------------------------------
3,700 (a)Amrion, Inc. 57,350
--------------------------------------------------------------------------------------
1,800 (a)Assisted Living Concepts, Inc. 35,550
--------------------------------------------------------------------------------------
2,500 (a)Bio Rad Laboratories, Inc., Class A 116,250
--------------------------------------------------------------------------------------
2,000 (a)Geltex Pharmaceuticals, Inc. 47,000
--------------------------------------------------------------------------------------
1,700 (a)Health Management Systems, Inc. 43,775
--------------------------------------------------------------------------------------
3,400 (a)Heartport, Inc. 121,550
--------------------------------------------------------------------------------------
3,400 (a)KeraVision, Inc. 53,975
--------------------------------------------------------------------------------------
6,000 (a)OEC Medical Systems, Inc. 69,000
--------------------------------------------------------------------------------------
16,000 (a)PolyMedica Industries, Inc. 134,000
--------------------------------------------------------------------------------------
4,000 (a)Prime Medical Services 62,500
--------------------------------------------------------------------------------------
3,200 (a)Rotech Medical Corp. 132,800
--------------------------------------------------------------------------------------
1,000 (a)Sierra Health Services, Inc. 33,000
--------------------------------------------------------------------------------------
8,800 Synthetech, Inc. 66,000
--------------------------------------------------------------------------------------
1,200 (a)Universal Health Services, Inc., Class B 66,600
--------------------------------------------------------------------------------------
1,900 (a)Veterinary Centers of America 57,950
--------------------------------------------------------------------------------------
3,200 Vital Signs, Inc. 67,400
-------------------------------------------------------------------------------------- -------------
Total 1,164,700
-------------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--5.7%
--------------------------------------------------------------------------------------
2,400 AGCO Corp. 60,600
--------------------------------------------------------------------------------------
2,200 (a)Cable Design Technologies, Class A 72,600
--------------------------------------------------------------------------------------
2,500 Cascade Corp. 40,625
--------------------------------------------------------------------------------------
1,000 Gleason Corp. 39,375
--------------------------------------------------------------------------------------
3,200 (a)Intermet Corp. 47,200
--------------------------------------------------------------------------------------
1,700 JLG Industries, Inc. 92,650
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--CONTINUED
--------------------------------------------------------------------------------------
1,300 (a)Mueller Industries, Inc. $ 52,325
--------------------------------------------------------------------------------------
1,000 NACCO Industries, Inc., Class A 63,125
--------------------------------------------------------------------------------------
1,800 Regal Beloit Corp. 34,875
--------------------------------------------------------------------------------------
3,000 Titan Wheel International, Inc. 48,375
--------------------------------------------------------------------------------------
1,350 Tredegar Industries, Inc. 37,463
-------------------------------------------------------------------------------------- -------------
Total 589,213
-------------------------------------------------------------------------------------- -------------
RETAIL TRADE--2.9%
--------------------------------------------------------------------------------------
5,000 (a)MSC Industrial Direct Co. 181,875
--------------------------------------------------------------------------------------
1,400 (a)Orchard Supply Hardware 37,275
--------------------------------------------------------------------------------------
4,400 Riser Foods, Inc., Class A 83,600
-------------------------------------------------------------------------------------- -------------
Total 302,750
-------------------------------------------------------------------------------------- -------------
SERVICES--10.9%
--------------------------------------------------------------------------------------
2,000 (a)American Buildings Co. 50,812
--------------------------------------------------------------------------------------
2,500 American List Corp. 77,812
--------------------------------------------------------------------------------------
2,800 (a)BARRA, Inc. 93,100
--------------------------------------------------------------------------------------
2,000 (a)Catalina Marketing Corp. 155,750
--------------------------------------------------------------------------------------
1,700 (a)Day Runner, Inc. 52,913
--------------------------------------------------------------------------------------
2,300 ](a)Devon Group, Inc. 72,450
--------------------------------------------------------------------------------------
2,000 Employee Solutions, Inc. 77,500
--------------------------------------------------------------------------------------
2,250 Granite Construction, Inc. 44,438
--------------------------------------------------------------------------------------
2,000 (a)Newpark Resources, Inc. 62,750
--------------------------------------------------------------------------------------
5,900 (a)Prepaid Legal Services, Inc. 114,313
--------------------------------------------------------------------------------------
4,000 (a)Pride Petroleum Services, Inc. 65,500
--------------------------------------------------------------------------------------
4,500 (a)Right Management Consultants 154,125
--------------------------------------------------------------------------------------
1,000 (a)Scientific Games Holdings Corp. 32,750
--------------------------------------------------------------------------------------
200 (a)Sykes Enterprises, Inc. 7,100
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
SERVICES--CONTINUED
--------------------------------------------------------------------------------------
2,000 (a)Volt Information Science, Inc. $ 59,500
-------------------------------------------------------------------------------------- -------------
Total 1,120,813
-------------------------------------------------------------------------------------- -------------
TECHNOLOGY--23.1%
--------------------------------------------------------------------------------------
3,000 (a)Advent Software, Inc. 79,500
--------------------------------------------------------------------------------------
5,000 (a)Axent Technologies, Inc. 90,000
--------------------------------------------------------------------------------------
4,000 (a)Black Box Corp. 80,000
--------------------------------------------------------------------------------------
1,500 (a)Boca Research, Inc. 32,250
--------------------------------------------------------------------------------------
4,000 (a)Burr Brown Corp. 77,000
--------------------------------------------------------------------------------------
1,000 CTS Corp. 41,750
--------------------------------------------------------------------------------------
1,800 Computer Data Systems, Inc. 31,950
--------------------------------------------------------------------------------------
6,100 (a)Digital Systems Int., Inc. 120,475
--------------------------------------------------------------------------------------
2,000 (a)Documentum, Inc. 92,000
--------------------------------------------------------------------------------------
2,600 (a)ESS Technology, Inc. 58,825
--------------------------------------------------------------------------------------
3,200 (a)Encad, Inc. 110,000
--------------------------------------------------------------------------------------
1,000 (a)Engineering Animation, Inc. 23,250
--------------------------------------------------------------------------------------
2,400 (a)First USA Paymentech, Inc. 104,400
--------------------------------------------------------------------------------------
2,500 (a)Forte Software, Inc. 154,375
--------------------------------------------------------------------------------------
800 HMC Software 29,800
--------------------------------------------------------------------------------------
6,100 II-VI, Inc. 91,500
--------------------------------------------------------------------------------------
500 (a)Indus Group, Inc. 10,625
--------------------------------------------------------------------------------------
3,500 (a)Intervoice, Inc. 98,000
--------------------------------------------------------------------------------------
2,500 (a)JDA Software Group, Inc. 51,250
--------------------------------------------------------------------------------------
2,300 National Data Corp. 81,075
--------------------------------------------------------------------------------------
1,900 (a)Network Equipment Technologies, Inc. 48,450
--------------------------------------------------------------------------------------
3,400 (a)Photronic Labs, Inc. 89,675
--------------------------------------------------------------------------------------
2,500 (a)Planning Sciences International PLC, ADR 60,313
--------------------------------------------------------------------------------------
1,500 (a)SCI Systems, Inc. 64,313
--------------------------------------------------------------------------------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
--------------------------------------------------------------------------------------
3,000 (a)Sapient Corp. $ 158,250
--------------------------------------------------------------------------------------
1,000 (a)Sync Research, Inc. 19,750
--------------------------------------------------------------------------------------
2,600 Telxon Corp. 59,800
--------------------------------------------------------------------------------------
3,600 (a)Tollgrade Communications, Inc. 85,500
--------------------------------------------------------------------------------------
4,000 Trident International, Inc. 70,000
--------------------------------------------------------------------------------------
5,200 (a)Worldtalk Communications, Inc. 67,600
--------------------------------------------------------------------------------------
2,200 Wyle Labs 92,125
--------------------------------------------------------------------------------------
1,800 (a)Xylan Corp. 115,313
-------------------------------------------------------------------------------------- -------------
Total 2,389,114
-------------------------------------------------------------------------------------- -------------
TRANSPORTATION--2.4%
--------------------------------------------------------------------------------------
1,100 (a)Alaska Air Group, Inc. 27,913
--------------------------------------------------------------------------------------
800 Comair Holdings, Inc. 29,600
--------------------------------------------------------------------------------------
4,400 Expeditors International Washington, Inc. 130,900
--------------------------------------------------------------------------------------
5,700 (a)Frontier Airlines, Inc. 47,025
--------------------------------------------------------------------------------------
700 Werner Enterprises, Inc. 16,975
-------------------------------------------------------------------------------------- -------------
Total 252,413
-------------------------------------------------------------------------------------- -------------
UTILITIES--1.8%
--------------------------------------------------------------------------------------
3,300 Interstate Power Co. 101,063
--------------------------------------------------------------------------------------
2,200 Teppco Partners, L.P. 83,050
-------------------------------------------------------------------------------------- -------------
Total 184,113
-------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $7,786,626) 9,432,269
-------------------------------------------------------------------------------------- -------------
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
(B) REPURCHASE AGREEMENT--7.5%
- ---------------------------------------------------------------------------------------------------
$ 780,000 BT Securities Corporation, 5.35%, dated 4/30/1996, due 5/1/1996
(AT AMORTIZED COST) $ 780,000
-------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $8,566,626)(C) $ 10,212,269
-------------------------------------------------------------------------------------- -------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated Funds.
(c) The cost for federal income tax purposes amounts to $8,566,626. The net
unrealized appreciation on a federal tax basis amounts to $1,645,643, which
is comprised of $1,790,992 appreciation and $145,349 depreciation at April
30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($10,332,083) at April 30, 1996.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $8,566,626) $ 10,212,269
- ----------------------------------------------------------------------------------------------------
Cash 311
- ----------------------------------------------------------------------------------------------------
Income receivable 3,664
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 381,538
- ----------------------------------------------------------------------------------------------------
Prepaid expenses 42,309
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 10,640,091
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased $ 278,445
- -----------------------------------------------------------------------------------------
Accrued expenses 29,563
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 308,008
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 735,436 shares outstanding $ 10,332,083
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $ 8,043,480
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,645,643
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 660,095
- ----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (17,135)
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 10,332,083
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($6,101,033 / 434,100 shares outstanding) $14.05
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100 / 94.50 of $14.05)* $14.87
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share $14.05
- ---------------------------------------------------------------------------------------------------- ------------
CLASS B SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($3,631,606 / 258,619 shares outstanding) $14.04
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share $14.04
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share (94.50 / 100 of $14.04)** $13.27
- ---------------------------------------------------------------------------------------------------- ------------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($599,444 / 42,717 shares outstanding) $14.03
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share $14.03
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share (99.00 / 100 of $14.03)** $13.89
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
* See "How to Purchase Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $59) $ 22,190
- -----------------------------------------------------------------------------------------------------
Interest 18,733
- ----------------------------------------------------------------------------------------------------- -----------
Total income 40,923
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------
Investment advisory fee $ 24,133
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 91,488
- -----------------------------------------------------------------------------------------
Custodian fees 12,123
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 17,343
- -----------------------------------------------------------------------------------------
Legal fees 2,053
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 34,583
- -----------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 4,149
- -----------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 553
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 6,477
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 1,383
- -----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 184
- -----------------------------------------------------------------------------------------
Share registration costs 13,752
- -----------------------------------------------------------------------------------------
Printing and postage 5,282
- -----------------------------------------------------------------------------------------
Insurance premiums 2,776
- -----------------------------------------------------------------------------------------
Miscellaneous 600
- ----------------------------------------------------------------------------------------- ----------
Total expenses 216,879
- -----------------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $ (24,133)
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses (144,577)
- ----------------------------------------------------------------------------- ----------
Total waivers and reimbursements (168,710)
- ----------------------------------------------------------------------------------------- ----------
Net expenses 48,169
- ----------------------------------------------------------------------------------------------------- -----------
Net operating loss (7,246)
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments 660,095
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 1,645,643
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 2,305,738
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 2,298,492
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
APRIL 30, 1996*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------------------
Net operating loss $ (7,246)
- ----------------------------------------------------------------------------------------------
Net realized gain on investments
($660,095 net gain, as computed for federal tax purposes) 660,095
- ----------------------------------------------------------------------------------------------
Net change in unrealized appreciation 1,645,643
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets resulting from operations 2,298,492
- ---------------------------------------------------------------------------------------------- ------------------
NET EQUALIZATION CREDITS (DEBITS)-- (30)
- ---------------------------------------------------------------------------------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
- ----------------------------------------------------------------------------------------------
Class A Shares (9,859)
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets resulting from distributions to shareholders (9,859)
- ---------------------------------------------------------------------------------------------- ------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------------------
Proceeds from sale of shares 14,244,031
- ----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 1,448
- ----------------------------------------------------------------------------------------------
Cost of shares redeemed (6,201,999)
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets resulting from share transactions 8,043,480
- ---------------------------------------------------------------------------------------------- ------------------
Change in net assets 10,332,083
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------------------------- ------------------
End of period $ 10,332,083
- ---------------------------------------------------------------------------------------------- ------------------
</TABLE>
*For the period from November 1, 1995 (date of initial public investment) to
April 30, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SMALL CAP STRATEGIES FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Equity Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end, management investment
company. The Trust consists of three portfolios. The financial statements
included herein are only those of Federated Small Cap Strategies Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated, and a shareholder's interest is limited to the portfolio in which
shares are held. The objective of the fund is to provide capital appreciation.
The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the
Internal Revenue Code, as amended (the "Code"). Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
EQUALIZATION--The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996*
CLASS A SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 941,591 $ 10,235,032
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 126 1,448
- ---------------------------------------------------------------------------------------
Shares redeemed (507,617) (5,889,400)
- --------------------------------------------------------------------------------------- --------- -------------
Net change resulting from Class A share transactions 434,100 $ 4,347,080
- --------------------------------------------------------------------------------------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, 1996*
CLASS B SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 284,564 $ 3,479,188
- ----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 0 0
- ----------------------------------------------------------------------------------------
Shares redeemed (25,945) (310,770)
- ---------------------------------------------------------------------------------------- --------- ------------
Net change resulting from Class B share transactions 258,619 $ 3,168,418
- ---------------------------------------------------------------------------------------- --------- ------------
<CAPTION>
PERIOD ENDED
APRIL 30, 1996*
CLASS C SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 42,870 $ 529,811
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 0 0
- ---------------------------------------------------------------------------------------
Shares redeemed (153) (1,829)
- --------------------------------------------------------------------------------------- --------- -------------
Net change resulting from Class C share transactions 42,717 $ 527,982
- --------------------------------------------------------------------------------------- --------- -------------
Net change resulting from share transactions 735,436 8,043,480
- --------------------------------------------------------------------------------------- --------- -------------
</TABLE>
* For the period from November 1, 1995 (date of initial public investment) to
April 30, 1996.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp., the principal distributor, from the net
assets of the Fund to finance activities
intended to result in the sale of the Fund's Class B and Class C shares. The
Plan provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
SHARE CLASS NAME % OF AVG. DAILY NET ASSETS OF CLASS
<S> <C>
Class A 0.25%
Class B 0.75%
Class C 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
For the six months ended April 30, 1996, Class A did not incur a distribution
services fee.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services, the Fund will pay Federated Shareholder
Services up to 0.25% of average daily net assets of each class of shares for the
period. The fee paid to Federated Shareholder Services is used to finance
certain services for shareholders and to maintain shareholder accounts.
Federated Shareholder Services may voluntarily choose to waive any portion of
its fee. Federated Shareholder Services can modify or terminate this voluntary
waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its
subsidiary, Federated Shareholder Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FServ is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's
accounting records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($10,292) were initially borne
by Federated Securities Corp. The Trust has agreed to reimburse Federated
Securities Corp. for the organizational expenses during the five year period
following effective date. For the period ended April 30, 1996, the Trust paid
$57 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
April 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 10,780,232
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 3,653,702
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not
insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the
Federal Reserve Board, or any other government agency. Investment in mutual
funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Funds' prospectus which contains facts concerning their
objective and policies, management fees, expenses and other information.
FEDERATED
SMALL CAP
STRATEGIES
FUND
Combined
Semi-Annual Report and
Supplement to Prospectus
Dated November 1, 1995
[LOGO] FEDERATED INVESTORS
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
CUSIP# 314172404
CUSIP# 314172503
CUSIP# 314172602
