[LOGO] Federated Investors
Since 1955
Federated Capital
Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
20th Annual Report
October 31, 1996
Established 1977
Equity
President's Message
Dear Fellow Shareholder:
Federated Capital Appreciation Fund, formerly, Federated Exchange Fund, Ltd.
was created in 1977, and I am pleased to present the 20th Annual Report for the
fund.
This report covers the 10-month period from January 1, 1995, to October 31,
1996. The report begins with a discussion with Peter R. Anderson, Senior Vice
President, Federated Management. Following his discussion are graphs depicting
the fund's long-term investment performance, a complete list of the fund's
highly diversified stock holdings, and the fund's financial statements.
The fund's portfolio of high-quality common stocks issued by mid- to
large-capitalization companies includes household names such as Intel, Nike,
and Sears that performed very well in the continued favorable stock market
environment.
The fund's strong total return performance reflects a more flexible investment
policy and greater focus on capital appreciation that was approved by a
shareholder vote in December 1995. Class A Shares total return for the 12-month
period and Class B Shares and Class C Shares total return for the 10-month
period, which reflect a net asset value increase, income dividends, and
realized gain, is shown below for each share class.* Please note that Class B
and C shares were added to the fund on January 4, 1996.
NAV Increase Income Capital Gains Total Return
Class A Shares $89.12 to $97.01=9% $0.16 $2.00 20.14%
Class B Shares $88.22 to $96.70=10% $0.01 $2.00 12.00%
Class C Shares $88.22 to $96.76=10% $0.01 $2.00 12.05%
Thank you for entrusting a portion of your wealth to Federated Capital
Appreciation Fund. We encourage you to consider reinvesting your dividends and
capital gains automatically in additional shares. It's a convenient way to
increase your opportunity to participate in the growth and earnings of quality
American companies.
As always, we welcome your comments and suggestions.
Sincerely,
Glen R. Johnson
President
December 15, 1996
* Performance quoted is based on net asset value and reflects past performance.
Performance is not indicative of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Total returns based on offering
price for the period for Class A Shares was 13.53%. The total returns based on
the payment of the contingent deferred sales charge for the fund's Class B and
Class C Shares, since inception on January 4, 1996 through October 31, 1996,
were 6.38% and 11.03%, respectively.
Investment Review
[PHOTO APPEARS HERE]
Peter R. Anderson
Senior Vice President
Federated Management
Q From November 1, 1995, through October 31, 1996, the strong stock market
paused briefly in the summer months, then pressed on, and still managed to
reach new highs in October. What is your review of the period?
A For the 12 months ended October 31, 1996, the S&P 500+ had a total return
of 24.10% continuing the market strength that began in late 1994. The market
did correct about 9% in the May-July period, but came roaring back as strong
second quarter earnings were reported and investors sharply increased their
purchases of equity mutual funds. Also, long-term interest rates declined
during the July-October period supporting an upward revaluation of equities.
Part of the market's strength in October was due to the probable outcome of the
election. With no one party controlling both the White House and Congress,
federal spending and inflation should remain constrained.
Q How did Federated Capital Appreciation Fund perform for its shareholders?
A For the 12-month period, the fund's Class A Shares produced a total
return of 20.14%. The fund's Class B and C Shares, which were established on
January 4, 1996, delivered total returns of 12.00% and 12.05%, respectively,
through October 31, 1996. This performance is based on net asset value and
includes capital appreciation, income dividends, and capital gains.*
The fund has continued to show solid long-term results. For example, annualized
total returns based on net asset value for Class A Shares for the 5-year,
10-year, and since inception (January 1, 1977) periods ending October 31, 1996,
were 15.17%, 12.20%, and 13.99%, respectively.**
+ The S&P 500 is an unmanaged index comprised of stocks in industry,
transportation, and financial and public utility companies. Investments cannot
be made in an index.
* Performance quoted reflects past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Total returns for the period on
offering price or the payment of the contingent deferred sales charge for Class
A, B, and C Shares were 13.53%, 6.38% and 11.03%, respectively.
** Total returns based on offering price or the payment of the contingent
deferred sales charge for 5-year, 10-year, and since inception (1/1/77) periods
ended 10/31/96 were 13.88%, 11.56% and 13.67%, respectively.
Q Did you make any significant changes to the fund's sector weightings
during the period?
A Yes. We seek the most attractive stocks from our value and growth
disciplines, including both large-cap and mid-cap stocks. Using this flexible
approach, we hope to provide attractive total return over time. Our analysts
are actively involved in this portfolio management process. During the third
quarter, we repositioned the fund to reduce overweights in the Finance and
Technology sectors, and increased exposure in Utilities, Energy, and Consumer
Non-Durables. At the end of the third quarter, there were no major sector
overweights or underweights in the fund versus the S&P 500's 12 industry
sectors.
While we still like the Technology theme long term, a number of the technology
companies are experiencing earnings disappointments or appear overvalued. The
increase in our Utility holdings was primarily driven by attractive valuation
as utility stocks had underperformed the broad market over the past nine
months.
Q What stocks have you been buying and selling?
A Recent noteworthy transactions reflect the repositioning of the fund during
the third quarter to reduce exposure in Technology and Finance, and increase
Utilities, Energy and Consumer Non-Durables holdings. Within the Technology
sector, we have positioned the portfolio in the leading companies with high
value-added products such as Intel and Xilinx. Selected changes in the Health
Care sector reflect a buying opportunity in quality stocks such as United
Healthcare, the largest HMO, and Columbia/HCA, the number one hospital
management company. In Utilities, we have added some strong, high-quality
names such as FPL Group and GTE, both of which have provided attractive
dividend yields.
Q What were the fund's top 10 holdings as of October 31, 1996, and how is the
fund diversified by industry?
A The top 10 holdings and sector weightings were as follows:
Name % of Portfolio
Bristol-Myers Squibb Co. 3.0%
Avon Products, Inc. 2.8%
Union Pacific Resources Group, Inc. 2.7%
Citicorp 2.6%
Textron, Inc. 2.1%
Nike, Inc. 2.0%
Sears, Roebuck & Co. 2.0%
Enron Corp. 2.0%
Travelers Group, Inc. 1.9%
Electronic Data Systems Corp. 1.9%
- --------------------------------------------
Total % of portfolio 23.0%
Sector Weightings
Asset Class % of Portfolio S&P 500
Sector Weighting Finance 14.7% 14.8%
Technology 13.4% 13.9%
Consumer Non-Durables 9.8% 12.0%
Utilities 10.5% 10.5%
Health Care 9.3% 10.5%
Energy Minerals 8.6% 9.1%
Producer Manufacturing 6.9% 7.5%
Services 6.1% 5.2%
Miscellaneous 7.3% 0%
Retail Trade 4.3% 4.8%
Basic Industry 4.4% 6.5%
Consumer Durables 3.2% 3.9%
Transportation 1.5% 1.4%
Q As we approach the close of 1996, what is your outlook for the market?
A With mixed economic signals and the S&P 500 up roughly 60% over the past 22
months, the bears have become more vocal citing various measures that suggest
overvaluation. While we do not attempt to forecast the stock market, valuation
looks reasonable to us relative to earnings and interest rates. Certainly, a
correction is possible over the next year or so, but equity investors should
not lose sight of longer-term positives underpinning the market. These factors
are incorporated in some of the major themes in our investment strategy--in
particular industry consolidation, technology, and globalization of markets.
Productivity of U.S. companies has risen sharply over the past six years.
Global economy is growing, and U.S. corporations have sharply increased their
share of world export markets over the past 7-8 years. These are important
positives in our view.
Two Ways You May Seek to Invest for Success in
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Initial Investment:
If you had made an initial investment of $20,000 in the Class A Shares of
Federated Capital Appreciation Fund on 1/1/77, reinvested dividends and capital
gains, and didn't redeem any shares, your account would be worth $253,865 on
10/31/96. You would have earned a 13.67%* average annual total return for the
19-year investment life span.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/96, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 12.55%, 14.06%, and 11.88%, respectively. Class B
Shares' total return since inception on (1/4/96) was 5.11%. Class C Shares'
total return since inception on (1/4/96) was 9.74%.
[Graphic representation omitted, see APPENDIX H.]
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.5% sales
charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
One Step at a Time:
$1,000 invested each year for 19 years (reinvesting all dividends and capital
gains) grew to $99,556.
With this approach, the key is consistency. If you had started investing $1,000
annually in the Class A Shares of Federated Capital Appreciation Fund on
1/1/77, reinvested your dividends and capital gains, and didn't redeem any
shares, you would have invested only $20,000, but your account would have
reached a total value of $99,556* by 10/31/96. You would have earned an average
annual total return of 13.92%.
A practical investment plan helps you pursue long-term performance from
growth-oriented stocks. Through systematic investing, you buy shares on a
regular basis and reinvest all earnings. An investment plan works for you when
you invest only $1,000 annually. You can take it one step at a time. Put time,
money and compounding to work!
[Graphic representation omitted, see APPENDIX I.]
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices, and all accumulated
shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Hypothetical Investor Profile: Investing for a College Education
David and Joan Rice are a fictitious couple who, like many shareholders, are
searching for a way to make their money grow over time.
David and Joan are planning for the college education of their child. On
October 31, 1986, they invested $5,000 in the Class A Shares of Federated
Capital Appreciation Fund. Since then, David and Joan have made additional
investments of $250 every month.
As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to
$72,311. This represents an 12.30% average annual total return. For the Rices,
a dedicated program of monthly investment really paid off.
[Graphic representation omitted, see APPENDIX J.]
This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated Capital Appreciation Fund--(Class A Shares)
(formerly, Federated Exchange Fund, Ltd.)
Growth of $10,000 Invested in Federated Capital Appreciation Fund (Class A
Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Capital Appreciation Fund (Class A Shares) (the "Fund") from
October 31, 1986 to October 31, 1996 compared to the Standard and Poor's 500
Index (S&P 500)+ and the Lipper Growth and Income Funds Average (LGIFA).++
[Graphic representation omitted, see APPENDIX K.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Effective January 1, 1996, the fiscal year end of this fund was changed from
December 31 to October 31. The hypothetical investment of $10,000 assumes an
investment date of October 31, 1986 with no sales charge. As of November 14,
1995, the maximum sales charge was 5.50%. The Fund's performance assumes the
reinvestment of all dividends and distributions. The S&P 500 and the LGIFA have
been adjusted to reflect reinvestment of dividends on securities in the index
and the average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.
++ The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
Federated Capital Appreciation Fund--(Class B Shares)
(formerly, Federated Exchange Fund, Ltd.)
Growth of $10,000 Invested in Federated
Capital Appreciation Fund (Class B Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Capital Appreciation Fund (Class B Shares) (the "Fund") from January
4, 1996 (start of performance to October 31, 1996 compared to the Standard and
Poor's 500 Index (S&P 500)+ and the Lipper Growth and Income Funds Average
(LGIFA).++
[Graphic representation omitted, see APPENDIX L.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 5.50% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LGIFA have been adjusted to reflect reinvestment of dividends on securities
on the index and the average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.
++ The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
Federated Capital Appreciation Fund--(Class C Shares)
(formerly, Federated Exchange Fund, Ltd.)
Growth of $10,000 Invested in Federated
Capital Appreciation Fund (Class C Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Capital Appreciation Fund (Class C Shares) (the "Fund") from January
4, 1996 (start of performance) to October 31, 1996 compared to the Standard and
Poor's 500 Index (S&P 500)+ and the Lipper Growth and Income Funds Average
(LGIFA).++
[Graphic representation omitted, see APPENDIX M.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LGIFA have been adjusted to reflect reinvestment of dividends on securities
in the index and the average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.
++ The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Portfolio of Investments
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--86.7%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--4.4%
-----------------------------------------------------------------------------------
65,000 Arcadian Corp. $ 1,600,625
-----------------------------------------------------------------------------------
30,000 Morton International, Inc. 1,181,250
-----------------------------------------------------------------------------------
22,000 Sigma-Aldrich Corp. 1,292,500
-----------------------------------------------------------------------------------
35,000 Schweitzer-Mauduit International, Inc. 1,076,250
----------------------------------------------------------------------------------- --------------
Total 5,150,625
----------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--3.2%
-----------------------------------------------------------------------------------
27,000 Eastman Kodak Co. 2,153,250
-----------------------------------------------------------------------------------
55,000 Mattel, Inc. 1,588,125
----------------------------------------------------------------------------------- --------------
Total 3,741,375
----------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--9.9%
-----------------------------------------------------------------------------------
59,800 Avon Products, Inc. 3,244,150
-----------------------------------------------------------------------------------
72,000 IBP, Inc. 1,800,000
-----------------------------------------------------------------------------------
87,000 (a)Mossimo, Inc. 1,881,375
-----------------------------------------------------------------------------------
40,000 Nike, Inc., Class B 2,355,000
-----------------------------------------------------------------------------------
23,400 Philip Morris Cos., Inc. 2,167,425
----------------------------------------------------------------------------------- --------------
Total 11,447,950
----------------------------------------------------------------------------------- --------------
ENERGY MINERALS--8.7%
-----------------------------------------------------------------------------------
15,000 British Petroleum Co. PLC, ADR 1,929,375
-----------------------------------------------------------------------------------
14,000 Mobil Corp. 1,634,500
-----------------------------------------------------------------------------------
48,000 Repsol SA, ADR 1,566,000
-----------------------------------------------------------------------------------
32,000 Tosco Corp. 1,796,000
-----------------------------------------------------------------------------------
113,808 Union Pacific Resources Group, Inc. 3,129,727
----------------------------------------------------------------------------------- --------------
Total 10,055,602
----------------------------------------------------------------------------------- --------------
FINANCE--14.8%
-----------------------------------------------------------------------------------
87,900 (a)Acceptance Insurance Cos., Inc. 1,779,975
-----------------------------------------------------------------------------------
28,000 Allstate Corp. 1,571,500
-----------------------------------------------------------------------------------
23,600 Chase Manhattan Corp. $ 2,023,700
-----------------------------------------------------------------------------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
-----------------------------------------------------------------------------------
31,097 Citicorp 3,078,603
-----------------------------------------------------------------------------------
23,145 Dean Witter, Discover & Co. 1,362,662
-----------------------------------------------------------------------------------
46,000 Executive Risk, Inc. 1,897,500
-----------------------------------------------------------------------------------
55,000 Leucadia National Corp. 1,299,375
-----------------------------------------------------------------------------------
41,000 Travelers Group, Inc. 2,224,250
-----------------------------------------------------------------------------------
23,000 Vesta Insurance Group, Inc. 589,375
-----------------------------------------------------------------------------------
4,800 Wells Fargo & Co. 1,282,200
----------------------------------------------------------------------------------- --------------
Total 17,109,140
----------------------------------------------------------------------------------- --------------
HEALTH CARE--8.0%
-----------------------------------------------------------------------------------
22,500 Becton, Dickinson & Co. 978,750
-----------------------------------------------------------------------------------
33,400 Bristol-Myers Squibb Co. 3,532,050
-----------------------------------------------------------------------------------
30,000 Columbia/HCA Healthcare Corp. 1,072,500
-----------------------------------------------------------------------------------
54,000 (a)Genzyme Corp. 1,242,000
-----------------------------------------------------------------------------------
20,000 Smithkline Beecham Corp., ADR 1,252,500
-----------------------------------------------------------------------------------
30,000 United Healthcare Corp. 1,136,250
----------------------------------------------------------------------------------- --------------
Total 9,214,050
----------------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING--6.0%
-----------------------------------------------------------------------------------
20,000 General Electric Co. 1,935,000
-----------------------------------------------------------------------------------
50,000 (a)Oak Industries, Inc. 1,268,750
-----------------------------------------------------------------------------------
28,000 Textron, Inc. 2,485,000
-----------------------------------------------------------------------------------
27,000 Xerox Corp. 1,252,125
----------------------------------------------------------------------------------- --------------
Total 6,940,875
----------------------------------------------------------------------------------- --------------
RETAIL TRADE--3.8%
-----------------------------------------------------------------------------------
25,000 Dayton-Hudson Corp. 865,625
-----------------------------------------------------------------------------------
33,000 (a)Kohl's Corp. 1,188,000
-----------------------------------------------------------------------------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
RETAIL TRADE--CONTINUED
-----------------------------------------------------------------------------------
48,350 Sears, Roebuck & Co. $ 2,338,931
----------------------------------------------------------------------------------- --------------
Total 4,392,556
----------------------------------------------------------------------------------- --------------
SERVICES--3.8%
-----------------------------------------------------------------------------------
40,000 Interpublic Group Cos., Inc. 1,940,000
-----------------------------------------------------------------------------------
42,000 Manpower, Inc. 1,191,750
-----------------------------------------------------------------------------------
50,000 Reynolds & Reynolds Co., Class A 1,318,750
----------------------------------------------------------------------------------- --------------
Total 4,450,500
----------------------------------------------------------------------------------- --------------
TECHNOLOGY--13.4%
-----------------------------------------------------------------------------------
18,000 (a)Cabletron Systems, Inc. 1,122,750
-----------------------------------------------------------------------------------
27,000 (a)Ceridian Corp. 1,339,875
-----------------------------------------------------------------------------------
64,000 (a)DST Systems, Inc. 1,968,000
-----------------------------------------------------------------------------------
49,000 Electronic Data Systems Corp. 2,205,000
-----------------------------------------------------------------------------------
37,600 Hewlett-Packard Co. 1,659,100
-----------------------------------------------------------------------------------
14,000 Intel Corp. 1,538,250
-----------------------------------------------------------------------------------
15,000 Ingram Micro, Inc. 270,000
-----------------------------------------------------------------------------------
30,000 Lucent Technologies, Inc. 1,410,013
-----------------------------------------------------------------------------------
8,500 (a)Microsoft Corp. 1,166,625
-----------------------------------------------------------------------------------
37,000 (a)Solectron Corp. 1,979,500
-----------------------------------------------------------------------------------
29,000 (a)Xilinx, Inc. 949,750
----------------------------------------------------------------------------------- --------------
Total 15,608,863
----------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.5%
-----------------------------------------------------------------------------------
25,000 Kansas City Southern Industries, Inc. 1,175,000
-----------------------------------------------------------------------------------
10,400 Union Pacific Corp. 583,700
----------------------------------------------------------------------------------- --------------
Total 1,758,700
----------------------------------------------------------------------------------- --------------
UTILITIES--9.2%
-----------------------------------------------------------------------------------
54,000 CMS Energy Corp. 1,707,750
-----------------------------------------------------------------------------------
16,300 Columbia Gas System, Inc. 990,225
-----------------------------------------------------------------------------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-----------------------------------------------------------------------------------
49,000 Enron Corp. $ 2,278,500
-----------------------------------------------------------------------------------
44,000 FPL Group, Inc. 2,024,000
-----------------------------------------------------------------------------------
29,500 GTE Corp. 1,242,688
-----------------------------------------------------------------------------------
51,400 MCI Communications Corp. 1,291,425
-----------------------------------------------------------------------------------
28,000 Sprint Corp. 1,099,000
----------------------------------------------------------------------------------- --------------
Total 10,633,588
----------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $73,451,954) 100,503,824
----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--2.0%
- -------------------------------------------------------------------------------------------------
HEALTH CARE--1.4%
-----------------------------------------------------------------------------------
$ 1,600,000 Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 1,646,000
----------------------------------------------------------------------------------- --------------
RETAIL TRADE--0.6%
-----------------------------------------------------------------------------------
600,000 Saks Holdings, Inc., Conv. Bond, 5.50%, 9/15/2006 632,628
----------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $2,255,000) 2,278,628
----------------------------------------------------------------------------------- --------------
PREFERRED STOCKS--4.6%
- -------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--1.0%
-----------------------------------------------------------------------------------
25,000 Greenfield Industries, Inc., Conv. Pfd., $3.00 1,135,725
----------------------------------------------------------------------------------- --------------
SERVICES--2.3%
-----------------------------------------------------------------------------------
47,000 (a)Browning-Ferris Industries, Inc., ACES, $2.58 1,380,624
-----------------------------------------------------------------------------------
103,200 Hollinger International Publishing, Inc., Conv. Pfd., $.95 1,264,200
----------------------------------------------------------------------------------- --------------
Total 2,644,824
----------------------------------------------------------------------------------- --------------
UTILITIES--1.3%
-----------------------------------------------------------------------------------
18,000 MFS Communications Company, Inc., Conv. Pfd., $2.68 1,561,500
----------------------------------------------------------------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,606,973) 5,342,049
----------------------------------------------------------------------------------- --------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(B) REPURCHASE AGREEMENT--7.1%
- -------------------------------------------------------------------------------------------------
$ 8,210,000 BT Securities Corporation, 5.55%, dated 10/31/1996,
due 11/1/1996, at amortized cost $ 8,210,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $88,523,927)(C) $ 116,334,501
----------------------------------------------------------------------------------- --------------
</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 $88,523,927.
The net unrealized appreciation of investments on a federal tax basis
amounts to $27,810,574 which is comprised of $29,871,787 appreciation and
$2,061,213 depreciation at October 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($115,883,175) at October 31, 1996.
The following acronyms are used throughout this portfolio:
ACES--Adjustable Convertible Extendable Securities
ADR--American Depositary Receipt
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Portfolio of Investments
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--86.7%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--4.4%
-----------------------------------------------------------------------------------
65,000 Arcadian Corp. $ 1,600,625
-----------------------------------------------------------------------------------
30,000 Morton International, Inc. 1,181,250
-----------------------------------------------------------------------------------
22,000 Sigma-Aldrich Corp. 1,292,500
-----------------------------------------------------------------------------------
35,000 Schweitzer-Mauduit International, Inc. 1,076,250
----------------------------------------------------------------------------------- --------------
Total 5,150,625
----------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--3.2%
-----------------------------------------------------------------------------------
27,000 Eastman Kodak Co. 2,153,250
-----------------------------------------------------------------------------------
55,000 Mattel, Inc. 1,588,125
----------------------------------------------------------------------------------- --------------
Total 3,741,375
----------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--9.9%
-----------------------------------------------------------------------------------
59,800 Avon Products, Inc. 3,244,150
-----------------------------------------------------------------------------------
72,000 IBP, Inc. 1,800,000
-----------------------------------------------------------------------------------
87,000 (a)Mossimo, Inc. 1,881,375
-----------------------------------------------------------------------------------
40,000 Nike, Inc., Class B 2,355,000
-----------------------------------------------------------------------------------
23,400 Philip Morris Cos., Inc. 2,167,425
----------------------------------------------------------------------------------- --------------
Total 11,447,950
----------------------------------------------------------------------------------- --------------
ENERGY MINERALS--8.7%
-----------------------------------------------------------------------------------
15,000 British Petroleum Co. PLC, ADR 1,929,375
-----------------------------------------------------------------------------------
14,000 Mobil Corp. 1,634,500
-----------------------------------------------------------------------------------
48,000 Repsol SA, ADR 1,566,000
-----------------------------------------------------------------------------------
32,000 Tosco Corp. 1,796,000
-----------------------------------------------------------------------------------
113,808 Union Pacific Resources Group, Inc. 3,129,727
----------------------------------------------------------------------------------- --------------
Total 10,055,602
----------------------------------------------------------------------------------- --------------
FINANCE--14.8%
-----------------------------------------------------------------------------------
87,900 (a)Acceptance Insurance Cos., Inc. 1,779,975
-----------------------------------------------------------------------------------
28,000 Allstate Corp. 1,571,500
-----------------------------------------------------------------------------------
23,600 Chase Manhattan Corp. $ 2,023,700
-----------------------------------------------------------------------------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
-----------------------------------------------------------------------------------
31,097 Citicorp 3,078,603
-----------------------------------------------------------------------------------
23,145 Dean Witter, Discover & Co. 1,362,662
-----------------------------------------------------------------------------------
46,000 Executive Risk, Inc. 1,897,500
-----------------------------------------------------------------------------------
55,000 Leucadia National Corp. 1,299,375
-----------------------------------------------------------------------------------
41,000 Travelers Group, Inc. 2,224,250
-----------------------------------------------------------------------------------
23,000 Vesta Insurance Group, Inc. 589,375
-----------------------------------------------------------------------------------
4,800 Wells Fargo & Co. 1,282,200
----------------------------------------------------------------------------------- --------------
Total 17,109,140
----------------------------------------------------------------------------------- --------------
HEALTH CARE--8.0%
-----------------------------------------------------------------------------------
22,500 Becton, Dickinson & Co. 978,750
-----------------------------------------------------------------------------------
33,400 Bristol-Myers Squibb Co. 3,532,050
-----------------------------------------------------------------------------------
30,000 Columbia/HCA Healthcare Corp. 1,072,500
-----------------------------------------------------------------------------------
54,000 (a)Genzyme Corp. 1,242,000
-----------------------------------------------------------------------------------
20,000 Smithkline Beecham Corp., ADR 1,252,500
-----------------------------------------------------------------------------------
30,000 United Healthcare Corp. 1,136,250
----------------------------------------------------------------------------------- --------------
Total 9,214,050
----------------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING--6.0%
-----------------------------------------------------------------------------------
20,000 General Electric Co. 1,935,000
-----------------------------------------------------------------------------------
50,000 (a)Oak Industries, Inc. 1,268,750
-----------------------------------------------------------------------------------
28,000 Textron, Inc. 2,485,000
-----------------------------------------------------------------------------------
27,000 Xerox Corp. 1,252,125
----------------------------------------------------------------------------------- --------------
Total 6,940,875
----------------------------------------------------------------------------------- --------------
RETAIL TRADE--3.8%
-----------------------------------------------------------------------------------
25,000 Dayton-Hudson Corp. 865,625
-----------------------------------------------------------------------------------
33,000 (a)Kohl's Corp. 1,188,000
-----------------------------------------------------------------------------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
RETAIL TRADE--CONTINUED
-----------------------------------------------------------------------------------
48,350 Sears, Roebuck & Co. $ 2,338,931
----------------------------------------------------------------------------------- --------------
Total 4,392,556
----------------------------------------------------------------------------------- --------------
SERVICES--3.8%
-----------------------------------------------------------------------------------
40,000 Interpublic Group Cos., Inc. 1,940,000
-----------------------------------------------------------------------------------
42,000 Manpower, Inc. 1,191,750
-----------------------------------------------------------------------------------
50,000 Reynolds & Reynolds Co., Class A 1,318,750
----------------------------------------------------------------------------------- --------------
Total 4,450,500
----------------------------------------------------------------------------------- --------------
TECHNOLOGY--13.4%
-----------------------------------------------------------------------------------
18,000 (a)Cabletron Systems, Inc. 1,122,750
-----------------------------------------------------------------------------------
27,000 (a)Ceridian Corp. 1,339,875
-----------------------------------------------------------------------------------
64,000 (a)DST Systems, Inc. 1,968,000
-----------------------------------------------------------------------------------
49,000 Electronic Data Systems Corp. 2,205,000
-----------------------------------------------------------------------------------
37,600 Hewlett-Packard Co. 1,659,100
-----------------------------------------------------------------------------------
14,000 Intel Corp. 1,538,250
-----------------------------------------------------------------------------------
15,000 Ingram Micro, Inc. 270,000
-----------------------------------------------------------------------------------
30,000 Lucent Technologies, Inc. 1,410,013
-----------------------------------------------------------------------------------
8,500 (a)Microsoft Corp. 1,166,625
-----------------------------------------------------------------------------------
37,000 (a)Solectron Corp. 1,979,500
-----------------------------------------------------------------------------------
29,000 (a)Xilinx, Inc. 949,750
----------------------------------------------------------------------------------- --------------
Total 15,608,863
----------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.5%
-----------------------------------------------------------------------------------
25,000 Kansas City Southern Industries, Inc. 1,175,000
-----------------------------------------------------------------------------------
10,400 Union Pacific Corp. 583,700
----------------------------------------------------------------------------------- --------------
Total 1,758,700
----------------------------------------------------------------------------------- --------------
UTILITIES--9.2%
-----------------------------------------------------------------------------------
54,000 CMS Energy Corp. 1,707,750
-----------------------------------------------------------------------------------
16,300 Columbia Gas System, Inc. 990,225
-----------------------------------------------------------------------------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-----------------------------------------------------------------------------------
49,000 Enron Corp. $ 2,278,500
-----------------------------------------------------------------------------------
44,000 FPL Group, Inc. 2,024,000
-----------------------------------------------------------------------------------
29,500 GTE Corp. 1,242,688
-----------------------------------------------------------------------------------
51,400 MCI Communications Corp. 1,291,425
-----------------------------------------------------------------------------------
28,000 Sprint Corp. 1,099,000
----------------------------------------------------------------------------------- --------------
Total 10,633,588
----------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $73,451,954) 100,503,824
----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--2.0%
- -------------------------------------------------------------------------------------------------
HEALTH CARE--1.4%
-----------------------------------------------------------------------------------
$ 1,600,000 Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 1,646,000
----------------------------------------------------------------------------------- --------------
RETAIL TRADE--0.6%
-----------------------------------------------------------------------------------
600,000 Saks Holdings, Inc., Conv. Bond, 5.50%, 9/15/2006 632,628
----------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $2,255,000) 2,278,628
----------------------------------------------------------------------------------- --------------
PREFERRED STOCKS--4.6%
- -------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--1.0%
-----------------------------------------------------------------------------------
25,000 Greenfield Industries, Inc., Conv. Pfd., $3.00 1,135,725
----------------------------------------------------------------------------------- --------------
SERVICES--2.3%
-----------------------------------------------------------------------------------
47,000 (a)Browning-Ferris Industries, Inc., ACES, $2.58 1,380,624
-----------------------------------------------------------------------------------
103,200 Hollinger International Publishing, Inc., Conv. Pfd., $.95 1,264,200
----------------------------------------------------------------------------------- --------------
Total 2,644,824
----------------------------------------------------------------------------------- --------------
UTILITIES--1.3%
-----------------------------------------------------------------------------------
18,000 MFS Communications Company, Inc., Conv. Pfd., $2.68 1,561,500
----------------------------------------------------------------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,606,973) 5,342,049
----------------------------------------------------------------------------------- --------------
</TABLE>
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
(B) REPURCHASE AGREEMENT--7.1%
- -------------------------------------------------------------------------------------------------
$ 8,210,000 BT Securities Corporation, 5.55%, dated 10/31/1996,
due 11/1/1996, at amortized cost $ 8,210,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $88,523,927)(C) $ 116,334,501
----------------------------------------------------------------------------------- --------------
</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 $88,523,927.
The net unrealized appreciation of investments on a federal tax basis
amounts to $27,810,574 which is comprised of $29,871,787 appreciation and
$2,061,213 depreciation at October 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($115,883,175) at October 31, 1996.
The following acronyms are used throughout this portfolio:
ACES--Adjustable Convertible Extendable Securities
ADR--American Depositary Receipt
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $88,523,927) $116,334,501
- ---------------------------------------------------------------------------------------------------
Cash 7,486
- ---------------------------------------------------------------------------------------------------
Income receivable 153,986
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 1,748,017
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 110,674
- --------------------------------------------------------------------------------------------------- -----------
Total assets 118,354,664
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased $2,377,731
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 12,450
- ----------------------------------------------------------------------------------------
Accrued expenses 81,308
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 2,471,489
- --------------------------------------------------------------------------------------------------- -----------
Net Assets for 1,194,759 shares outstanding $115,883,175
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $81,200,949
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 27,810,574
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 6,790,026
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 81,626
- --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $115,883,175
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($108,804,293 / 1,121,562 shares outstanding) $97.01
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $97.01)* $102.66
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.50/100 of $97.01)** $96.52
- --------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($6,369,220 / 65,863 shares outstanding) $96.70
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $96.70
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $96.70)** $91.38
- --------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($709,662 / 7,334 shares outstanding) $96.76
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $96.76
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $96.76)** $95.79
- --------------------------------------------------------------------------------------------------- -----------
</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 Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31,
1996 (A) 1995 (B)
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Dividends $ 1,197,203 $ 2,073,258
- --------------------------------------------------------------------------------
Interest 176,421 112,444
- -------------------------------------------------------------------------------- --------------- ---------------
Total income 1,373,624 2,185,702
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee 671,263 605,742
- --------------------------------------------------------------------------------
Administrative personnel and services fee 154,165 125,000
- --------------------------------------------------------------------------------
Custodian fees 23,880 40,411
- --------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 39,471 24,767
- --------------------------------------------------------------------------------
Directors'/Trustees' fees 14,300 47,748
- --------------------------------------------------------------------------------
Auditing fees 17,059 16,769
- --------------------------------------------------------------------------------
Legal fees 15,494 10,432
- --------------------------------------------------------------------------------
Portfolio accounting fees 59,413 22,222
- --------------------------------------------------------------------------------
Distribution services fee--Class B Shares 15,000 --
- --------------------------------------------------------------------------------
Distribution services fee--Class C Shares 1,642 --
- --------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 218,207 230,627
- --------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 5,000 --
- --------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 547 --
- --------------------------------------------------------------------------------
Share registration costs 96,541 385
- --------------------------------------------------------------------------------
Printing and postage 20,153 5,353
- --------------------------------------------------------------------------------
Insurance premiums 3,215 5,232
- --------------------------------------------------------------------------------
Taxes 30 --
- --------------------------------------------------------------------------------
Miscellaneous 3,225 1,343
- -------------------------------------------------------------------------------- --------------- ---------------
Total expenses 1,358,605 1,136,031
- --------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------------
Waiver of investment advisory fee (244,717) (138,377)
- -------------------------------------------------------------------------------- --------------- ---------------
Net expenses 1,113,888 997,654
- -------------------------------------------------------------------------------- --------------- ---------------
Net investment income 259,736 1,188,048
- -------------------------------------------------------------------------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain on investments 9,100,399 18,575,112
- --------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 3,829,310 9,195,528
- -------------------------------------------------------------------------------- --------------- ---------------
Net realized and unrealized gain on investments 12,929,709 27,770,640
- -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations $ 13,189,445 $ 28,958,688
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(a) Reflects operations for the period from January 1, 1996 (start of business)
to October 31, 1996.
(b) Amounts presented prior to January 1, 1996 represent results of operations
for Federated Exchange Fund, Ltd.
(See Notes which are an integral part of the Financial Statements)
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
1996 (A) 1995 (B) 1994 (B)
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 259,736 1,188,048 $ 1,414,866
- ---------------------------------------------------------------
Net realized gain (loss) on investments ($9,100,399 ,
$16,693,345, and $3,740,852 net gains, respectively, as
computed for federal tax purposes) 9,100,399 18,575,112 5,307,218
- ---------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 3,829,310 9,195,528 (6,996,355)
- --------------------------------------------------------------- --------------- --------------- ---------------
Change in net assets resulting from operations 13,189,445 28,958,688 (274,271)
- --------------------------------------------------------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------
Distributions from net investment income
- ---------------------------------------------------------------
Class A Shares (178,012) (1,235,954) (1,361,721)
- ---------------------------------------------------------------
Class B Shares (98) -- --
- ---------------------------------------------------------------
Class C Shares -- -- --
- ---------------------------------------------------------------
Distributions from net realized gains
- ---------------------------------------------------------------
Class A Shares (2,209,569) (6,164,051) (1,407,972)
- ---------------------------------------------------------------
Class B Shares (89,485) -- --
- ---------------------------------------------------------------
Class C Shares (11,319) -- --
- --------------------------------------------------------------- --------------- --------------- ---------------
Change in net assets resulting from distributions to
shareholders (2,488,483) (7,400,005) (2,769,693)
- --------------------------------------------------------------- --------------- --------------- ---------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------
Proceeds from sale of shares 13,529,456 -- --
- ---------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 887,243 2,209,356 768,903
- ---------------------------------------------------------------
Cost of shares redeemed (7,434,744) (6,944,798) (5,296,494)
- --------------------------------------------------------------- --------------- --------------- ---------------
Change in net assets resulting from share transactions 6,981,955 (4,735,442) (4,527,591)
- --------------------------------------------------------------- --------------- --------------- ---------------
Change in net assets 17,682,917 16,823,241 (7,571,555)
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 98,200,258 81,377,017 88,948,572
- --------------------------------------------------------------- --------------- --------------- ---------------
End of period (including undistributed net investment income of
$81,626, $5,448, and $53,355, respectively) $ 115,883,175 98,200,258 $ 81,377,017
- --------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
(a) Reflects operations for the period from January 1, 1996 (start of business)
to October 31, 1996.
(b) Amounts presented prior to January 1, 1996 represent results of operations
for Federated Exchange Fund, Ltd.
(See Notes which are an integral part of the Financial Statements)
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31, YEAR ENDED DECEMBER 31,(A)
1996(B) 1995 1994 1993 1992 1991 1990 1989
<S> <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
- -----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------
Net investment income 0.24 1.05 1.18 1.13 1.36 1.16 1.46 1.37
- -----------------------------------
Net realized and unrealized gain
(loss) on investments 11.35 24.39 (1.39) 6.30 5.57 12.62 (3.86) 7.34
- ----------------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 11.59 25.44 (0.21) 7.43 6.93 13.78 (2.40) 8.71
- ----------------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------
Distributions from net investment
income (0.16) (1.09) (1.14) (1.16) (1.38) (1.15) (1.51) (1.32)
- -----------------------------------
Distributions from net realized
gain on investments (2.00) (5.61) (1.20) (0.71) (1.37) (1.54) (0.46) (2.49)
- ----------------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
Total distributions (2.16) (6.70) (2.34) (1.87) (2.75) (2.69) (1.97) (3.81)
- ----------------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 97.01 $ 87.58 $ 68.84 $ 71.39 $ 65.83 $ 61.65 $ 50.56 $ 54.93
- ----------------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (C) 13.36% 37.17% (0.30%) 11.31% 11.38% 27.42% (4.43%) 17.58%
- -----------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------
Expenses 1.23%* 1.08% 1.15% 1.15% 1.11% 1.12% 1.07% 1.13%
- -----------------------------------
Net investment income 0.31%* 1.29% 1.63% 1.59% 2.13% 1.97% 2.76% 2.45%
- -----------------------------------
Expense waiver/ reimbursement (d) 0.27%* 0.15% -- -- -- -- -- --
- -----------------------------------
SUPPLEMENTAL DATA
- -----------------------------------
Net assets, end of period
(000 omitted) $108,804 $98,200 $81,377 $88,949 $91,551 $90,503 $79,114 $95,422
- -----------------------------------
Average commission rate paid $0.0012 -- -- -- -- -- -- --
- -----------------------------------
Portfolio turnover 79% 81% 23% 26% 47% 54% 61% 41%
- -----------------------------------
<CAPTION>
1988 1987
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 46.19 $ 48.39
- -----------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------
Net investment income 1.31 1.29
- -----------------------------------
Net realized and unrealized gain
(loss) on investments 5.08 (0.45)
- ----------------------------------- --------- ---------
Total from investment operations 6.39 0.84
- ----------------------------------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------
Distributions from net investment
income (1.29) (1.30)
- -----------------------------------
Distributions from net realized
gain on investments (1.26) (1.74)
- ----------------------------------- --------- ---------
Total distributions (2.55) (3.04)
- ----------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 50.03 $ 46.19
- ----------------------------------- --------- ---------
TOTAL RETURN (C) 13.97% 0.88%
- -----------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------
Expenses 1.08% 0.92%
- -----------------------------------
Net investment income 2.61% 2.29%
- -----------------------------------
Expense waiver/ reimbursement (d) -- --
- -----------------------------------
SUPPLEMENTAL DATA
- -----------------------------------
Net assets, end of period
(000 omitted) $89,228 $89,371
- -----------------------------------
Average commission rate paid -- --
- -----------------------------------
Portfolio turnover 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 (start of business)
to October 31, 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
(formerly, Federated Exchange Fund, Ltd.)
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 88.22
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net operating loss (0.25)(b)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 10.74
- ------------------------------------------------------------------------------------------------ -------
Total from investment operations 10.49
- ------------------------------------------------------------------------------------------------ -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Distributions from net investment income (0.01)
- ------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (2.00)
- ------------------------------------------------------------------------------------------------ -------
Total distributions (2.01)
- ------------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 96.70
- ------------------------------------------------------------------------------------------------ -------
TOTAL RETURN (C) 12.00%
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 1.98%*
- ------------------------------------------------------------------------------------------------
Net operating loss (0.36%)*
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.27%*
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,369
- ------------------------------------------------------------------------------------------------
Average commission rate paid $0.0012
- ------------------------------------------------------------------------------------------------
Portfolio turnover 79%
- ------------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 4, 1996 (date of initial
public offering) to October 31, 1996.
(b) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.
(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
(formerly, Federated Exchange Fund, Ltd.)
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 88.22
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net operating loss (0.25)(b)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 10.80
- ------------------------------------------------------------------------------------------------ -------
Total from investment operations 10.55
- ------------------------------------------------------------------------------------------------ -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Distributions from net investment income (0.01)
- ------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (2.00)
- ------------------------------------------------------------------------------------------------ -------
Total distributions (2.01)
- ------------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 96.76
- ------------------------------------------------------------------------------------------------ -------
TOTAL RETURN (C) 12.05%
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 1.98%*
- ------------------------------------------------------------------------------------------------
Net operating loss (0.37%)*
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.27%*
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $710
- ------------------------------------------------------------------------------------------------
Average commission rate paid $0.0012
- ------------------------------------------------------------------------------------------------
Portfolio turnover 79 %
- ------------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 4, 1996 (date of initial
public offering) to October 31, 1996.
(b) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.
(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 integral part of the Financial Statements)
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1996
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.
Effective January 3, 1996 the Fund added 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
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
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.
CHANGE IN FISCAL YEAR--The Fund has changed its fiscal year-end from
December 31 to October 31 beginning January 2, 1996.
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
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
1996(A) 1995(B) 1994(B)
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Shares sold 66,891 $6,413,221 -- $ -- -- $ --
- -------------------------------------------------
Shares issued to shareholders in payment
of distributions declared 8,506 788,628 25,468 2,209,356 11,082 768,903
- -------------------------------------------------
Shares redeemed (75,039) (7,185,625) (86,324) (6,944,798) (74,930) (5,296,494)
- ------------------------------------------------- --------- ---------- --------- ---------- --------- ----------
Net change resulting from Class A Shares
transactions 358 $ 16,224 (60,856) $(4,735,442) (63,848) $(4,527,591)
- ------------------------------------------------- --------- ---------- --------- ---------- --------- ----------
</TABLE>
(a) Reflects operations for the period from January 1, 1996 (start of business)
to October 31, 1996.
(b) Includes transactions in shares of partnership interest for Federated
Exchange Fund, Ltd.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(C)
CLASS B SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 67,529 $ 6,418,841
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 955 88,155
- ------------------------------------------------------------------------------------------
Shares redeemed (2,621) (248,515)
- ------------------------------------------------------------------------------------------ ----------- ------------
Net change resulting from Class B Shares transactions 65,863 $ 6,258,481
- ------------------------------------------------------------------------------------------ ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1996(C)
CLASS C SHARES SHARES AMOUNT
<S> <C> <C>
Shares sold 7,228 $ 697,394
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 113 10,460
- ------------------------------------------------------------------------------------------
Shares redeemed (7) (604)
- ------------------------------------------------------------------------------------------ ----------- ------------
Net change resulting from Class C Shares transactions 7,334 $ 707,250
- ------------------------------------------------------------------------------------------ ----------- ------------
Net change resulting from share transactions 73,555 $ 6,981,955
- ------------------------------------------------------------------------------------------ ----------- ------------
</TABLE>
(c) For the period ended January 4, 1996 (date of initial public investment) to
October 31, 1996.
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
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. 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
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
- -------------------------------------------------------------------------------------------
Class B Shares 0.75%
- -------------------------------------------------------------------------------------------
Class C Shares 0.75%
- -------------------------------------------------------------------------------------------
</TABLE>
For the period ended October 31, 1996 Class A Shares did not incur a
distribution services fee.
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 AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC 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.
Federated Capital Appreciation Fund
(formerly, Federated Exchange Fund, Ltd.)
- --------------------------------------------------------------------------------
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
October 31, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 82,740,894
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 89,179,652
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Capital Appreciation Fund, formerly
Federated Exchange Fund, Ltd., (a portfolio of Federated Equity Funds) as of
October 31, 1996, and the related statement of operations, the statement of
changes in net assets, and financial highlights for the period from January 1,
1996 to October 31, 1996. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit. The financial statements of Federated Exchange Fund, Ltd., for the
years ended December 31, 1995 and 1994 were audited by other auditors whose
report dated February 9, 1996 expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1996, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Capital Appreciation Fund at
October 31, 1996, the results of its operations, the changes in its net assets,
and its financial highlights for the period from January 1, 1996 to October 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 16, 1996
Directors 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, Treasurer and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
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 the 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 its objective and policies, management fees, expenses and
other information.
[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 314172701
Cusip 314172701
Cusip 314172800
Cusip 314172883
G01649-04 (12/96)
[LOGO] FEDERATED INVESTORS
Federated Small Cap
Strategies Fund
1st Annual Report
October 31, 1996
Established 1995
GROWTH
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the first Annual Report for Federated Small Cap
Strategies Fund which covers the 12-month period from November 1, 1995Nwhen the
fund was establishedNthrough October 31, 1996.
This report presents an interview with Aash Shah, Assistant Vice President, who
co-manages the fund with Jim Grefenstette, Vice President, both with Federated
Management. Following Aash's interview are three additional items of
shareholder interest: a complete listing of the fund's stock holdings, a series
of graphs showing investment performance, and the fund's financial statements.
Federated Small Cap Strategies Fund is managed to help your money grow over
time by investing in a highly diversified portfolio of small-cap stocks issued
by companies with a market capitalization of less than $1 billion. These
small-cap stocks offer the potential for high returns over time in exchange for
a higher level of risk compared to stocks issued by large, well-established
companies. To help reduce risk and seek investment opportunities in this
dynamic market, the fund's portfolio is carefully selected and diversified with
approximately 144 stocks across 12 industry sectors.
In its first year of operation, this diversified portfolio produced an
extraordinarily strong total return through growth in net asset value, as shown
by share class performance below.*
<TABLE>
<CAPTION>
NAV Increase Income Total Return
<S> <C><C> <C> <C><C> <C> <C>
Class A Shares $10.00 to $14.68 = 47% $0.02 47.06%
Class B Shares $10.00 to $14.62 = 46% $0.00 46.20%
Class C Shares $10.00 to $14.60 = 46% $0.00 46.00%
</TABLE>
Remember, it's easy to increase your opportunity to participate in the growth
of smaller American companies by reinvesting your earnings automatically in
additional fund shares.
Thank you for selecting Federated Small Cap Strategies Fund to pursue your
long-term financial goals. We hope you're pleased with your investment
performance. We welcome your comments and suggestions.
Sincerely,
Glen R. Johnson
President
December 15, 1996
* Performance quoted is based on net asset value and reflects past
performance. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period (based on offering price or the
payment of the contingent deferred sales charge) for Class A, B, and C Shares
were 38.99%, 40.70%, and 45.00%, respectively.
Investment Review
- --------------------------------------------------------------------------------
Aash Shah, CFA
Assistant Vice President
Federated Management
Jim Grefenstette, CFA
Vice President
Federated Management
Q Overall, it's been a rewarding year for stock investors, but the market has
experienced stumbles and recoveries. What's your comment, and your investment
position as this market reacts?
A It's been a dynamic market that has recently become decidedly more
complicated. The third quarter of 1996, for example, started off on the rough
side: within the first two weeks, the NASDAQ Composite Index* and small stocks
(as measured by the Russell 2000 or the S&P 600 Small Cap Index**) were down
over 10%. The larger cap S&P 500 and blue-chips held firmer, but still lost 6%
or so. Talk was rampant that the Federal Reserve Board's (the OFedO) tightening
of monetary policy was a given, and that only the amount of a hike in interest
rates was in debate. The flow of money into equity mutual funds cooled off to
only $6 billion in July, and Treasury bond yields were 7.00% and rising. In
short, the bull market seemed to be ending right then and there.
Just as suddenly, however, inflation fears subsided, the Fed rate hike seemed
less certain, almost $18 billion flowed back into equity mutual funds in
August, and some companies began to announce that earnings would exceed
expectations for the quarter. The market pulled itself back together with all
major indices retracting their losses to end the quarter with modest gains.
During July and August of 1996, the small-cap market had a significant
correction with the Russell 2000 Index down approximately 15%. Starting in the
middle of August through the end of September, small-cap stocks recovered. Our
posture is to stay fully invested and diversified in the best 140-150 stocks
across the small cap universe.
* The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based
common stocks listed on The Nasdaq Stock Market. The Index is market-value
weighted. This means that each company's security affects the Index in
proportion to it's market value. The market value, the last sale price
multiplied by total shares outstanding, is calculated throughout the trading
day, and is related to the total value of the Index.
** The Russell 2000 Index is an unmanaged index consisting of approximately
2000 small capitalization common stocks. The S&P 600 Small Capitalization
Index is an unmanaged index of 600 small capitalization common stocks with
a market capitalization generally ranging between $80 million and $600
million. The S&P 500 is an unmanaged index of common stocks in industry,
transportation, and financial and public utility companies. Investments can
not be made in an index.
Q Federated Small Cap Strategies Fund gives investors the opportunity to
participate in the historically rewarding small-cap stock market. Can you
review your overall strategy and stock selection process?
A Federated Small Cap Strategies Fund targets companies with a market
capitalization of less than $1 billion. Although small-cap equities may be more
volatile than their larger counterparts, history has shown them to be an
excellent long-term investment. Our strategy is to remain fully invested in
small, fast-growing, attractively valued companies. The average market cap in
our portfolio is $295 million.
We use a combination of quantitative models and fundamental analysis in the
process of selecting stocks for the fund. Our management style can be described
as a blend of value and growth. The fund's objective is to seek excellent
long-term performance for our shareholders by investing in the best small-cap
companies within each of 12 economic sectors.
Q How did Federated Small Cap Strategies Fund perform over the period from its
November 1, 1995 inception through October 31, 1996 compared to the Lipper
Small Company Growth Funds universe?
A The fund produced extremely strong total returns in its first year. Class
A, B, and C Shares returns were 47.06%, 46.20%, and 46.00%, respectively, based
on net asset value.* The return for the average fund in the Lipper Small
Company Growth Funds universe was 16.50%.**
* Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns for the period
based on offering price or the payment of the contingent deferred sales
charge for Class A, B, and C Shares were 38.99%, 40.70% and 45.00%,
respectively.
** Lipper averages do not include the effect of sales charges.
Q How have you structured the portfolio as of October 31, 1996?
The portfolio is currently focused on the following themes:
. Niche retail companies such as Amrion and Regis Corp.
. Technology and networking/suppliers represented by companies like Black
Box Corp. and Cable Design Technologies
. Outsourcing companies that include Employee Solutions and Volt Info
Sciences
. Niche specialty insurance firms such as Executive Risk, Markel,
CapMac, and Capital Re Corp.
The Fund is positioned with moderate overweights versus the S&P 600 in the
Technology (17%), Services (14%) and Health Care (10%) sectors. The fund is
fully invested with a cash position of less than 5%.
Q As we near the end of 1996, what is your outlook for small-cap stocks, and
how has that influenced your sector weightings?
A Under low inflation and moderate economic growth conditions, we expect
small-caps to continue to do well. By most fundamental measures, both in
relative and absolute terms, small-cap stocks, in our opinion are still
attractive and within the Onormal range.O Accordingly, we have continued to add
to positions in the Technology, Health Care and Services sectors. Our strategy
of being very selective on new issues has kept us out of some of the extremely
overvalued IPOs and has led us to attractive small-cap stocks that are
reasonably valued based on business fundamentals.
Federated Small Cap Strategies Fund
-
(Class A Shares)
- -------------------------------------------------------------------------------
Growth of $10,000 Invested in Federated Small Cap Strategies Fund (Class A
Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Small Cap Strategies Fund (Class A Shares) (the "Fund") from November
1, 1995 (start of performance) to October 31, 1996 compared to the Russell 2000
Index (RUS2).+
[Graphic representation omitted, see APPENDIX E.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than their original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.50% ($10,000 investment minus $550 sales
charge=$9,450). The Fund's performance assumes the reinvestment of all
dividends and distributions. The RUS2 has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The RUS2 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
Federated Small Cap Strategies Fund
-
(Class B Shares)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Federated Small Cap Strategies Fund (Class B
Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Small Cap Strategies Fund (Class B Shares) (the OFundO) from November
1, 1995 (start of performance) to October 31, 1996 compared to the Russell 2000
Index (RUS2).+
[Graphic representation omitted, see APPENDIX F.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than their original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a contingent deferred sales charge of 5.50% on any
redemption less than 1 year from the purchase date. The RUS2 has been
adjusted to reflect reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The RUS2 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
Federated Small Cap Strategies Fund
-
(Class C Shares)
- -------------------------------------------------------------------------------
Growth of $10,000 Invested in Federated Small Cap Strategies Fund (Class C
Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Small Cap Strategies Fund (Class C Shares) (the OFundO) from November
1, 1995 (start of performance) to October 31, 1996 compared to the Russell 2000
Index (RUS2).+
[Graphic representation omitted, see APPENDIX G.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed,
they may be worth more or less than their original cost. Mutual funds are
not obligations of or guaranteed by any bank and are federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a contingent deferred sales charge of 1.00% on
any redemption less than 1 year from the purchase date. The RUS2 has been
adjusted to reflect reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The RUS2 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.
Federated Small Cap Strategies Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--90.4%
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
BASIC INDUSTRY--6.1%
------------------------------------------------------------------------------------
9,900 Cambrex Corp. $ 309,375
------------------------------------------------------------------------------------
51,000 (a)Chirex, Inc. 510,000
------------------------------------------------------------------------------------
17,600 (a)Fibreboard Corp. 565,400
------------------------------------------------------------------------------------
32,500 (a)Royal Plastics Group Ltd. 609,375
------------------------------------------------------------------------------------
58,700 Spartech Corp. 616,350
------------------------------------------------------------------------------------
46,300 (a)Synthetech, Inc. 341,463
------------------------------------------------------------------------------------
8,250 Texas Industries, Inc. 468,188
------------------------------------------------------------------------------------
9,000 (a)Titanium Metals Corp. 276,750
------------------------------------------------------------------------------------ -------------
Total 3,696,901
------------------------------------------------------------------------------------ -------------
CONSUMER DURABLES--6.1%
------------------------------------------------------------------------------------
37,400 (a)Action Performance Companies, Inc. 561,000
------------------------------------------------------------------------------------
9,700 Carlisle Cos., Inc. 551,688
------------------------------------------------------------------------------------
17,500 Cavalier Homes, Inc. 325,938
------------------------------------------------------------------------------------
17,200 (a)Champion Enterprises, Inc. 339,700
------------------------------------------------------------------------------------
25,400 (a)Equity Marketing, Inc. 530,225
------------------------------------------------------------------------------------
11,600 K2, Inc. 266,800
------------------------------------------------------------------------------------
19,500 (a)Lewis Galoob Toys, Inc. 524,063
------------------------------------------------------------------------------------
22,700 (a)Norwood Promotional Products 334,825
------------------------------------------------------------------------------------
9,200 Wynns International, Inc. 261,050
------------------------------------------------------------------------------------ -------------
Total 3,695,289
------------------------------------------------------------------------------------ -------------
CONSUMER NON-DURABLES--3.2%
------------------------------------------------------------------------------------
27,100 (a)Helen of Troy Ltd. 494,575
------------------------------------------------------------------------------------
12,000 (a)Morningstar Group, Inc. 202,500
------------------------------------------------------------------------------------
10,000 (a)Mossimo, Inc. 216,250
------------------------------------------------------------------------------------
10,800 Natures Sunshine Products, Inc. 238,950
------------------------------------------------------------------------------------
31,200 (a)Sport-Haley Inc. 448,500
------------------------------------------------------------------------------------
</TABLE>
Federated Small Cap Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
------------------------------------------------------------------------------------
15,800 Worthington Foods, Inc. $ 355,500
------------------------------------------------------------------------------------ -------------
Total 1,956,275
------------------------------------------------------------------------------------ -------------
ENERGY MINERALS--4.1%
------------------------------------------------------------------------------------
14,500 (a)Belden & Blake Corp. 384,250
------------------------------------------------------------------------------------
8,800 (a)Cliffs Drilling Co. 377,300
------------------------------------------------------------------------------------
9,500 (a)Energy Ventures, Inc. 418,000
------------------------------------------------------------------------------------
11,100 (a)Forcenergy Gas Exploration, Inc. 303,863
------------------------------------------------------------------------------------
28,800 (a)Key Production Co. 320,400
------------------------------------------------------------------------------------
22,500 Lomak Petroleum, Inc. 368,438
------------------------------------------------------------------------------------
24,100 (a)Pool Energy Services Co. 355,475
------------------------------------------------------------------------------------ -------------
Total 2,527,726
------------------------------------------------------------------------------------ -------------
FINANCE--16.3%
------------------------------------------------------------------------------------
31,700 (a)ACC Consumer Finance Corp. 285,300
------------------------------------------------------------------------------------
15,200 Aames Financial Corp 678,300
------------------------------------------------------------------------------------
8,700 CMAC Investment Corp. 601,388
------------------------------------------------------------------------------------
14,000 Capital Re Corp. 542,500
------------------------------------------------------------------------------------
46,600 Commonwealth Bancorp 588,325
------------------------------------------------------------------------------------
43,400 (a)Consumer Portfolio Services 531,650
------------------------------------------------------------------------------------
17,500 (a)Delphi Financial Group, Inc., Class A 492,188
------------------------------------------------------------------------------------
15,500 Donegal Group, Inc. 317,750
------------------------------------------------------------------------------------
21,700 (a)Electro Rent Corp. 499,100
------------------------------------------------------------------------------------
26,600 (a)Everen Capital Corp. 525,350
------------------------------------------------------------------------------------
15,000 Executive Risk, Inc. 618,750
------------------------------------------------------------------------------------
19,700 (a)First Merchants Acceptance Corp. 349,675
------------------------------------------------------------------------------------
14,700 Frontier Insurance Group, Inc. 584,325
------------------------------------------------------------------------------------
16,400 (a)Imperial Credit Industries, Inc. 297,250
------------------------------------------------------------------------------------
15,000 (a)Infinity Financial Technology, Inc. 245,625
------------------------------------------------------------------------------------
8,800 (a)Insignia Financial Group, Inc., Class A 190,300
------------------------------------------------------------------------------------
</TABLE>
Federated Small Cap Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
------------------------------------------------------------------------------------
5,200 (a)Markel Corp. $ 452,400
------------------------------------------------------------------------------------
12,700 Penn-America Group, Inc. 211,138
------------------------------------------------------------------------------------
17,000 (a)Southern Pacific Funding 535,500
------------------------------------------------------------------------------------
10,300 TCF Financial Corp. 399,125
------------------------------------------------------------------------------------
16,200 (a)UICI 413,100
------------------------------------------------------------------------------------
21,600 Vesta Insurance Group, Inc. 553,500
------------------------------------------------------------------------------------ -------------
Total 9,912,539
------------------------------------------------------------------------------------ -------------
HEALTH CARE--10.0%
------------------------------------------------------------------------------------
21,500 (a)American HomePatient, Inc. 510,625
------------------------------------------------------------------------------------
10,200 (a)Bio Rad Laboratories, Inc., Class A 247,350
------------------------------------------------------------------------------------
36,100 (a)Biosource International, Inc. 277,519
------------------------------------------------------------------------------------
20,700 (a)Chad Therapeutics Inc. 341,550
------------------------------------------------------------------------------------
22,100 (a)Curative Technologies, Inc. 502,775
------------------------------------------------------------------------------------
40,000 (a)Diagnostic Health Services, Inc. 285,000
------------------------------------------------------------------------------------
12,100 (a)Geltex Pharmaceuticals, Inc. 229,900
------------------------------------------------------------------------------------
16,800 (a)Genesis Health Ventures, Inc. 384,300
------------------------------------------------------------------------------------
31,500 (a)OrthoLogic Corp. 206,719
------------------------------------------------------------------------------------
41,100 (a)Physician Computer Network, Inc. 367,331
------------------------------------------------------------------------------------
34,800 (a)Prime Medical Services 426,300
------------------------------------------------------------------------------------
35,700 (a)Rotech Medical Corp. 571,200
------------------------------------------------------------------------------------
8,300 (a)Safeskin Corp. 326,813
------------------------------------------------------------------------------------
13,600 (a)Sierra Health Services, Inc. 389,300
------------------------------------------------------------------------------------
14,300 (a)Universal Health Services, Inc., Class B 357,500
------------------------------------------------------------------------------------
18,900 (a)UroCor, Inc. 222,075
------------------------------------------------------------------------------------
22,300 (a)Veterinary Centers of America 409,763
------------------------------------------------------------------------------------ -------------
Total 6,056,020
------------------------------------------------------------------------------------ -------------
PRODUCER MANUFACTURING--3.9%
------------------------------------------------------------------------------------
11,000 (a)Cable Design Technologies, Class A 286,000
------------------------------------------------------------------------------------
</TABLE>
Federated Small Cap Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--CONTINUED
------------------------------------------------------------------------------------
16,200 LSI Industries, Inc. $ 162,000
------------------------------------------------------------------------------------
22,300 (a)Maverick Tube Corp. 351,225
------------------------------------------------------------------------------------
6,000 (a)NCI Building System, Inc. 196,500
------------------------------------------------------------------------------------
15,000 Reliance Steel & Aluminum Co. 549,375
------------------------------------------------------------------------------------
14,100 (a)Sinter Metals, Inc. 326,063
------------------------------------------------------------------------------------
16,400 (a)U.S. Office Products Co. 475,600
------------------------------------------------------------------------------------ -------------
Total 2,346,763
------------------------------------------------------------------------------------ -------------
RETAIL TRADE--5.3%
------------------------------------------------------------------------------------
26,700 (a)Amrion, Inc. 610,763
------------------------------------------------------------------------------------
7,800 (a)MSC Industrial Direct Co. 288,600
------------------------------------------------------------------------------------
28,500 (a)Microage, Inc. 570,000
------------------------------------------------------------------------------------
15,800 (a)Pacific Sunwear of California 351,550
------------------------------------------------------------------------------------
22,700 (a)Pomeroy Computer Resources 527,775
------------------------------------------------------------------------------------
12,300 Regis Corp. Minnesota 298,275
------------------------------------------------------------------------------------
18,700 Riser Foods, Inc., Class A 502,563
------------------------------------------------------------------------------------
2,000 (a)United Auto Group, Inc. 68,750
------------------------------------------------------------------------------------ -------------
Total 3,218,276
------------------------------------------------------------------------------------ -------------
SERVICES--14.0%
------------------------------------------------------------------------------------
23,500 (a)ATC Communications, Inc. 446,500
------------------------------------------------------------------------------------
12,000 American List Corp. 330,000
------------------------------------------------------------------------------------
15,600 (a)BARRA, Inc. 436,556
------------------------------------------------------------------------------------
16,300 (a)CDI Corp. 448,250
------------------------------------------------------------------------------------
7,300 (a)Caribiner International, Inc. 332,150
------------------------------------------------------------------------------------
8,000 (a)Catalina Marketing Corp. 407,000
------------------------------------------------------------------------------------
18,600 (a)Consolidated Graphics, Inc. 674,250
------------------------------------------------------------------------------------
30,900 (a)Employee Solutions, Inc. 683,663
------------------------------------------------------------------------------------
24,400 (a)FactSet Research Systems 585,600
------------------------------------------------------------------------------------
11,700 (a)HA-LO Industries, Inc. 362,700
------------------------------------------------------------------------------------
</TABLE>
Federated Small Cap Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
SERVICES--CONTINUED
------------------------------------------------------------------------------------
11,200 (a)Labor Ready, Inc. $ 161,000
------------------------------------------------------------------------------------
31,800 (a)National Education Corp. 516,750
------------------------------------------------------------------------------------
14,800 (a)Newpark Resources, Inc. 555,000
------------------------------------------------------------------------------------
18,800 (a)Personnel Group of America, Inc. 519,350
------------------------------------------------------------------------------------
11,200 (a)Premier Parks, Inc. 355,600
------------------------------------------------------------------------------------
20,900 (a)Prepaid Legal Services, Inc. 245,575
------------------------------------------------------------------------------------
14,550 (a)Right Management Consultants 320,100
------------------------------------------------------------------------------------
22,000 (a)Univision Communications, Inc. 742,500
------------------------------------------------------------------------------------
7,000 (a)Volt Information Science, Inc. 269,500
------------------------------------------------------------------------------------
10,700 Wackenhut Corp., Class B 143,113
------------------------------------------------------------------------------------ -------------
Total 8,535,157
------------------------------------------------------------------------------------ -------------
TECHNOLOGY--17.1%
------------------------------------------------------------------------------------
44,400 (a)Alphanet Solutions, Inc. 532,800
------------------------------------------------------------------------------------
51,500 (a)Award Software International, Inc. 360,500
------------------------------------------------------------------------------------
13,500 (a)Burr Brown Corp. 286,875
------------------------------------------------------------------------------------
4,700 (a)Claremont Technology Group 143,350
------------------------------------------------------------------------------------
31,000 (a)Cognex Corp. 399,125
------------------------------------------------------------------------------------
16,800 Computer Task Group, Inc. 634,200
------------------------------------------------------------------------------------
5,000 (a)CyberMedia, Inc. 111,250
------------------------------------------------------------------------------------
25,800 (a)Digital Systems Int., Inc. 351,525
------------------------------------------------------------------------------------
19,200 (a)Dupont Photomasks, Inc. 700,800
------------------------------------------------------------------------------------
32,600 (a)EIS International, Inc. 277,100
------------------------------------------------------------------------------------
16,100 (a)ESS Technology, Inc. 257,600
------------------------------------------------------------------------------------
17,000 (a)II-VI, Inc. 367,625
------------------------------------------------------------------------------------
24,800 Innovex, Inc. 542,500
------------------------------------------------------------------------------------
21,100 (a)Intervoice, Inc. 274,300
------------------------------------------------------------------------------------
17,500 (a)National Processing, Inc. 332,500
------------------------------------------------------------------------------------
13,900 (a)Novadigm, Inc. 112,938
------------------------------------------------------------------------------------
</TABLE>
Federated Small Cap Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
------------------------------------------------------------------------------------
23,700 (a)OzEmail Ltd., ADR $ 158,494
------------------------------------------------------------------------------------
15,200 (a)Perceptron, Inc. 376,200
------------------------------------------------------------------------------------
13,900 (a)Planning Sciences International PLC, ADR 177,225
------------------------------------------------------------------------------------
37,600 (a)Raster Graphics Inc. 314,900
------------------------------------------------------------------------------------
27,100 (a)Sandisk Corp. 359,075
------------------------------------------------------------------------------------
43,000 (a)Software 2000, Inc. 311,750
------------------------------------------------------------------------------------
24,000 (a)StorMedia, Inc. 276,000
------------------------------------------------------------------------------------
22,900 (a)Stratasys, Inc. 334,913
------------------------------------------------------------------------------------
18,400 (a)Supertex, Inc. 414,000
------------------------------------------------------------------------------------
13,700 (a)Tollgrade Communications, Inc. 356,200
------------------------------------------------------------------------------------
21,300 (a)Trident International, Inc. 356,775
------------------------------------------------------------------------------------
38,000 (a)Trusted Information Systems 513,000
------------------------------------------------------------------------------------
12,000 (a)USCS International, Inc. 216,000
------------------------------------------------------------------------------------
29,700 (a)Voxware, Inc. 245,025
------------------------------------------------------------------------------------
10,400 Wyle Labs 310,700
------------------------------------------------------------------------------------ -------------
Total 10,405,245
------------------------------------------------------------------------------------ -------------
TRANSPORTATION--1.7%
------------------------------------------------------------------------------------
7,200 (a)Alaska Air Group, Inc. 158,400
------------------------------------------------------------------------------------
7,300 (a)Celadon Group, Inc. 62,963
------------------------------------------------------------------------------------
8,700 Expeditors International Washington, Inc. 364,313
------------------------------------------------------------------------------------
21,300 USFreightways Corp. 465,938
------------------------------------------------------------------------------------ -------------
Total 1,051,614
------------------------------------------------------------------------------------ -------------
UTILITIES--2.6%
------------------------------------------------------------------------------------
11,700 (a)Atlantic Telephone Network, Inc. 206,201
------------------------------------------------------------------------------------
12,600 Leviathan Gas Pipe Line, Inc. 568,575
------------------------------------------------------------------------------------
13,800 TNP Enterprises, Inc. 357,075
------------------------------------------------------------------------------------
21,900 (a)Trescomm International, Inc. 279,225
------------------------------------------------------------------------------------
</TABLE>
Federated Small Cap Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
------------------------------------------------------------------------------------
10,000 (a)Western Wireless Corporation $ 165,000
------------------------------------------------------------------------------------ -------------
Total 1,576,076
------------------------------------------------------------------------------------ -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $53,040,030) 54,977,881
------------------------------------------------------------------------------------ -------------
(B) REPURCHASE AGREEMENT--9.2%
- --------------------------------------------------------------------------------------------------
$ 5,595,000 BT Securities Corporation, 5.55%, dated 10/31/1996, due 11/1/1996 5,595,000
------------------------------------------------------------------------------------ -------------
TOTAL INVESTMENTS (IDENTIFIED COST $58,635,030)(C) $ 60,572,881
------------------------------------------------------------------------------------ -------------
</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 $58,643,472.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,929,409 which is comprised of $5,638,623 appreciation and
$3,709,214 depreciation at October 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($60,849,722) at October 31, 1996.
The following acronyms are used throughout this portfolio:
ADR--American Depositary 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
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $58,635,030 and tax cost, $58,643,472) $60,572,881
- ----------------------------------------------------------------------------------------------------
Cash 2,779
- ----------------------------------------------------------------------------------------------------
Income receivable 19,198
- ----------------------------------------------------------------------------------------------------
Receivable for investments sold 420,817
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 1,279,873
- ---------------------------------------------------------------------------------------------------- ----------
Total assets 62,295,548
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------------
Payable for investments purchased $1,259,655
- -----------------------------------------------------------------------------------------
Payable for shares redeemed 107,397
- -----------------------------------------------------------------------------------------
Accrued expenses 78,774
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 1,445,826
- ---------------------------------------------------------------------------------------------------- ----------
Net Assets for 4,155,211 shares outstanding $60,849,722
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $57,721,764
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,937,851
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 1,380,860
- ----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (190,753)
- ---------------------------------------------------------------------------------------------------- ----------
Total Net Assets $60,849,722
- ---------------------------------------------------------------------------------------------------- ----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($23,242,444 / 1,582,917 shares outstanding) $14.68
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share (100/94.50 of $14.68)* $15.53
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (99.50/100 of $14.68) $14.61
- ---------------------------------------------------------------------------------------------------- ----------
CLASS B SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($32,111,770 / 2,195,987 shares outstanding) $14.62
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share $14.62
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (94.50/100 of $14.62)** $13.82
- ---------------------------------------------------------------------------------------------------- ----------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($5,495,508 / 376,307 shares outstanding) $14.60
- ---------------------------------------------------------------------------------------------------- ----------
Offering Price Per Share $14.60
- ---------------------------------------------------------------------------------------------------- ----------
Redemption Proceeds Per Share (99.00/100 of $14.60)** $14.45
- ---------------------------------------------------------------------------------------------------- ----------
</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
- --------------------------------------------------------------------------------
Year Ended October 31, 1996 (a)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Dividends $ 91,437
- -----------------------------------------------------------------------------------------------------
Interest 93,916
- ----------------------------------------------------------------------------------------------------- -----------
Total income 185,353
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------
Investment advisory fee $ 155,023
- ------------------------------------------------------------------------------------------
Administrative personnel and services fee 184,493
- ------------------------------------------------------------------------------------------
Custodian fees 30,314
- ------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 60,911
- ------------------------------------------------------------------------------------------
Auditing fees 122
- ------------------------------------------------------------------------------------------
Legal fees 835
- ------------------------------------------------------------------------------------------
Portfolio accounting fees 70,451
- ------------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 67,923
- ------------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 13,240
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 24,619
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 22,641
- ------------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 4,413
- ------------------------------------------------------------------------------------------
Share registration costs 59,658
- ------------------------------------------------------------------------------------------
Printing and postage 8,183
- ------------------------------------------------------------------------------------------
Insurance premiums 5,000
- ------------------------------------------------------------------------------------------
Miscellaneous 3,823
- ------------------------------------------------------------------------------------------ ---------
Total expenses 711,649
- ------------------------------------------------------------------------------------------
Waivers and reimbursements--
- ------------------------------------------------------------------------------
Waiver of investment advisory fee $ (155,023)
- ------------------------------------------------------------------------------
Reimbursement of other operating expenses (195,626)
- ------------------------------------------------------------------------------ ----------
Total waivers and reimbursements (350,649)
- ------------------------------------------------------------------------------------------ ---------
]Net expenses 361,000
- ----------------------------------------------------------------------------------------------------- -----------
Net operating loss (175,647)
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments 1,375,654
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 1,937,851
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 3,313,505
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 3,137,858
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(a) For the period from November 1, 1995 (date of initial public investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
Federated Small Cap Strategies Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996(A)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------------------------
Net operating loss $ (175,647)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($1,389,302 net gain,
as computed for federal tax purposes) 1,375,654
- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 1,937,851
- ------------------------------------------------------------------------------------------ ----------------------
Change in net assets resulting from operations 3,137,858
- ------------------------------------------------------------------------------------------ ----------------------
NET EQUALIZATION CREDITS (DEBITS)-- (30)
- ------------------------------------------------------------------------------------------ ----------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------------------------
Distributions in excess from net investment income
- ------------------------------------------------------------------------------------------
Class A Shares (9,870)
- ------------------------------------------------------------------------------------------
Class B Shares --
- ------------------------------------------------------------------------------------------
Class C Shares --
- ------------------------------------------------------------------------------------------ ----------------------
Change in net assets resulting from distributions to shareholders (9,870)
- ------------------------------------------------------------------------------------------ ----------------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------------------------------------
Proceeds from sale of shares 67,377,652
- ------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 1,448
- ------------------------------------------------------------------------------------------
Cost of shares redeemed (9,657,336)
- ------------------------------------------------------------------------------------------ ----------------------
Change in net assets resulting from share transactions 57,721,764
- ------------------------------------------------------------------------------------------ ----------------------
Change in net assets 60,849,722
- ------------------------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------------------ ----------------------
End of period $ 60,849,722
- ------------------------------------------------------------------------------------------ ----------------------
</TABLE>
(a) For the period from November 1, 1995 (date of initial public investment) to
October 31, 1996.
(See Notes which are an integral part of the Financial Statements)
Federated Small Cap Strategies Fund
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------
Net operating loss (0.05)(b)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.75
- ------------------------------------------------------------------------------------------ -------
Total from investment operations 4.70
- ------------------------------------------------------------------------------------------ -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------
Distributions in excess from net investment income (0.02)(e)
- ------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 14.68
- ------------------------------------------------------------------------------------------ -------
TOTAL RETURN (C) 47.06%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Expenses 1.35%
- ------------------------------------------------------------------------------------------
Net operating loss (0.39%)
- ------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 1.70%
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $23,242
- ------------------------------------------------------------------------------------------
Average commission rate paid $0.0264
- ------------------------------------------------------------------------------------------
Portfolio turnover 83 %
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from November 1, 1995 (date of initial
public investment) to October 31, 1996.
(b) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.
(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.
(e) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(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>
YEAR ENDED
OCTOBER 31, 1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------
Net operating loss (0.16)(b)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.78
- ------------------------------------------------------------------------------------------ -------
Total from investment operations 4.62
- ------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 14.62
- ------------------------------------------------------------------------------------------ -------
TOTAL RETURN (C) 46.20%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Expenses 2.10%
- ------------------------------------------------------------------------------------------
Net operating loss (1.27%)
- ------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 1.70%
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $32,112
- ------------------------------------------------------------------------------------------
Average commission rate paid $0.0264
- ------------------------------------------------------------------------------------------
Portfolio turnover 83 %
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from November 1, 1995 (date of initial
public offering) to October 31, 1996.
(b) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.
(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 Small Cap Strategies Fund
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------
Net operating loss (0.16)(b)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.76
- ------------------------------------------------------------------------------------------ -------
Total from investment operations 4.60
- ------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 14.60
- ------------------------------------------------------------------------------------------ -------
TOTAL RETURN (C) 46.00%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Expenses 2.10%
- ------------------------------------------------------------------------------------------
Net operating loss (1.28%)
- ------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 1.70%
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $5,496
- ------------------------------------------------------------------------------------------
Average commission rate paid $0.0264
- ------------------------------------------------------------------------------------------
Portfolio turnover 83 %
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from November 1, 1995 (date of initial
public offering) to October 31, 1996.
(b) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.
(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 Small Cap Strategies Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1996
(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 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.
(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.
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.
Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
partnership transactions. The following reclassifications have been made to
the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
<S> <C>
ACCUMULATED DISTRIBUTIONS
ACCUMULATED NET IN EXCESS OF
REALIZED GAIN/LOSS NET INVESTMENT INCOME
$5,206 ($ 5,206)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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>
YEAR ENDED
OCTOBER 31, 1996(A)
<S> <C> <C>
CLASS A SHARES SHARES AMOUNT
Shares sold 2,243,995 $ 29,137,057
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 126 1,448
- --------------------------------------------------------------------------------------
Shares redeemed (661,204) (8,108,029)
- -------------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Class A Shares transactions 1,582,917 $ 21,030,476
- -------------------------------------------------------------------------------------- ---------- -------------
</TABLE>
(a) For the period from November 1, 1995 (date of initial public investment) to
October 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996(B)
<S> <C> <C>
CLASS B SHARES SHARES AMOUNT
Shares sold 2,289,952 $ 32,610,920
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared -- --
- --------------------------------------------------------------------------------------
Shares redeemed (93,965) (1,283,271)
- -------------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Class B Shares transactions 2,195,987 $ 31,327,649
- -------------------------------------------------------------------------------------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996(B)
<S> <C> <C>
CLASS C SHARES SHARES AMOUNT
Shares sold 395,842 $ 5,629,675
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared -- --
- --------------------------------------------------------------------------------------
Shares redeemed (19,535) (266,036)
- -------------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Class C Shares transactions 376,307 $ 5,363,639
- -------------------------------------------------------------------------------------- ---------- -------------
Net change resulting from share transactions 4,155,211 $ 57,721,764
- -------------------------------------------------------------------------------------- ---------- -------------
</TABLE>
(b) For the period from November 1, 1995 (date of initial public offering) to
October 31, 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/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/ or 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. ("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
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 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 year ended October 31, 1996 Class A Shares did not incur a distribution
services fee.
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 shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive any portion of its
fee. FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC 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.
ORGANIZATIONAL EXPENSES--Organizational and/or start-up administrative service
expenses of $10,292 were borne initially by FServ. The Fund has agreed to
reimburse FServ. for the expenses during the five year period following
effective date. For the year ended October 31, 1996, the Fund paid $114 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
year ended October 31, 1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 69,309,986
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 17,622,879
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Small Cap Strategies Fund, (a
portfolio of Federated Equity Funds) as of October 31, 1996, and the related
statement of operations, the statement of changes in net assets and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1996, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Small Cap Strategies Fund at October 31, 1996, the results of its
operations, the changes in its net assets, and financial highlights for the year
then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 16, 1996
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
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, Treasurer and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
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 the 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 its
objective and policies, management fees, expenses and other information.
[LOGO] FEDERATED INVESTORS
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
G01658-04 (12/96)
[LOGO] Federated Investors
Since 1955
Federated Growth
Strategies Fund
Annual Report
October 31, 1996
Established 1984
GROWTH
President's Message
Dear Shareholder:
I am pleased to present the 12th Annual Report for Federated Growth Strategies
Fund which was created in 1984.
This report covers the 12-month period from November 1, 1995, through October
31, 1996. The report begins with an interview with portfolio manager Jim
Grefenstette, Vice President of Federated Management. Following his discussion,
there are four additional items of shareholder interest: a breakdown of the
voting results from the Special Meeting of Shareholders of Capital Growth Fund,
a portfolio of Investment Series Funds, Inc. held on July 23, 1996, a complete
listing of the fund's stock holdings, a series of graphs showing long-term
investment performance, and the fund's financial statements.
Federated Growth Strategies Fund is managed to pursue long-term growth through
a highly diversified portfolio of mid- and large-capitalization stocks selected
for their strong price and earnings momentum. The fund's portfolio includes
common stocks and convertible securities in 12 key business sectors. These
holdings are easily recognized as many are successful corporations.
As shown by share class performance below, the diversified portfolio produced
an excellent total return during the 12-month reporting period, primarily
through gains realized from security price appreciation.*
Income Capital Gain
Distributions Distributions Total Return
Class A Shares $0.04 $5.39 23.16%
Class B Shares $0.00 $5.39 22.03%
Class C Shares $0.00 $5.39 22.12%
Remember, it is easy to increase your opportunity to participate in the growth
of American companies by reinvesting your earnings automatically in additional
fund shares.
Thank you for selecting Federated Growth Strategies Fund to pursue your
financial goals. As always, we welcome your comments and suggestions.
Sincerely,
Glen R. Johnson
President
December 15, 1996
*Performance quoted is based on net asset value and reflects past performance.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Total returns for the period (based on offering price) for Class A, B, and C
Shares were 16.37%, 15.32% and 20.89%, respectively.
Investment Review
[PHOTO APPEARS HERE]
Jim Grefenstette, CFA
Vice President
Federated Management
Q Overall, the period from November 1, 1995 through October 31, 1996, proved
to be a rewarding year for stock investors, but the market has experienced
stumbles and recoveries. What is your take on the market?
A The market has been a dynamic one and has recently become decidedly more
complicated. The third quarter of 1996, for example, started off on the rough
side: within the first two weeks, the NASDAQ Composite Index* and small stocks
(as measured by the Russell 2000 Index or the S&P 600 Small Cap Index)** were
down over 10%. The larger cap S&P 500** and blue-chips held firmer, but still
lost over 6.00%. Talk was rampant that the Federal Reserve Board's (the "Fed")
tightening of monetary policy was a given, and that only the amount of a hike
in interest rates was in debate. The flow of money into equity mutual funds
cooled off to only $6 billion in July, and Treasury bond yields were 7.00% and
rising. In short, the bull market seemed to be ending right then and there.
Just as suddenly, however, inflation fears subsided, the Fed rate hike seemed
less certain, almost $18 billion flowed back into equity mutual funds in August
1996, and some companies began to announce that earnings would exceed
expectations for the quarter. The market pulled itself back together with all
major indices retracing their losses to end the quarter with modest gains.
Within this volatility, certain sectors began to move ahead while others lagged
noticeably. The less cyclically sensitive sectors such as Technology, Health
Care and Finance produced high single-digit returns, while more cyclically
leveraged sectors such as Consumer Durables, Transportation, and Utilities
produced modest losses.
* The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based
common stocks listed on the Nasdaq Stock Market. The Index is market-value
weighted. This means that each company's security affects the Index in
proportion to its market value. The market value, the last sales price
multiplied by total shares outstanding, is calculated thoughout the trading
day, and is related to the total value of the Index. Investments can not be
made in an index.
** The Russell 2000 Index is an unmanaged index consisting of approximately
2000 small capitalization common stocks. The S&P 600 Small Capitalization Index
is an unmanaged index of 600 small capitalization common stocks with a market
capitalization generally ranging between $80 million and $600 million. The S&P
500 is an unmanaged index of common stocks in industry, transportation, and
financial and public utility companies. Investments can not be made in an
index.
Q How did Federated Growth Strategies Fund perform over the 12-month
reporting period ended October 31, 1996, compared to the Lipper Growth Funds
universe?
A The fund produced very strong total returns. For example, Class A, B, and C
Share returns were 23.16%, 22.03%, and 22.12%, respectively, based on net asset
valueNwhich includes capital appreciation of the shares, adding income
dividends and realized capital gain to the fund's net asset value.* The return
for the average fund in the Lipper Growth Funds universe was 18.47%.**
Q Can you give us a flavor of the fund's portfolio by commenting on some of
your current holdings?
A First Data (0.94% of portfolio) is the largest processor of credit card
transactions. The company should benefit from the movement away from using
cash/checks for payments toward using credit/debit cards.
Harley-Davidson, (0.76% of portfolio) the leading domestic motorcycle
manufacturer, has a backorder on most models of between twelve and eighteen
months. The company should see orders continue to grow from aging Baby Boomers
and increasing international demand for American goods.
Potash of Saskatchewan (1.65% of portfolio) is one of the largest producers of
fertilizer components in the world. The company could be a direct beneficiary
of the globally increasing demand for food.
SunAmerica (1.88% of portfolio) is one of the leading players in the annuity
and retirement savings market, a market which is expected to grow through the
year 2000. The company is attempting to consolidate the industry and has begun
to create a strong franchise value in its name.
Teva Pharmaceutical (0.86% of portfolio) manufactures generic and proprietary
drugs, and is likely to soon receive FDA approval for a new multiple sclerosis
drug, Copaxone, which should immediately become an alternative to current
treatments.
* Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total returns for the period based on
offering price for Class A, B, and C Shares were 16.37%, 15.32% and 20.89%,
respectively.
**Lipper averages do not include the effect of sales charges.
Veterinary Centers of America (0.60% of portfolio) is by far the largest
operator of veterinary service centers in the country. VCA is attempting to
consolidate this very fragmented, yet fast growing industry.
Q As we near the end of 1996, what is your outlook for growth stocks, and how
has that influenced your sector weightings?
A We expect the recent pattern of performance to continue into next year. We
believe the market will be disappointed with the rate of economic growth
generated over the next several quarters. As this happens, investors should
focus on stocks that are less sensitive to the growth of the economy. That is
why we continue to favor sectors that offer the potential for strong secular
growth such as Technology, Health Care, Finance and certain Services. We are
underweighted versus the S&P 500 in economically sensitive sectors such as
Producer Manufacturing, Consumer Durables, and Transportation.
Shareholder Voting Results
A Reconvened Special Meeting of Shareholders of Capital Growth Fund, a
portfolio of Investment Series Funds, Inc. was held on July 23, 1996. On July
23, 1996, the record date for shareholders voting at the meeting, there were
1,243,384 total outstanding shares. The following item was considered by
shareholders and the results of their voting were as follows:
Approval of the proposed Agreement and Plan of Reorganization between the
Capital Growth Fund and Federated Equity Funds, on behalf of its portfolio,
Federated Growth Strategies Fund, whereby Federated Growth Strategies Fund
would acquire all of the assets of Capital Growth Fund in exchange for
Federated Growth Strategies Fund's Class A Shares and Class C Shares, to be
distributed pro rata by Capital Growth Fund to the shareholders of its Class A
Shares and Class C Shares, respectively, in complete liquidation and
termination of the Capital Growth Fund.
FOR: 568,264
AGAINST: 16,907
ABSTAIN: 48,863
Two Ways You May Seek to Invest for Success in
Federated Growth Strategies Fund
Initial Investment:
If you had made an initial investment of $13,000 in the Class A Shares of
Federated Growth Strategies Fund on 8/23/84, reinvested dividends and capital
gains, and did not redeem any shares, your account would be worth $72,638 on
10/31/96. You would have earned a 15.16%* average annual total return for the
12-year investment life span.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.
As of 9/30/96, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 14.87%, 10.68%, and 13.13%, respectively. Class B
Shares' total returns one-year and since inception (8/15/95) were 13.75% and
17.55%, respectively. Class C Shares' total returns one-year and since
inception (8/15/95) were 19.31% and 22.82%, respectively.
[Graphic representation omitted, see APPENDIX A.]
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.5% sales
charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Federated Growth Strategies Fund
One Step at a Time:
$1,000 invested each year for 12 years (reinvesting all dividends and capital
gains) grew to $31,017.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
Growth Strategies Fund on 8/23/84, reinvested your dividends and capital gains,
and did not redeem any shares, you would have invested only $13,000, but your
account would have reached a total value of $31,017* by 10/31/96. You would
have earned an average annual total return of 13.15%.
A practical investment plan helps you pursue long-term performance from growth
oriented stocks. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time,
money, and compounding to work!
[Graphic representation omitted, see APPENDIX B.]
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices, and all accumulated
shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Federated Growth Strategies Fund
Hypothetical Investor Profile: Investing for a College Education
David and Joan Rice are a fictitious couple who, like many shareholders, are
searching for a way to make their money grow over time.
David and Joan are planning for the college education of their child. On
October 31, 1984, they invested $5,000 in the Class A Shares of Federated
Growth Strategies Fund. Since then, David and Joan have made additional
investments of $250 every month.
As this chart shows, over 12 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $41,000 has grown to
$109,119. This represents an 13.76% average annual total return. For the Rices,
a dedicated program of monthly investment really paid off.
This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
[Graphic representation omitted, see APPENDIX C.]
Federated Growth Strategies Fund
(Class A Shares)
Growth of $10,000 Invested in Federated Growth Strategies Fund (Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Growth Strategies Fund (Class A Shares) (the "Fund") from October 31,
1986, to October 31, 1996, compared to the Standard and Poor's 500 Index (S&P
500)+ and the Lipper Growth Fund Index (LGFI).+
[Graphic representation omitted, see APPENDIX D.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed,
they may be worth more or less than original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund with no sales
charge. As of August 15, 1995, the maximum sales charge was 5.50%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The S&
P 500 and the LGFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 and the LGFI are not adjusted to reflect sales charges, expenses,
or other fees that the SEC requires to be reflected in the Fund's performance.
The indices are unmanaged.
Federated Growth Strategies Fund
(Class B Shares)
Growth of $10,000 Invested in Federated Growth Strategies Fund (Class B Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Growth Strategies Fund (Class B Shares) (the "Fund") from August 16,
1995 (start of performance) to October 31, 1996, compared to the Standard and
Poor's 500 Index (S&P 500)+ and the Lipper Growth Fund Index (LGFI).+
[Graphic representation omitted]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.50% contingent deferred sales charge on any redemption
less than 1 year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The S&P 500 and the LGFI have
been adjusted to reflect reinvestment of dividends on securities in the
indices.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 and the LGFI are not adjusted to reflect sales charges, expenses,
or other fees that the SEC requires to be reflected in the Fund's performance.
The indices are unmanaged.
Federated Growth Strategies Fund (Class C Shares)
Growth of $10,000 Invested in Federated Growth Strategies Fund (Class C Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Growth Strategies Fund (Class C Shares) (the "Fund") from August 16,
1995 (start of performance) to October 31, 1996, compared to the Standard and
Poor's 500 Index (S&P 500)+ and the Lipper Growth Fund Index (LGFI).+
[CHART APPEARS HERE]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LGFI have been adjusted to reflect reinvestment of dividends on securities
in the indices.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 and the LGFI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. The indices are unmanaged.
Federated Growth Strategies Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- --------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--92.9%
- ------------------------------------------------------------------------------------------------
BASIC INDUSTRY--5.2%
---------------------------------------------------------------------------------
90,000 Caraustar Industries, Inc. $ 2,632,500
---------------------------------------------------------------------------------
104,500 Monsanto Co. 4,140,813
---------------------------------------------------------------------------------
74,500 Potash Corporation of Saskatchewan, Inc. 5,280,188
---------------------------------------------------------------------------------
42,200 Praxair, Inc. 1,867,350
---------------------------------------------------------------------------------
145,000 Royal Plastics Group Ltd. 2,718,750
--------------------------------------------------------------------------------- --------------
Total 16,639,601
--------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--3.2%
---------------------------------------------------------------------------------
53,900 Harley Davidson, Inc. 2,432,238
---------------------------------------------------------------------------------
68,600 Harman International Industries, Inc. 3,524,325
---------------------------------------------------------------------------------
102,300 K2, Inc. 2,352,900
---------------------------------------------------------------------------------
128,800 Oakley, Inc. 1,915,900
--------------------------------------------------------------------------------- --------------
Total 10,225,363
--------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--7.8%
---------------------------------------------------------------------------------
36,100 Avon Products, Inc. 1,958,425
---------------------------------------------------------------------------------
33,000 CPC International, Inc. 2,602,875
---------------------------------------------------------------------------------
45,400 Campbell Soup Co. 3,632,000
---------------------------------------------------------------------------------
61,200 Coca-Cola Co. 3,090,600
---------------------------------------------------------------------------------
112,900 (a)Mossimo, Inc. 2,441,463
---------------------------------------------------------------------------------
74,600 Nike, Inc., Class B 4,392,075
---------------------------------------------------------------------------------
44,500 Philip Morris Cos., Inc. 4,121,813
---------------------------------------------------------------------------------
57,000 (a)Tommy Hilfiger Corp. 2,964,000
--------------------------------------------------------------------------------- --------------
Total 25,203,251
--------------------------------------------------------------------------------- --------------
ENERGY MINERALS--6.6%
---------------------------------------------------------------------------------
153,400 (a)Benton Oil & Gas Co. 3,758,300
---------------------------------------------------------------------------------
22,000 British Petroleum Co. PLC, ADR 2,829,750
---------------------------------------------------------------------------------
161,900 (a)Global Marine, Inc. 2,974,913
---------------------------------------------------------------------------------
82,000 (a)Petroleum Geo-Services, ADR 2,808,500
---------------------------------------------------------------------------------
68,000 Unocal Corp. $ 2,490,500
</TABLE>
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- --------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
ENERGY MINERALS--CONTINUED
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
37,500 (a)Western Atlas, Inc. 2,601,563
---------------------------------------------------------------------------------
163,000 YPF Sociedad Anonima, ADR 3,708,250
--------------------------------------------------------------------------------- --------------
Total 21,171,776
--------------------------------------------------------------------------------- --------------
FINANCE--14.6%
---------------------------------------------------------------------------------
84,600 Aflac, Inc. 3,394,575
---------------------------------------------------------------------------------
154,500 (a)Amerin Corp. 3,051,375
---------------------------------------------------------------------------------
92,400 Bank of New York Co., Inc. 3,060,750
---------------------------------------------------------------------------------
28,800 Charter One Financial, Inc. 1,251,000
---------------------------------------------------------------------------------
48,100 Citicorp 4,761,900
---------------------------------------------------------------------------------
17,900 Federal Home Loan Mortgage Corp. 1,807,900
---------------------------------------------------------------------------------
135,950 MBNA Corp. 5,132,113
---------------------------------------------------------------------------------
48,600 Mellon Bank Corp. 3,165,075
---------------------------------------------------------------------------------
40,700 NationsBank Corp. 3,835,975
---------------------------------------------------------------------------------
125,800 Schwab (Charles) Corp. 3,145,000
---------------------------------------------------------------------------------
160,200 SunAmerica, Inc. 6,007,500
---------------------------------------------------------------------------------
99,800 TCF Financial Corp. 3,867,250
---------------------------------------------------------------------------------
85,500 Travelers Group, Inc. 4,638,375
--------------------------------------------------------------------------------- --------------
Total 47,118,788
--------------------------------------------------------------------------------- --------------
HEALTH CARE--15.4%
---------------------------------------------------------------------------------
52,000 American Home Products Corp. 3,185,000
---------------------------------------------------------------------------------
56,500 (a)Amgen, Inc. 3,464,155
---------------------------------------------------------------------------------
91,500 (a)Geltex Pharmaceuticals, Inc. 1,738,500
---------------------------------------------------------------------------------
136,400 (a)Genzyme Corp. 3,137,200
---------------------------------------------------------------------------------
42,800 HBO & Co. 2,573,350
---------------------------------------------------------------------------------
73,900 (a)HCIA, Inc. 2,050,725
---------------------------------------------------------------------------------
69,000 (a)HEALTHSOUTH Rehabilitation 2,587,500
---------------------------------------------------------------------------------
55,800 Johnson & Johnson 2,748,150
---------------------------------------------------------------------------------
54,900 Medtronic, Inc. $ 3,534,187
---------------------------------------------------------------------------------
</TABLE>
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- --------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
HEALTH CARE--CONTINUED
---------------------------------------------------------------------------------
56,600 Merck & Co., Inc. 4,195,475
---------------------------------------------------------------------------------
152,700 (a)Ornda Healthcorp 4,161,075
---------------------------------------------------------------------------------
43,200 (a)PacifiCare Health Systems, Inc., Class B 3,034,800
---------------------------------------------------------------------------------
58,500 Pfizer, Inc. 4,840,875
---------------------------------------------------------------------------------
21,300 (a)Quintiles Transnational Corp. 1,400,475
---------------------------------------------------------------------------------
65,800 Teva Pharmaceutical Industries, Ltd., ADR 2,755,375
---------------------------------------------------------------------------------
106,500 (a)Thermedics, Inc. 2,209,875
---------------------------------------------------------------------------------
105,100 (a)Veterinary Centers of America 1,931,212
--------------------------------------------------------------------------------- --------------
Total 49,547,929
--------------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING--4.5%
---------------------------------------------------------------------------------
138,300 (a)Cable Design Technologies, Class A 3,595,800
---------------------------------------------------------------------------------
87,000 Greenfield Industries, Inc. 2,305,500
---------------------------------------------------------------------------------
95,850 (a)Thermo Electron Corp. 3,498,525
---------------------------------------------------------------------------------
84,000 (a)U.S. Filter Corp. 2,898,000
---------------------------------------------------------------------------------
80,000 (a)U.S. Office Products Co. 2,320,000
--------------------------------------------------------------------------------- --------------
Total 14,617,825
--------------------------------------------------------------------------------- --------------
RETAIL TRADE--4.8%
---------------------------------------------------------------------------------
92,700 (a)AMRE, Inc. 857,475
---------------------------------------------------------------------------------
140,400 (a)General Nutrition Cos., Inc. 2,562,300
---------------------------------------------------------------------------------
67,800 (a)Kohl's Corp. 2,440,800
---------------------------------------------------------------------------------
109,300 (a)MSC Industrial Direct Co. 4,044,100
---------------------------------------------------------------------------------
133,200 (a)Safeway, Inc. 5,710,950
--------------------------------------------------------------------------------- --------------
Total 15,615,625
--------------------------------------------------------------------------------- --------------
SERVICES--6.9%
---------------------------------------------------------------------------------
99,300 (a)CalEnergy Co., Inc. 2,879,700
---------------------------------------------------------------------------------
42,600 (a)Corrections Corp. America 1,107,600
---------------------------------------------------------------------------------
39,600 (a)HFS, Inc. 2,900,700
---------------------------------------------------------------------------------
131,200 (a)PanAmSat Corp. $ 3,837,600
---------------------------------------------------------------------------------
</TABLE>
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- --------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
SERVICES--CONTINUED
---------------------------------------------------------------------------------
133,000 Reynolds & Reynolds Co., Class A 3,507,875
---------------------------------------------------------------------------------
131,200 Service Corp. International 3,739,200
---------------------------------------------------------------------------------
135,800 (a)USA Waste Services, Inc. 4,345,600
--------------------------------------------------------------------------------- --------------
Total 22,318,275
--------------------------------------------------------------------------------- --------------
TECHNOLOGY--17.9%
---------------------------------------------------------------------------------
37,000 (a)3Com Corp. 2,502,125
---------------------------------------------------------------------------------
52,300 (a)Altera Corp. 3,242,600
---------------------------------------------------------------------------------
91,400 (a)Analog Devices, Inc. 2,376,400
---------------------------------------------------------------------------------
53,400 (a)Cisco Systems, Inc. 3,304,125
---------------------------------------------------------------------------------
130,500 (a)Cognex Corp. 1,680,187
---------------------------------------------------------------------------------
84,700 (a)DST Systems, Inc. 2,604,525
---------------------------------------------------------------------------------
108,600 (a)Dupont Photomasks, Inc. 3,963,900
---------------------------------------------------------------------------------
60,353 Electronic Data Systems Corp. 2,715,885
---------------------------------------------------------------------------------
74,100 Ericsson LM 2,047,012
---------------------------------------------------------------------------------
37,900 First Data Corp., Class 3,022,525
---------------------------------------------------------------------------------
37,700 (a)HNC Software 1,187,550
---------------------------------------------------------------------------------
81,500 Ingram Micro, Inc. 1,467,000
---------------------------------------------------------------------------------
42,500 Intel Corp. 4,669,688
---------------------------------------------------------------------------------
52,600 Lucent Technologies, Inc. 2,472,200
---------------------------------------------------------------------------------
23,600 (a)Microsoft Corp. 3,239,100
---------------------------------------------------------------------------------
80,350 (a)Oracle Corp. 3,399,808
---------------------------------------------------------------------------------
92,200 (a)Ortel Corp. 1,913,150
---------------------------------------------------------------------------------
32,800 (a)SCI Systems, Inc. 1,631,800
---------------------------------------------------------------------------------
57,700 (a)Solectron Corp. 3,086,950
---------------------------------------------------------------------------------
197,200 (a)StorMedia, Inc. 2,267,800
---------------------------------------------------------------------------------
44,600 (a)U.S. Robotics Corp. 2,804,225
---------------------------------------------------------------------------------
61,600 (a)Xilinx, Inc. $ 2,017,400
--------------------------------------------------------------------------------- --------------
Total 57,615,955
--------------------------------------------------------------------------------- --------------
</TABLE>
Federated Growth Strategies Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL
AMOUNT VALUE
- ------------- --------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
UTILITIES--6.0%
---------------------------------------------------------------------------------
109,900 CMS Energy Corp. 3,475,587
---------------------------------------------------------------------------------
47,300 Cincinnati Bell, Inc. 2,335,437
---------------------------------------------------------------------------------
58,900 FPL Group, Inc. 2,709,400
---------------------------------------------------------------------------------
74,600 Pinnacle West Capital Corp. 2,303,275
---------------------------------------------------------------------------------
73,700 Sonat, Inc. 3,629,725
---------------------------------------------------------------------------------
127,200 (a)Trescomm International, Inc. 1,621,800
---------------------------------------------------------------------------------
64,500 Williams Cos., Inc. (The) 3,370,126
--------------------------------------------------------------------------------- --------------
Total 19,445,350
--------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $238,343,939) 299,519,738
--------------------------------------------------------------------------------- --------------
CONVERTIBLE SECURITIES--2.2%
- ------------------------------------------------------------------------------------------------
FINANCE--1.2%
---------------------------------------------------------------------------------
76,000 First USA, Inc., Cumulative PRIDES, $1.99 3,686,000
--------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.0%
---------------------------------------------------------------------------------
55,200 Continental Airlines, Inc., Conv. Pfd., $4.25 3,367,200
--------------------------------------------------------------------------------- --------------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST $5,745,359) 7,053,200
--------------------------------------------------------------------------------- --------------
(B) REPURCHASE AGREEMENT--4.1%
- ------------------------------------------------------------------------------------------------
$ 13,325,000 BT Securities Corporation, 5.55%, dated 10/31/1996, due 11/1/1996
(AT AMORTIZED COST) 13,325,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $257,414,298)(C) $ 319,897,938
--------------------------------------------------------------------------------- --------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $257,429,219.
The net unrealized appreciation of investments on a federal tax basis
amounts to $62,468,719 which is comprised of $74,641,484 appreciation and
$12,172,765 depreciation at October 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($322,407,396) at October 31, 1996.
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
The following acronyms are used throughout this portfolio:
ADR--American Depositary Receipt
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
(See Notes which are an integral part of the Financial Statements)
Federated Growth Strategies Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
October 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $257,414,298 and tax cost $257,429,219) $319,897,938
- ---------------------------------------------------------------------------------------------------
Income receivable 220,491
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 2,694,930
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 2,134,898
- --------------------------------------------------------------------------------------------------- -----------
Total assets 324,948,257
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased $1,467,000
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 756,102
- ----------------------------------------------------------------------------------------
Capital gain distribution payable 567
- ----------------------------------------------------------------------------------------
Payable to bank 184,184
- ----------------------------------------------------------------------------------------
Accrued expenses 133,008
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 2,540,861
- --------------------------------------------------------------------------------------------------- -----------
Net Assets for 12,482,085 shares outstanding $322,407,396
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $225,680,063
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 62,483,640
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 34,228,393
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 15,300
- --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $322,407,396
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($307,881,776 / 11,915,957 shares outstanding) $25.84
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $25.84)* $27.34
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $25.84
- --------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($10,858,238 / 423,321 shares outstanding) $25.65
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $25.65
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $25.65)** $24.24
- --------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($3,667,382 / 142,807 shares outstanding) $25.68
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $25.68
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $25.68)** $25.42
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "How to Purchase Shares" in the Prospectus.
**See "How to Redeem Shares" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Federated Growth Strategies Fund
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended October 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 2,621,704
- ----------------------------------------------------------------------------------------------------
Interest 883,993
- ---------------------------------------------------------------------------------------------------- ------------
Total income 3,505,697
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 2,042,918
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 205,948
- ---------------------------------------------------------------------------------------
Custodian fees 54,145
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 224,816
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,523
- ---------------------------------------------------------------------------------------
Auditing fees 18,061
- ---------------------------------------------------------------------------------------
Legal fees 4,347
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 104,661
- ---------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 45,248
- ---------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 7,708
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 663,320
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 15,083
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 2,569
- ---------------------------------------------------------------------------------------
Share registration costs 33,239
- ---------------------------------------------------------------------------------------
Printing and postage 73,782
- ---------------------------------------------------------------------------------------
Insurance premiums 5,856
- ---------------------------------------------------------------------------------------
Taxes 36,656
- ---------------------------------------------------------------------------------------
Miscellaneous 8,407
- --------------------------------------------------------------------------------------- -----------
Total expenses 3,551,287
- ---------------------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (397,992)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (1,203)
- --------------------------------------------------------------------------- ----------
Total waivers (399,195)
- --------------------------------------------------------------------------------------- -----------
Net expenses 3,152,092
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 353,605
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 34,229,221
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 25,049,643
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 59,278,864
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 59,632,469
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Growth Strategies Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 353,605 $ 2,736,582
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments ($34,792,008 and $51,266,240 net gains,
respectively, as computed for federal tax purposes) 34,229,221 51,470,307
- -------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 25,049,643 8,029,038
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations 59,632,469 62,235,927
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------------
Class A Shares (439,174) (3,142,465)
- -------------------------------------------------------------------------------
Distributions from net realized gains on investments
- -------------------------------------------------------------------------------
Class A Shares (50,905,303) (9,574,950)
- -------------------------------------------------------------------------------
Class B Shares (314,552) --
- -------------------------------------------------------------------------------
Class C Shares (47,135) --
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from
distributions to shareholders (51,706,164) (12,717,415)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 150,175,756 85,256,559
- -------------------------------------------------------------------------------
Proceeds from shares issued in connection with the acquisition 16,771,825 --
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 29,896,567 6,491,787
- -------------------------------------------------------------------------------
Cost of shares redeemed (132,875,327) (211,384,336)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions 63,968,821 (119,635,990)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets 71,895,126 (70,117,478)
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 250,512,270 320,629,748
- ------------------------------------------------------------------------------- --------------- ---------------
End of period (including undistributed net investment
income of $15,300 and $100,869, respectively) $ 322,407,396 $ 250,512,270
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Growth Strategies Fund
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 26.22 $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78 $ 20.99 $ 17.18 $ 16.93
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.04 0.24 0.21 0.20 0.33 0.57 0.75 0.59 0.09
- -------------------------
Net realized and
unrealized gain (loss)
on investments 5.01 5.64 (2.18) 2.96 0.45 5.97 (2.69) 3.80 1.08
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total from investment
operations 5.05 5.88 (1.97) 3.16 0.78 6.54 (1.94) 4.39 1.17
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.04) (0.26) (0.19) (0.23) (0.33) (0.61) (0.79) (0.52) (0.15)
- -------------------------
Distributions from net
realized gain on
investment transactions (5.39) (0.68) (0.48) (0.17) (0.87) (1.13) (1.48) (0.06) (0.77)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total distributions (5.43) (0.94) (0.67) (0.40) (1.20) (1.74) (2.27) (0.58) (0.92)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF
PERIOD $ 25.84 $ 26.22 $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78 $ 20.99 $ 17.18
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 23.16% 29.03% (8.43%) 15.06% 3.93% 41.54% (10.41%) 25.87% 6.95%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 1.13% 1.10% 0.99% 0.96% 1.01% 1.01% 1.01% 1.01% 1.00%*
- -------------------------
Net investment income 0.15% 1.05% 0.89% 0.90% 1.54% 2.88% 4.00% 2.99% 1.30%*
- -------------------------
Expense waiver/
reimbursement (c) 0.15% 0.16% -- -- -- 0.10% 0.22% 0.14% 0.60%*
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $307,882 $249,110 $320,630 $460,811 $391,655 $275,561 $138,407 $134,735 $104,146
- -------------------------
Average commission rate
paid $0.0566 -- -- -- -- -- -- -- --
- -------------------------
Portfolio turnover 89% 125% 59% 57% 46% 54% 67% 79% 24%
- -------------------------
<CAPTION>
YEAR ENDED
<S> <C> <C>
1988 1987
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.67 $ 16.03
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.25 0.28
- -------------------------
Net realized and
unrealized gain (loss)
on investments (0.23) 2.40
- ------------------------- --------- ---------
Total from investment
operations 0.02 2.68
- ------------------------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.20) (0.26)
- -------------------------
Distributions from net
realized gain on
investment transactions (0.56) (0.78)
- ------------------------- --------- ---------
Total distributions (0.76) (1.04)
- ------------------------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 16.93 $ 17.67
- ------------------------- --------- ---------
TOTAL RETURN (B) 0.50% 17.55%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 1.00% 1.00%
- -------------------------
Net investment income 1.39% 1.78%
- -------------------------
Expense waiver/
reimbursement (c) 0.15% 0.18%
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $102,395 $134,657
- -------------------------
Average commission rate
paid -- --
- -------------------------
Portfolio turnover 88% 66%
- -------------------------
</TABLE>
* Computed on an annualized basis.
(a) For the five months ended October 31, 1988. The Fund changed its fiscal
year end from May 31 to October 31.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Growth Strategies Fund
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.23 $ 25.51
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net operating loss (0.10) (0.02)
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.91 0.74
- ---------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 4.81 0.72
- ---------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (5.39) --
- ---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 25.65 $ 26.23
- ---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 22.03% 2.82%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 2.03% 2.04%*
- ----------------------------------------------------------------------------------------------
Net operating loss (0.79%) (0.66%)*
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $10,858 $$1,345
- ----------------------------------------------------------------------------------------------
Average commission rate paid $0.0566 --
- ----------------------------------------------------------------------------------------------
Portfolio turnover 89% 125 %
- ----------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 15, 1995 (date of initial
public offering) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
Federated Growth Strategies Fund
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.22 $ 25.51
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net operating loss (0.05) (0.02)
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 4.90 0.73
- ---------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 4.85 0.71
- ---------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (5.39) --
- ---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 25.68 $ 26.22
- ---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 22.12% 2.78%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 1.92% 2.05%*
- ----------------------------------------------------------------------------------------------
Net operating loss (0.72%) (0.71%)*
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.12% --
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,667 $57
- ----------------------------------------------------------------------------------------------
Average commission rate paid $0.0566 --
- ----------------------------------------------------------------------------------------------
Portfolio turnover 89% 125 %
- ----------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 15, 1995 (date of initial
public offering) to October 31, 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 Growth Strategies Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1996
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 Growth 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
Fund offers three classes of shares: Class A Shares, Class B Shares and Class C
Shares. The investment objective of the Fund is appreciation of capital.
Effective August 16, 1996, Federated Growth Strategies Fund acquired all of the
assets of the Capital Growth Fund pursuant to a plan of reorganization approved
by Capital Growth Fund's shareholders. This was accomplished by a tax free
exchange of shares of Federated Growth Strategies Fund's Class A and Class C
Shares for shares of the Capital Growth Fund.
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.
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.
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
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.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,737,956 $ 136,990,799 3,574,020 $ 83,512,397
- ----------------------------------------------------
Shares issued in connection with the acquisition 616,434 14,812,920 -- --
- ----------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 1,358,129 29,564,831 328,335 6,491,787
- ----------------------------------------------------
Shares redeemed (5,295,894) (129,571,078) (9,466,879) (211,046,538)
- ---------------------------------------------------- ----------- --------------- ----------- ---------------
Net change resulting from Class A share
transactions 2,416,625 $ 51,797,472 (5,564,524) $ (121,042,354)
- ---------------------------------------------------- ----------- --------------- ----------- ---------------
</TABLE>
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995(A)
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 479,932 $ 11,412,701 63,517 $ 1,671,107
- ------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 13,074 284,612 -- --
- ------------------------------------------------------
Shares redeemed (120,979) (2,885,554) (12,223) (322,715)
- ------------------------------------------------------ --------- ------------- --------- ------------
Net change resulting from Class B share transactions 372,027 $ 8,811,759 51,294 $ 1,348,392
- ------------------------------------------------------ --------- ------------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995(A)
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 71,373 $ 1,772,256 2,756 $ 73,055
- -------------------------------------------------------
Shares issued in connection with the acquisition 81,928 1,958,905 -- --
- -------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 2,164 47,124 -- --
- -------------------------------------------------------
Shares redeemed (14,839) (418,695) (575) (15,083)
- ------------------------------------------------------- ---------- ------------- ----------- ---------------
Net change resulting from Class C share transactions 140,626 $ 3,359,590 2,181 $ 57,972
- ------------------------------------------------------- ---------- ------------- ----------- ---------------
Net change resulting from share transactions 2,929,278 $ 63,968,821 (5,511,049) $ (119,635,990)
- ------------------------------------------------------- ---------- ------------- ----------- ---------------
</TABLE>
(a) Reflects operations for the period from August 15, 1995 (date of initial
public offering) to October 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 net assets.
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
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
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 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>
% OF AVG. DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
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. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC 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.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 274,050,050
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 232,596,803
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Federated Growth Strategies Fund
- --------------------------------------------------------------------------------
6. ACQUISITION OF STATE BOND COMMON STOCK FUND
On December 13, 1996, the Fund acquired all the net assets of State Bond Common
Stock Fund ("Acquired Fund") pursuant to a plan of reorganization approved by
the Acquired Fund's shareholders. The acquisition was accomplished by a tax-free
exchange of $3,104,817 shares of the Fund (valued at $74,236,172) for the
$7,784,507 shares of the Acquired Fund outstanding on December 13, 1996. The
Acquired Fund's net assets of $74,236,172 at that date were combined with those
of the Fund.
Report of Ernst & Young LLP, Independent Auditors
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To the Trustees and Shareholders of
FEDERATED EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Growth Strategies Fund, (a portfolio
of Federated Equity Funds) as of October 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods presented therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Growth Strategies Fund at October 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods presented therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 16, 1996
Directors Officers
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<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, Treasurer and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
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 the 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
its objective and policies, management fees, expenses and other information.
[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 314172107
Cusip 314172206
Cusip 314172305
G01228-08 (12/96)
APPENDIX
A. The graphic representation here displayed entitled `Initial Investment
of $13,000,''consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated Growth Strategies Fund (the `Fund''). The darker-
shaded portion reflects the Principal Value of a $13,000 investment (1,288
Shares) in the Fund. The color-coded mountain chart is a visual
representation of the narrative text above it, which shows that an initial
investment of $13,000 in the Fund on 8/23/84, would have a reinvested total
worth of $72,638/2,811 Shares on 10/31/96. The `x'' axis reflects annual
computation periods from 8/23/84 to 10/31/96. The right margin of the chart
reflects the ending values of a hypothetical investment of $13,000 in the
Fund measured in increments of $15,000 ranging from $0 to $75,000.
B. The graphic representation here displayed, entitled `Yearly Investments
of $1,000,''consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated Growth Strategies Fund (the `Fund''). The darker-
shaded portion reflects the Principal Value of $1,000 Investments (totaling
$13,000 by 10/31/96) in the Fund. The color-coded mountain chart is a
visual representation of the narrative text above it, which shows that
$1,000 annual investments in the Fund beginning on 8/23/84 would have a
reinvested total value of $31,459/1,200 Shares on 10/31/96. The `x'' axis
reflects computation periods from 8/23/84 to 10/31/96. The right margin of
the chart reflects the ending values of hypothetical annual investments of
$1,000 in the Fund measured in increments of $4000 ranging from $0 to
$32,000.
C. The graphic representation here displayed, entitled `Growth Over
Time,''consists of a boxed legend in the upper left quadrant indicating
the components of the corresponding mountain chart. The lighter-shaded
portion represents the value of Reinvested Income for the Class A Shares of
Federated Growth Strategies Fund (the `Fund'') the darker-shaded portion
represents the Principal Value of Systematic Investments (totaling $41,000
by 10/31/96). The color-coded mountain is a visual representation of the
narrative text above it, which shows that an original $5,000/466 Shares
investment in the Fund on 10/31/84 and additional investments of $250 every
month over 12 years would have grown to a reinvested total value of
$109,119/4,222 Shares on 10/31/96. The `x'' axis reflects computation
periods from 10/31/84 to 10/31/96. The right margin of the chart reflects
the ending values of a hypothetical original investment and subsequent
monthly investments in the Fund measured in increments of $10,000 ranging
from $0 to $110,000.
D. The graphic representation here displayed, entitled `Growth of $10,000
as of October 31, 1996,''consists of a legend indicating the components of
the corresponding line graph. The solid black line represents Federated
Growth Strategies Fund (Class A Shares) (the `Fund''); the dotted line
represents Standard and Poor's 500 Index (S&P 500); and the dashed line
represents the Lipper Growth Fund Index (LGFI). The graph is a visual
representation of the narrative text above it, which shows that an original
hypothetical investment of $10,000 in the Fund, S&P 500, and LGFI on
10/31/86 would have had reinvested total values of $34,373, $33,876, and
$39,158, respectively, on 10/31/96. The `x'' axis reflects computation
periods from 10/31/86 to 10/31/96. The `y'' axis reflects beginning
investment values measured in $8,000 increments ranging from $8,000 to
$40,000.
E. The graphic representation here displayed, entitled `Growth of $10,000
as of October 31, 1996,''consists of a legend indicating the components of
the corresponding line graph. The solid black line represents Federated
Small Cap Strategies Fund (Class A Shares) (the `Fund''); the dotted line
represents Russell 2000 Index (RUS2). The graph is a visual representation
of the narrative text above it, which shows that an original hypothetical
investment of $10,000 in the Fund and RUS2 on 11/1/95 would have had
reinvested total values of $13,894, and $11,660, respectively, on 10/31/96.
The `x'' axis reflects computation periods from 11/1/95 to 10/31/96. The
`y'' axis reflects beginning investment values measured in $1,000
increments ranging from $9,000 to $14,000.
F. The graphic representation here displayed, entitled `Growth of $10,000
as of October 31, 1996,''consists of a legend indicating the components of
the corresponding line graph. The solid black line represents Federated
Small Cap Strategies Fund (Class B Shares) (the `Fund''); the dotted line
represents Russell 2000 Index (RUS2). The graph is a visual representation
of the narrative text above it, which shows that an original hypothetical
investment of $10,000 in the Fund and RUS2 on 11/1/95 would have had
reinvested total values of $14,070, and $11,660, respectively, on 10/31/96.
The `x'' axis reflects computation periods from 11/1/95 to 10/31/96. The
`y'' axis reflects beginning investment values measured in $1,000
increments ranging from $9,000 to $15,000.
G. The graphic representation here displayed, entitled `Growth of $10,000
as of October 31, 1996,''consists of a legend indicating the components of
the corresponding line graph. The solid black line represents Federated
Small Cap Strategies Fund (Class C Shares) (the `Fund''); the dotted line
represents Russell 2000 Index (RUS2). The graph is a visual representation
of the narrative text above it, which shows that an original hypothetical
investment of $10,000 in the Fund and RUS2 on 11/1/95 would have had
reinvested total values of $14,500, and $11,660, respectively, on 10/31/96.
The `x'' axis reflects computation periods from 11/1/95 to 10/31/96. The
`y'' axis reflects beginning investment values measured in $1,000
increments ranging from $9,000 to $15,000.
H. The graphic representation here displayed entitled `Initial Investment
of $20,000,''consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated Capital Appreciation Fund formerly, Federated Exchange
Fund, Ltd., (the `Fund''). The darker-shaded portion reflects the
Principal Value of a $20,000 investment (945 Shares) in the Fund. The
color-coded mountain chart is a visual representation of the narrative text
above it, which shows that an initial investment of $20,000 in the Fund on
1/1/77, would have a reinvested total worth of $253,865/2,617 Shares on
10/31/96. The `x'' axis reflects annual computation periods from 1/1/77 to
10/31/96. The right margin of the chart reflects the ending values of a
hypothetical investment of $20,000 in the Fund measured in increments of
$20,000 ranging from $0 to $260,000.
I. The graphic representation here displayed, entitled `Yearly Investments
of $1,000,''consists of a boxed legend in the upper left quadrant
indicating the components of the corresponding mountain chart. The lighter-
shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated Capital Appreciation Fund formerly, Federated Exchange
Fund, Ltd., (the `Fund''). The darker-shaded portion reflects the
Principal Value of $1,000 Investments (totaling $20,000 by 10/31/96) in the
Fund. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that $1,000 annual investments in the
Fund beginning on 1/1/77 would have a reinvested total value of
$99,556/1,026 Shares on 10/31/96. The `x'' axis reflects computation
periods from 1/1/77 to 10/31/96. The right margin of the chart reflects the
ending values of hypothetical annual investments of $1,000 in the Fund
measured in increments of $10,000 ranging from $0 to $100,000.
J. The graphic representation here displayed, entitled `Growth Over
Time,''consists of a boxed legend in the upper left quadrant indicating
the components of the corresponding mountain chart. The lighter-shaded
portion represents the value of Reinvested Income for the Class A Shares of
Federated Capital Appreciation Fund formerly, Federated Exchange Fund,
Ltd., (the `Fund'') the darker-shaded portion represents the Principal
Value of Systematic Investments (totaling $35,000 by 10/31/96). The color-
coded mountain is a visual representation of the narrative text above it,
which shows that an original $5,000/95 Shares investment in the Fund on
10/31/86 and additional investments of $250 every month over 10 years would
have grown to a reinvested total value of $72,311/745 Shares on 10/31/96.
The `x'' axis reflects computation periods from 10/31/86 to 10/31/96. The
right margin of the chart reflects the ending values of a hypothetical
original investment and subsequent monthly investments in the Fund measured
in increments of $15,000 ranging from $0 to $75,000.
K. The graphic representation here displayed, entitled `Growth of $10,000
as of October 31, 1996,''consists of a legend indicating the components of
the corresponding line graph. The solid black line represents Federated
Capital Appreciation Fund (Class A Shares) (the `Fund''); the dotted line
represents Standard and Poor's 500 Index (S&P 500); and the dashed line
represents the Lipper Growth Funds Average (LGIFA). The graph is a visual
representation of the narrative text above it, which shows that an original
hypothetical investment of $10,000 in the Fund, S&P 500, and LGIFA on
10/31/86 would have had reinvested total values of $31,605, $39,158, and
$32,002, respectively, on 10/31/96. The `x'' axis reflects computation
periods from 10/31/86 to 10/31/96. The `y'' axis reflects beginning
investment values measured in $10,000 increments ranging from $10,000 to
$40,000.
L. The graphic representation here displayed, entitled `Growth of $10,000
as of October 31, 1996,''consists of a legend indicating the components of
the corresponding line graph. The solid black line represents Federated
Capital Appreciation Fund (Class B Shares) (the `Fund''); the dotted line
represents Standard and Poor's 500 Index (S&P 500); and the dashed line
represents the Lipper Growth and Income Funds Average (LGIFA). The graph is
a visual representation of the narrative text above it, which shows that an
original hypothetical investment of $10,000 in the Fund, S&P 500, and LGIFA
on 1/4/96 would have had reinvested total values of $10,639, $11,627, and
$11,454, respectively, on 10/31/96. The `x'' axis reflects computation
periods from 1/4/96 to 10/31/96. The `y'' axis reflects beginning
investment values measured in $1,000 increments ranging from $9,000 to
$12,000.
M. The graphic representation here displayed, entitled `Growth of $10,000
as of October 31, 1996,''consists of a legend indicating the components of
the corresponding line graph. The solid black line represents Federated
Capital Appreciation Fund (Class C Shares) (the `Fund''); the dotted line
represents Standard and Poor's 500 Index (S&P 500); and the dashed line
represents the Lipper Growth and Income Funds Average (LGIFA). The graph is
a visual representation of the narrative text above it, which shows that an
original hypothetical investment of $10,000 in the Fund, S&P 500, and LGIFA
on 1/4/96 would have had reinvested total values of $11,105, $11,627, and
$11,454, respectively, on 10/31/96. The `x'' axis reflects computation
periods from 1/4/96 to 10/31/96. The `y'' axis reflects beginning
investment values measured in $1,000 increments ranging from $9,000 to
$12,000.
