STATE BOND COMMON STOCK FUND
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
Dear Shareholder:
The Board of Directors and management of State Bond Common Stock Fund (the
`State Bond Fund'') are pleased to submit for your vote a proposal to transfer
all of the net assets of the State Bond Fund to Federated Growth Strategies Fund
(the "Federated Fund"), a portfolio of Federated Equity Funds, a mutual fund
advised by Federated Management. The investment objective of the State Bond
Fund is to seek to produce long-term capital appreciation with dividend income
as fair and reasonable as possible consistent with the State Bond Fund's primary
objective by investing primarily in common stock. The Federated Fund has an
investment objective similar to that of the State Bond Fund in that it seeks
appreciation of capital by investing primarily in equity securities of companies
with prospects for above-average growth in earnings and dividends. As part of
the transaction, holders of shares in the State Bond Fund would receive Class A
Shares of the Federated Fund equal in value to their shares in the State Bond
Fund and the State Bond Fund would be liquidated. Shareholders receiving Class
A Shares of the Federated Fund as a result of the proposed reorganization would
not have to pay a sales load upon receiving such Shares, nor would they be
subject to any contingent deferred sales charges in connection with the exercise
of exchange rights or redemptions of such Shares.
The Board of Directors of the State Bond Fund, as well as ARM Capital Advisors,
Inc., the State Bond Fund's manager, and SBM Financial Services, Inc., the State
Bond Fund's distributor, believe the proposed agreement and plan of
reorganization is in the best interests of State Bond Fund shareholders for the
following reasons:
- -- The reorganization of the State Bond Fund into the Federated Fund may
provide operating efficiencies as a result of the size of the Federated Fund
which were not available to State Bond Fund shareholders due to the smaller size
of the State Bond Fund.
- -- The Federated Fund has an investment objective similar to that of the State
Bond Fund and offers an investment portfolio which invests primarily in equity
securities of companies with prospects for above-average growth in earnings and
dividends.
The Federated Fund is managed by Federated Management, a subsidiary of Federated
Investors. Federated Investors was founded in 1955 and is located in
Pittsburgh, Pennsylvania. Federated Management and other subsidiaries of
Federated Investors serve as investment advisers to a number of investment
companies and private accounts. With over $90 billion invested across more than
250 funds under management and/or administration by its subsidiaries, Federated
Investors is one of the largest mutual fund investment managers in the United
States. With more than 2,000 employees, Federated continues to be led by the
management who founded the company in 1955. Federated funds are presently at
work in and through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Federated Investors also has an excellent reputation for customer servicing,
having received a #1 rating for five years in a row by Dalbar, Inc. The
shareholder services for the Federated funds include advanced technological
systems that result in quick shareholder access to a broad spectrum of
information.
We believe the transfer of the State Bond Fund's assets in this transaction
presents an exciting investment opportunity for our shareholders. Your vote on
the transaction is critical to its success. The transfer will be effected only
if approved by a majority of all of the State Bond Fund's outstanding shares on
the record date voted in person or represented by proxy. We hope you share our
enthusiasm and will participate by casting your vote in person, or by proxy if
you are unable to attend the meeting. Please read the enclosed prospectus/proxy
statement carefully before you vote.
The Board of Directors believes that the transaction is in the best interests of
the State Bond Fund and its shareholders, and unanimously recommends that you
vote for its approval.
Thank you for your prompt attention and participation.
Sincerely,
Dale C. Bauman
President
STATE BOND COMMON STOCK FUND
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF STATE BOND COMMON STOCK FUND:
A Special Meeting of Shareholders of State Bond Common Stock Fund, a portfolio
of State Bond Equity Funds, Inc. (the `State Bond Fund'') will be held at 3:00
p.m. on December 9, 1996 at: 100 North Minnesota Street, New Ulm, Minnesota
56073-0069, for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of Reorganization
between State Bond Fund and Federated Equity Funds, on behalf of its portfolio,
Federated Growth Strategies Fund (the "Federated Fund"), whereby the Federated
Fund would acquire all of the net assets of the State Bond Fund in exchange for
the Federated Fund's Class A Shares to be distributed pro rata by the State Bond
Fund to the holders of its shares in complete liquidation of the State Bond
Fund; and
2. To transact such other business as may properly come before the meeting or
any adjournment thereof.
By Order of the Board of Directors,
Dated: November 2, 1996 Kevin L. Howard
Secretary
Shareholders of record at the close of business on October 11, 1996, are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card. Your vote is important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER
MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY
REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF YOU
ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
NOVEMBER 2, 1996
Acquisition of the Assets of
STATE BOND COMMON STOCK FUND,
a portfolio of STATE BOND EQUITY FUNDS, INC.
100 North Minnesota Street, P.O. Box 69
New Ulm, Minnesota 56073-0069
Telephone Number: 1-800-328-4735
By and in exchange for Class A Shares of
FEDERATED GROWTH STRATEGIES FUND,
a portfolio of FEDERATED EQUITY FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5051, option one
This Prospectus/Proxy Statement describes the proposed Agreement and Plan of
Reorganization (the "Plan") whereby Federated Growth Strategies Fund (the
"Federated Fund"), a portfolio of Federated Equity Funds, a Massachusetts
business trust (the `Trust''), would acquire all of the net assets of State
Bond Common Stock Fund, a portfolio of State Bond Equity Funds, Inc., a Maryland
corporation (the `State Bond Fund''), in exchange for the Federated Fund's
Class A Shares to be distributed pro rata by the State Bond Fund to the holders
of its shares, in complete liquidation of the State Bond Fund. As a result of
the Plan, each shareholder of the State Bond Fund will become the owner of the
Federated Fund's Class A Shares having a total net asset value equal to the
total net asset value of his or her holdings in the State Bond Fund.
THE BOARD OF DIRECTORS OF THE STATE BOND FUND UNANIMOUSLY RECOMMENDS APPROVAL OF
THE PLAN.
Each of the Federated Fund and the State Bond Fund is a diversified portfolio of
securities of an open-end management investment company. The Federated Fund's
investment objective is appreciation of capital which it pursues by investing
primarily in equity securities of companies with prospects for above-average
growth in earnings and dividends. The State Bond Fund's investment objective is
to seek to produce long-term capital appreciation with dividend income as fair
and reasonable as possible consistent with the State Bond Fund's primary
objective by investing primarily in common stocks. For a comparison of the
investment policies of the Federated Fund and the State Bond Fund, see "Summary
- - Investment Objectives, Policies and Limitations."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Federated Fund that a prospective
investor should know before investing. This Prospectus/Proxy Statement is
accompanied by the Prospectus of the Federated Fund dated December 31, 1995,
which is incorporated herein by reference. Statements of Additional Information
for the Federated Fund dated December 31, 1995 (relating to the Federated Fund's
Prospectus of the same date) and November 2, 1996 (relating to this
Prospectus/Proxy Statement), the Annual Report to Shareholders dated October 31,
1995, and the Semi-Annual Report to Shareholders dated April 30, 1996, all
containing additional information, have been filed with the Securities and
Exchange Commission and are incorporated herein by reference. Copies of the
Statements of Additional Information, the Annual Report and the Semi-Annual
Report may be obtained without charge by writing or calling the Federated Fund
at the address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COM-
MISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/
PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page No.
Summary of Expenses 6
Summary 8
About the Proposed Reorganization 8
Investment Objectives, Policies and Limitations 8
Advisory and Other Fees 10
Distribution Arrangements 11
Purchase, Exchange and Redemption Procedures 11
Dividends 13
Tax Consequences 13
Risk Factors 13
Information About the Reorganization 14
Background and Reasons for the Proposed Reorganization 14
Agreement Among ARM, ARM Capital and Federated 16
Description of the Plan of Reorganization 16
Description of Federated Fund Shares 17
Federal Income Tax Consequences 17
Comparative Information on Shareholder Rights and Obligations 18
Capitalization 20
Information About the Federated Fund, the Trust and the State Bond Fund
20
Federated Growth Strategies Fund, a portfolio of Federated Equity
Funds
20
State Bond Common Stock Fund 21
Voting Information 21
Outstanding Shares and Voting Requirements 21
Dissenter's Right of Appraisal 22
Other Matters and Discretion of Persons Named in the Proxy 22
Agreement and Plan of Reorganization -- Exhibit A 24
SUMMARY OF EXPENSES
Federated State Pro
Fund Bond Forma
(Class A Fund Combine
Shares) d
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases 5.50%(1) 4.75% 5.50%(1)
(as a percentage of offering
price)
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of None None None
offering price)
Contingent Deferred Sales Charge
(as a percentage of original
purchase 0.00%(2) 0.00% 0.00%(2)
price or redemption proceeds, as
applicable)
Redemption Fee (as a percentage of
amount redeemed, if None None None
applicable)(3)
Exchange Fee None None None
Annual Operating Expenses
(As a percentage of average net assets)
(after expense reimbursements or waivers)
Management Fee 0.75% 0.65% 0.75%
12b-1 Fee None 0.25% None
Total Other Expenses 0.36%(4) 0.28% 0.36%(4)
Total Operating 1.11% 1.18% 1.11%
Expenses(5)
(1) This sales charge would not be applicable to Class A Shares of the
Federated Fund acquired under the proposed reorganization.
(2) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. may be charged a contingent
deferred sales charge of 0.50 of 1% for redemptions made within one full year of
purchase. For a more complete description, see `Summary - Distribution
Arrangements.'' This contingent deferred sales charge would not be applicable
to Class A Shares of the Federated Fund acquired under the proposed
reorganization.
(3) Wire-transferred redemptions of Class A Shares of the Federated Fund of
less than $5,000 may be subject to additional fees. A $10.00 fee will be
charged for certain redemptions of State Bond Fund shares by wire transfer.
(4) Total other expenses for the Federated Fund and the Pro Forma Combined Fund
include a shareholder services fee of 0.10%. The shareholder services fee has
been reduced to reflect the voluntary waiver of a portion of the shareholder
services fee. The shareholder service provider can terminate this voluntary
waiver at any time in its sole discretion. The maximum shareholder services fee
is 0.25%.
(5) The total operating expenses for Class A Shares of the Federated Fund are
based on expenses expected during its fiscal year ending October 31, 1996. The
total operating expenses were 1.10% for the fiscal year ended
October 31, 1995, and would have been 1.26% absent the voluntary waiver of a
portion of the shareholder services fee. The total operating expenses for the
State Bond Fund are based upon expenses incurred by the State Bond Fund during
its fiscal year ended December 31, 1995.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of shares of each of the Federated Fund,
the State Bond Fund and the Pro Forma Combined Fund will bear, either directly
or indirectly. For more complete descriptions of the various costs and
expenses, see "Summary - Advisory and Other Fees" and "Summary - Distribution
Arrangements."
Long-term shareholders of the State Bond Fund may pay more than the economic
equivalent of the maximum front-end sales charges permitted under the rules of
the National Association of Securities Dealers, Inc.
EXAMPLES
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of operating expenses at the levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Class A
Shares received as a result of the proposed reorganization.
An investor would pay the 1 3 5 10
following expenses on a $1,000 year years years years
investment, assuming (1) 5%
annual return and (2) redemption
at the end of each time period.
Expenses would be the same if
there were no redemption at the
end of each time period.
Federated Fund $11 $35 $61 $135
State Bond Fund $12 $37 $65 $143
Pro Forma Combined $11 $35 $61 $135
(2) This Example includes sales charges since any Class A Shares purchased
subsequent to the reorganization may be subject to sales charges. For a
complete description of sales charges, contingent deferred sales charges and
exemptions from such charges, reference is hereby made to the Prospectus of the
Federated Fund dated December 31, 1995, and the Prospectus of the State Bond
Fund dated May 1, 1996, each of which is incorporated herein by reference
thereto.
An investor would pay the 1 3 5 10
following expenses on a $1,000 year years years years
investment, assuming (1) 5%
annual return and (2) redemption
at the end of each time period.
Expenses would be the same if
there were no redemption at the
end of each time period.
Federated Fund $66 $88 $113 $183
State Bond Fund $59 $83 $109 $184
Pro Forma Combined $66 $88 $113 $183
The above Examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Federated Fund dated December 31, 1995, the Statement of
Additional Information of the Federated Fund dated December 31, 1995, the
Prospectus of the State Bond Fund dated May 1, 1996, the Statement of Additional
Information of the State Bond Fund dated May 1, 1996, and the Plan, a copy of
which is attached to this Prospectus/Proxy Statement as Exhibit A.
About the Proposed Reorganization
The Board of Directors of the State Bond Fund has voted to recommend to holders
of the shares of the State Bond Fund the approval of the Plan whereby the
Federated Fund, a portfolio of the Trust, would acquire all of the net assets of
the State Bond Fund in exchange for the Federated Fund's Class A Shares to be
distributed pro rata by the State Bond Fund to its shareholders in complete
liquidation and dissolution of the State Bond Fund (the "Reorganization"). As a
result of the Reorganization, each shareholder of the State Bond Fund will
become the owner of the Federated Fund's Class A Shares having a total net asset
value equal to the total net asset value of his or her holdings in the State
Bond Fund on the date of the Reorganization, i.e., the Closing Date (as
hereinafter defined).
As a condition to the Reorganization transactions, the Trust and the State Bond
Fund will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code of 1986, as amended (the `Code''), so that no gain or
loss will be recognized by either the Federated Fund or the State Bond Fund or
the shareholders of the State Bond Fund. The tax basis of the Federated Fund's
Class A Shares received by State Bond Fund shareholders will be the same as the
tax basis of their shares in the State Bond Fund. After the acquisition is
completed, the State Bond Fund will be dissolved.
Investment Objectives, Policies and Limitations
The investment objective of the Federated Fund is to provide appreciation of
capital. This investment objective may not be changed without the affirmative
vote of a majority of the outstanding voting securities of the Federated Fund,
as defined in the Investment Company Act of 1940, as amended (the `1940 Act'').
The Federated Fund pursues its investment objective by investing primarily in
equity securities of companies with prospects for above-average growth in
earnings and dividends.
The investment objective of the State Bond Fund is to seek to produce long-term
capital appreciation with dividend income as fair and reasonable as possible
consistent with the State Bond Fund's primary objective by investing primarily
in common stocks. This investment objective may not be changed without the
affirmative vote of a majority of the outstanding voting securities of the State
Bond Fund, as defined in the 1940 Act.
The Federated Fund invests primarily in equity securities of companies based on
traditional research techniques, including assessment of earnings and dividend
growth prospects and of the risk and volatility of each company's business. The
Federated Fund currently invests at least 65% of the value of its total assets
in equity securities. The Federated Fund generally invests in companies with a
market capitalization of $100,000,000 or more. The Federated Fund may invest in
common and preferred stocks, corporate bonds rated investment grade or better,
debentures, notes, warrants and put and call options on stocks. In the event
that a debt security which had an eligible rating when purchased is downgraded
below investment grade, Federated Management (as hereinafter defined) will
reassess whether the continued holding of the security is consistent with the
Federated Fund's investment objective. The Federated Fund may purchase
securities of foreign issuers, invest in convertible securities, purchase
restricted securities (subject to a limit on all illiquid securities of 15% of
total assets), purchase securities on a when-issued or delayed delivery basis
and lend portfolio securities. If necessary for temporary defensive purposes,
the Federated Fund may also invest in short-term money market instruments,
securities issued and/or guaranteed as to payment of principal and interest by
the U.S. Government, its agencies or instrumentalities and repurchase
agreements. Unless otherwise designated, the investment policies of the
Federated Fund may be changed by the Board of Trustees without shareholder
approval, although shareholders will be notified before any material change
becomes effective.
Under normal circumstances, at least 65% of the value of the State Bond Fund's
total assets is invested in common stocks, with the remainder being invested in
government securities, short-term securities rated within the top three ratings
of Standard & Poor's Ratings Services, a division of McGraw-Hill Companies, Inc.
(`S&P''), or Moody's Investors Service, Inc. (``Moody's'') or securities
convertible to common stocks. ARM Capital (as hereinafter defined) seeks to
temper the inherent risks of investment in common stocks by diversifying the
State Bond Fund's investments. When considered appropriate, assets of the State
Bond Fund may be shifted to stocks of companies less sensitive to changes in
economic or market conditions, or may be held in cash or invested in senior
securities. The State Bond Fund may lend portfolio securities, enter into
repurchase agreements and invest in high-yield securities. Unless otherwise
designated, the investment policies of the State Bond Fund may be changed by the
Board of Directors without shareholder approval.
Both the Federated Fund and the State Bond Fund are subject to certain
investment limitations. For the Federated Fund, these include investment
limitations which prohibit it from (1) borrowing money directly or through
reverse repurchase agreements except, under certain circumstances, the Federated
Fund may borrow up to one-third of the value of its net assets; (2) selling
securities short except, under strict limitations, the Federated Fund may
maintain open short positions so long as not more than 10% of the value of its
net assets is held as collateral for those positions; (3) investing more than 5%
of its total assets in securities of one issuer (except cash and cash items,
repurchase agreements and U.S. Government obligations) or acquiring more than
10% of any class of voting securities of any one issuer; (4) purchasing
securities of other investment companies, except in open market transactions
limited to not more than 10% of its total assets, or except as part of a merger,
consolidation or other acquisition; (5) investing more than 5% of its total
assets in securities of issuers that have records of less than three years of
continuous operations and in equity securities of any issuer which are not
readily marketable; (6) committing more than 5% of its total assets to premiums
on open put option positions; or (7) investing more than 5% of its net assets in
warrants. The first three investment limitations listed above cannot be changed
without shareholder approval; the last four limitations may be changed by the
Board of Trustees without shareholder approval, although shareholders will be
notified before any material change becomes effective.
The State Bond Fund has investment limitations which prohibit it from (1)
investing more than 5% of the market value of its total assets in the securities
of any one issuer, other than the U.S. Government or its agencies, or purchasing
any security if, as a result, it would hold more than 10% of the outstanding
voting securities of any issuer; (2) borrowing money except from banks as a
temporary emergency measure and then not in excess of 10% of the State Bond
Fund's total assets at cost;
(3) purchasing the securities of an issuer in continuous operation for less than
three years if more than 5% of the State Bond Fund's assets would be so
invested; or (4) investing more than 25% of its net asset value in any one
industry. The above investment limitations of the State Bond Fund cannot be
changed without shareholder approval.
In addition to the policies and limitations set forth above, both the Federated
Fund and the State Bond Fund are subject to certain additional investment
policies and limitations, described in the Federated Fund's Statement of
Additional Information dated December 31, 1995 and the State Bond Fund's
Statement of Additional Information dated May 1, 1996. Reference is hereby made
to the Federated Fund's Prospectus and Statement of Additional Information, each
dated December 31, 1995, and to the State Bond Fund's Prospectus and Statement
of Additional Information, each dated May 1, 1996, which set forth in full the
investment objective, policies and investment limitations of each of the
Federated Fund and the State Bond Fund, all of which are incorporated herein by
reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Federated Fund is 0.75 of 1% of the
Federated Fund's average daily net assets. The investment adviser to the
Federated Fund, Federated Management ("Federated Management"), a subsidiary of
Federated Investors, may voluntarily choose to waive a portion of its advisory
fee. This voluntary waiver of fees may be terminated by Federated Management at
any time in its sole discretion. Federated Management has also undertaken to
reimburse the Federated Fund for operating expenses in excess of limitations
established by certain states. The maximum annual management fee for the State
Bond Fund is 0.65 of 1% on the first $100 million of average daily net assets of
the State Bond Fund, 0.60 of 1% on the next $100 million of average daily net
assets of the State Bond Fund and 0.55 of 1% of average daily net assets of the
State Bond Fund over $200 million. The State Bond Fund's investment manager,
ARM Capital Advisors, Inc. (`ARM Capital''), a wholly-owned subsidiary of ARM
Financial Group, Inc. (`ARM''), has voluntarily agreed to reimburse the State
Bond Fund for expenses (including the management fee but excluding interest,
taxes, brokerage commissions, extraordinary expenses and fees paid pursuant to a
Rule 12b-1 plan) in excess of 1.5% of the first $30 million of the average daily
net assets of the State Bond Fund and 1% of any additional average daily net
assets of the State Bond Fund. This voluntary arrangement may be terminated by
ARM Capital at any time in its sole discretion. ARM Capital has also undertaken
to reimburse the State Bond Fund for operating expenses in excess of limitations
established by certain states.
Federated Services Company, an affiliate of Federated Management, provides
certain administrative personnel and services necessary to operate the Federated
Fund at an annual rate based upon the average aggregate daily net assets of all
funds advised by Federated Management and its affiliates. The rate charged is
0.15 of 1% on the first $250 million of all such funds' average aggregate daily
net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250
million and 0.075 of 1% of all such funds' average aggregate daily net assets in
excess of $750 million, with a minimum annual fee per portfolio of $125,000 plus
$30,000 for each additional class of shares of any such portfolio. Federated
Services Company may choose voluntarily to waive a portion of its fee. The
administrative fee expense for the Federated Fund's most recent fiscal year was
$197,711. Administrative personnel and services necessary to operate the State
Bond Fund are currently provided by ARM Capital and are included in the annual
management fee for the State Bond Fund, as discussed above.
The Federated Fund has entered into a Shareholder Services Agreement under which
it may make payments of up to 0.25 of 1% of the average daily net asset value of
the Class A Shares to obtain certain personal services for shareholders and the
maintenance of shareholder accounts. The Shareholder Services Agreement
provides that Federated Shareholder Services ("FSS"), an affiliate of Federated
Management, either will perform shareholder services directly or will select
financial institutions to perform such services. Financial institutions will
receive fees based upon shares owned by their clients or customers. The
schedule of such fees and the basis upon which such fees will be paid is
determined from time to time by the Federated Fund and FSS. Other than in
connection with payments under a Rule 12b-1 plan as described below, the State
Bond Fund does not make payments to obtain similar shareholder services.
The total annual operating expenses for Class A Shares of the Federated Fund
were 1.10% of average daily net assets (after waivers) for its most recent
fiscal year. The total annual operating expenses for shares of the State Bond
Fund were 1.18% of average daily net assets for its most recent fiscal year.
Without such waivers or reimbursements, the expense ratio of the Federated Fund
and the State Bond Fund would be higher by 0.16% and 0.0%, respectively, of
average daily net assets.
Distribution Arrangements
Federated Securities Corp. ("FSC"), an affiliate of Federated Management, is the
principal distributor for shares of the Federated Fund. The Federated Fund does
not have a Rule 12b-1 plan in effect with respect to its Class A Shares and,
accordingly, does not, nor does FSC, compensate brokers and dealers for sales
and administrative services performed in connection with sales of Class A Shares
of the Federated Fund pursuant to a plan of distribution adopted pursuant to
Rule 12b-1. FSC will pay financial institutions, at the time of purchase, from
its assets, an amount equal to 0.50 of 1% of the net asset value of Class A
Shares purchased by their clients or customers under certain qualified
retirement plans as approved by FSC. (Such payments are subject to a reclaim
from the financial institution should the assets leave the program within 12
months after purchase.) In addition, FSC, from its own assets, may pay
financial institutions supplemental fees as financial assistance for providing
substantial sales services, distribution-related support services or shareholder
services with respect to the Federated Fund. Such assistance will be predicated
upon the amount of Class A Shares the financial institution sells or may sell,
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by FSC may be reimbursed by Federated
Management or its affiliates. If a financial institution elects to waive
receipt of this payment, the Federated Fund will waive any applicable contingent
deferred sales charge (such contingent deferred sales charges are discussed
below).
SBM Financial Services, Inc. (`SBMFS''), an affiliate of ARM Capital, is the
principal distributor for shares of the State Bond Fund. The State Bond Fund
has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-1 Plan") pursuant to
which the State Bond Fund pays SBMFS an amount equal to an annual rate of 0.25
of 1% of the average daily net assets of the State Bond Fund. The fee may be
used by SBMFS to (i) provide initial and ongoing sales compensation to its
investment executives and to other broker/dealers in connection with the sale of
State Bond Fund shares and to pay for other advertising and promotional expenses
in connection with the sale of State Bond Fund shares, and (ii) provide
compensation to entities in connection with the provision of certain personal
and account maintenance services to State Bond Fund shareholders, including, but
not limited to, responding to shareholder inquiries and providing information on
their investments. The Federated Fund will not assume any liabilities or make
any voluntary reimbursements on account of the State Bond Fund's Rule 12b-1
Plan.
Certain costs exist with respect to the purchase and sale of Federated Fund and
State Bond Fund shares. Class A Shares of the Federated Fund and shares of the
State Bond Fund are sold at their net asset value next determined after an order
is received, plus a maximum sales charge of 5.50% and 4.75%, respectively. No
sales charge will be imposed in connection with the issuance of Federated Fund
Class A Shares to State Bond Fund shareholders as a result of the
Reorganization. Class A Shares of the Federated Fund purchased with the
proceeds of a redemption of shares of an unaffiliated investment company
purchased or redeemed with a sales charge and not distributed by FSC may be
charged a contingent deferred sales charge of 0.50 of 1% for redemptions made
within one full year of purchase. Any such charge will be imposed on the lesser
of the net asset value of the redeemed shares at the time of purchase or
redemption. The contingent deferred sales charges are not imposed in connection
with the exercise of exchange rights, nor will they be imposed on redemptions of
Federated Fund Class A Shares received by shareholders of the State Bond Fund as
a result of the Reorganization. For a complete description of sales charges,
contingent deferred sales charges and exemptions from such charges, reference is
hereby made to the Prospectus of the Federated Fund dated December 31, 1995 and
the Prospectus of the State Bond Fund dated May 1, 1996, each of which is
incorporated herein by reference thereto.
Purchase, Exchange and Redemption Procedures
The transfer agent and dividend disbursing agent for the Federated Fund is
Federated Shareholder Services Company (formerly called Federated Services
Company). The transfer agent and dividend disbursing agent for the State Bond
Fund is ARM Transfer Agency, Inc. Procedures for the purchase, exchange and
redemption of the Federated Fund's Class A Shares differ slightly from
procedures applicable to the purchase, exchange and redemption of the State Bond
Fund's shares. Any questions about such procedures may be directed to, and
assistance in effecting purchases, exchanges or redemptions of the Federated
Fund's Class A Shares or the State Bond Fund's shares may be obtained from FSC,
principal distributor for the Federated Fund, at 1-800-245-5051, option one, or
from SBMFS, principal distributor for the State Bond Fund, at 1-800-328-4735.
Reference is made to the Prospectus of the Federated Fund dated December 31,
1995, and the Prospectus of the State Bond Fund dated May 1, 1996, for a
complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of Federated Fund and State
Bond Fund shares, respectively, each of which is incorporated herein by
reference thereto. Set forth below is a brief listing of the significant
purchase, exchange and redemption procedures applicable to the Federated Fund's
Class A Shares and the State Bond Fund's shares.
Purchases of Class A Shares of the Federated Fund may be made through a
financial institution that has an agreement with FSC or, once an account has
been established, by wire or check. Purchases of shares of the State Bond Fund
may be made through SBMFS and through certain broker/dealers under contract with
SBMFS or directly by wire or check once an account has been established. The
minimum initial investment in the Federated Fund is $500, except for retirement
accounts for which the minimum is $50. Subsequent investments must be in
amounts of at least $100, except for retirement accounts for which the minimum
is $50. The minimum initial investment in the State Bond Fund is $250.
Subsequent investments must be in amounts of at least $50. The Federated Fund
and the State Bond Fund each reserves the right to reject any purchase request.
In connection with the sale of Class A Shares of the Federated Fund, FSC may
from time to time offer certain items of nominal value to any shareholder.
The purchase price of the Federated Fund's Class A Shares and the State Bond
Fund's shares is based on net asset value plus a sales charge. The net asset
value per share for each of the Federated Fund and the State Bond Fund is
calculated as of the close of trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange, Inc. (the `NYSE'') on each day on which the Federated
Fund and the State Bond Fund compute their net asset value. Purchase and
redemption orders for the Federated Fund received from broker/dealers before
5:00 p.m. (Eastern time) and from financial institutions before 4:00 p.m.
(Eastern time) may be entered at that day's price. Purchase orders for shares
of the State Bond Fund received from authorized broker/dealers will be executed
at the offering price next determined after the receipt of the order by the
broker/dealer, provided that the broker/dealer promptly transmits the order to
SBMFS the same day. Redemption orders for shares of the State Bond Fund
received by the State Bond Fund's transfer agent from authorized dealers or
representatives of SBMFS prior to the close of the NYSE will be entered at that
day's price; such redemption orders received after the close of the NYSE will be
entered at the net asset value determined at the close of the NYSE on the next
trading day. Federated Fund purchase orders by wire are considered received
immediately and payments must be received within three business days following
the order if a sales charge is due or by 3:00 p.m. (Eastern time) on the next
business day if no such charge is due. Federated Fund purchase orders received
by check are considered received after the check is converted into federal
funds, which normally occurs the business day after receipt.
Holders of Class A Shares of the Federated Fund have exchange privileges with
respect to Class A Shares in certain of the funds for which affiliates of
Federated Investors serve as investment adviser or principal underwriter
(collectively, the "Federated Funds"), each of which has different investment
objectives and policies. Class A Shares of the Federated Fund may be exchanged
for Class A Shares of certain Federated Funds at net asset value without a
contingent deferred sales charge. To the extent a shareholder exchanges Class A
Shares of the Federated Fund for Class A Shares of other Federated Funds, the
time for which the exchanged-for shares are to be held will be added to the time
for which exchanged-from shares were held for purposes of satisfying the
applicable holding period. Class A Shares to be exchanged must have a net asset
value which meets the minimum investment requirement for the fund into which the
exchange is being made. Holders of shares of the State Bond Fund have exchange
privileges with respect to shares in certain of the other funds for which ARM
Capital serves as investment manager (collectively, the `State Bond Group''),
each of which has different investment objectives and policies. Any exchange
for shares of other funds in the State Bond Group will generally be at the
respective net asset values next determined after receipt of the request for
exchange. Exercise of the exchange privilege is treated as a sale for federal
income tax purposes and, accordingly, may have tax consequences for the
shareholder. Information on share exchanges may be obtained from the Federated
Fund or the State Bond Fund, as appropriate.
Redemptions of Federated Fund Class A Shares may be made through a financial
institution, by telephone, by mailing a written request or through the Federated
Fund's Systematic Withdrawal Program. Redemptions of State Bond Fund shares may
be made through an authorized dealer or representative of SBMFS or by mailing a
written request to the State Bond Fund's transfer agent. Class A Shares of the
Federated Fund are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the redemption request
is received. Shares of the State Bond Fund are redeemed at their net asset
value, determined at the close of the NYSE on the date the redemption request is
received. Proceeds will ordinarily be distributed by check within seven days
after receipt of a redemption request.
Dividends
Each of the Federated Fund's and the State Bond Fund's current policy is to
declare and pay dividends from net investment income, quarterly to shareholders
of the Federated Fund and semi-annually to shareholders of the State Bond Fund,
and to make annual distributions of net realized capital gains, if any. With
respect to both the Federated Fund and the State Bond Fund, unless a shareholder
otherwise instructs, dividends and capital gain distributions will be reinvested
automatically in additional shares at net asset value, subject to no sales
charge.
Tax Consequences
As a condition to the Reorganization transactions, the Trust and the State Bond
Fund will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the Code
so that no gain or loss will be recognized by either the Federated Fund or the
State Bond Fund or the shareholders of the State Bond Fund. The tax basis of
the Federated Fund shares received by State Bond Fund shareholders will be the
same as the tax basis of their shares in the State Bond Fund.
RISK FACTORS
As with other mutual funds that invest primarily in equity securities, the
Federated Fund is subject to market risks. That is, the possibility exists that
common stocks will decline over short or even extended periods of time, and the
United States equity market tends to be cyclical, experiencing both periods when
stock prices generally increase and periods when stock prices generally
decrease. Since the State Bond Fund invests primarily in common stocks, these
risk factors are generally also present in an investment in the State Bond Fund.
The Federated Fund may invest in the securities of foreign issuers which may
present greater risks in the form of nationalization, confiscation, domestic
marketability, or other national or international restrictions. As a matter of
practice, the Federated Fund will not invest in the securities of a foreign
issuer if such risk appears to Federated Management to be substantial. A full
discussion of the risks inherent in investment in the Federated Fund and the
State Bond Fund is set forth in the Federated Fund's Prospectus and Statement of
Additional Information, each dated December 31, 1995, and the State Bond Fund's
Prospectus and Statement of Additional Information, each dated
May 1, 1996, each of which is incorporated herein by reference thereto.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
On June 14, 1995, SBM Company, which was then the investment adviser to the
State Bond Fund, completed the sale of substantially all of its business
operations to ARM (the `1995 Transaction''). In connection with the 1995
Transaction, ARM Capital became the investment manager of the State Bond Fund.
In addition, ARM acquired all of the outstanding stock of SBMFS, the current
distributor of shares of the State Bond Fund.
Considerations of the Board of Directors of the State Bond Fund. On June 6,
1996, ARM management advised the Board of Directors of the State Bond Fund that
ARM was considering redirecting its corporate strategy away from the management
and distribution of retail mutual funds in order to concentrate more fully on
its core businesses. Moreover, ARM management stated that due to the relatively
small net assets in the State Bond Fund and the other mutual funds in the State
Bond Group, ARM and its affiliates were not in a position to provide the value-
added shareholder services, technological advancements, comprehensive
distribution networks and diversified product choices that many larger mutual
fund complexes offer. As a result, management stated that ARM was engaged in
the identification and analysis of various potential alternatives for the State
Bond Fund and the other funds in the State Bond Group.
After conducting a screening process, ARM determined that in its judgment, the
proposed Reorganization was the most desirable alternative involving the State
Bond Fund that was reasonably available and that it should be presented to the
State Bond Fund's Board of Directors for its consideration.
A meeting of the entire Board of Directors was held on August 16, 1996, at which
Federated (as defined below) presented to the Board information relating to the
overall reputation, financial strength and stability of Federated Investors, the
parent company of Federated Management (together with its affiliates,
`Federated''). Federated, founded in 1955, is among the seven largest mutual
fund sponsors, with over $90 billion invested across more than 250 funds under
management and/or administration by its subsidiaries, and over 2,000 employees.
Federated's management also discussed the growth of assets under management
and/or administration by Federated from approximately
$35 billion in 1989 to over $90 billion as of August 1996. Federated's
management explained to the Board that the majority of this growth came from
within Federated through its multiple distribution channels. The Board was also
informed of the variety of investment products available through Federated,
including international funds and an array of domestic funds broader than
currently offered in the State Bond Group, the exchange privileges that would be
available to former State Bond Fund shareholders if the Reorganization is
consummated, and the multiple sales charge (or `load'') structures available to
prospective shareholders. The Board took into account that if the
Reorganization takes place, shareholders of the State Bond Fund would exchange
their shares for shares of the Federated Fund without the imposition of any
sales charge.
Federated's management advised the Board of its reputation for customer
servicing, noting that it has received a #1 rating for five years in a row by
Dalbar, Inc. Federated's management stated that its shareholder services
include advanced technological systems that result in quick shareholder access
to a broad spectrum of information, including: telephonic automated yield and
performance information; consolidated monthly shareholder statements; no-fee
IRAs; quarterly newsletters; year-end tax reporting information; direct deposit;
and telephonic redemption and exchange.
Federated's management also discussed comparative sales loads with the Board.
While the maximum front-end sales load of the Federated Fund is higher than that
of the State Bond Fund, Federated's management advised the Board that it is
lower than the average for equity funds distributed through brokers (as reported
by Strategic Insight), and is competitive. Federated's management described
rights of accumulation and other programs that can reduce sales charges with
respect to the Federated Fund.
Federated's management also reviewed with the Board relative asset size and
expense ratios, including relative advisory fees. The Board discussed the fact
that the Federated Fund is larger in asset size than the State Bond Fund and
considered potential economies of scale that might be experienced by former
State Bond Fund shareholders if they were to become shareholders of a larger
fund. Federated's management discussed with the Board expense waiver and
reimbursement arrangements with respect to both the Federated Fund in particular
and to the complex generally.
The Chief Investment Officer, Equities/High Yield, of Federated discussed with
the Board the investment philosophy of Federated Management for its funds,
including the Federated Fund. He also described the background and significant
investment experience of Federated portfolio managers and other related
personnel issues.
The Board was presented with materials comparing the investment objectives and
policies of the State Bond Fund with those of the Federated Fund, and determined
that they were substantially similar. The Board was also presented with and
discussed materials comparing the performance, Morningstar ratings and relative
risks of the State Bond Fund and the Federated Fund. Federated's management
also presented biographical information about each of the Trustees of the Trust
and reviewed with the Board the structure of its compliance and internal audit
departments and the scope of its training programs.
The Board also considered the potential benefits to ARM if the Reorganization is
consummated. The Board discussed the fact that ARM and ARM Capital would be
compensated for selling the books, records and goodwill relating to the
management of the State Bond Group, agreeing to certain non-competition
arrangements and cooperating in assisting in the transfer of the net assets of
the State Bond Group to the Federated Funds. They also took into account the
proposed payment to SBMFS of 0.25% of the average daily net assets of the
Federated Fund attributable to shareholder accounts serviced by SBMFS, as well
as the possible compensation of SBMFS for distribution of additional Federated
financial products in the future.
The Board noted that the State Bond Fund would not bear any of the costs
involved in the Reorganization, which would be borne entirely by ARM and/or
Federated. In addition, the Board discussed the anticipated tax-free nature of
the Reorganization to the State Bond Fund and its shareholders.
In connection with their consideration of the Reorganization, the Board also
reviewed their fiduciary obligations under state and federal law. They
considered the requirements of Section 15(f) of the 1940 Act, which provides
that an investment manager to an investment company, and the affiliates of such
manager (such as ARM), may receive any amount or benefit in connection with a
sale of any interest in such investment manager which results in an assignment
of an investment management contract if (1) for a period of three years after
such assignment, at least 75% of the board of directors of the investment
company are not `interested persons'' (as defined in the 1940 Act) of the new
investment manager or its predecessor; and (2) no `unfair burden'' (as defined
in the 1940 Act) is imposed on the investment company as a result of the
assignment or any express or implied terms, conditions or understandings
applicable thereto.
With respect to the first condition of Section 15(f) relating to Board
composition, the Board was advised that the Federated Fund's Board of Trustees
presently consists of twelve (12) Trustees, only two (2) of whom are
`interested persons.'' With respect to the second condition of Section 15(f),
while there is no specific definition of `unfair burden,'' it includes any
arrangement, for two years after the transaction, pursuant to which the
predecessor or successor adviser is entitled to receive compensation from any
person in connection with the mutual fund's purchase or sale of securities,
other than bona fide ordinary compensation as principal underwriter. The
definition of unfair burden also includes any payments from the fund for other
than bona fide investment advisory or other services. The Board considered the
fact that representations were made by Federated and ARM that the agreement
among Federated, ARM and ARM Capital would contain representations and covenants
that the Reorganization would not impose an unfair burden on the State Bond
Group.
After reviewing and considering all of the information provided by Federated and
ARM, including the terms of the Reorganization, the Board, including all of the
Directors who are not interested persons of the State Bond Fund or ARM Capital,
voted unanimously at a special telephonic meeting held on August 26, 1996, to
approve the Reorganization and to recommend it to the shareholders of the State
Bond Fund for their approval.
The Board unanimously recommends that the shareholders vote FOR the
Reorganization.
Considerations of the Board of Trustees of the Federated Fund. The Board of
Trustees of the Federated Fund, including the independent Trustees, have
unanimously concluded that consummation of the Reorganization is in the best
interests of the Federated Fund and the shareholders of the Federated Fund and
that the interests of Federated Fund shareholders would not be diluted as a
result of effecting the Reorganization and have unanimously voted to approve the
Plan.
Agreement Among ARM, ARM Capital and Federated
The Reorganization is being proposed as part of an agreement in principle by and
among Federated, ARM and ARM Capital, pursuant to which ARM and ARM Capital
would be compensated for selling to Federated the books, records and goodwill
relating to the management of the State Bond Group and cooperating in
facilitating the transaction contemplated by the agreement. As part of that
agreement, ARM Capital and its affiliates have agreed not to compete with
Federated by providing investment advisory services to certain investment
companies. Following the Reorganization, ARM or its affiliates have agreed to
provide certain services to shareholders for which ARM or its affiliates may
receive fees paid by Federated and/or mutual funds in which the shareholders are
invested.
Description of the Plan of Reorganization
The Plan provides that the Federated Fund will acquire all of the net assets of
the State Bond Fund in exchange for the Federated Fund's Class A Shares to be
distributed pro rata by the State Bond Fund to its shareholders in complete
liquidation of the State Bond Fund on or about December 13, 1996 (the "Closing
Date"). Shareholders of the State Bond Fund will become shareholders of the
Federated Fund as of the close of business on the Closing Date, and will be
entitled to the Federated Fund's next dividend distribution.
As of or prior to the Closing Date, the State Bond Fund will declare and pay a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to its shareholders all taxable income for the
period ending on the Closing Date. In addition, the State Bond Fund's dividend
will include its net capital gains realized in the period ending on the Closing
Date.
Consummation of the Reorganization is subject to the conditions set forth in the
Plan, including receipt of an opinion in form and substance satisfactory to the
State Bond Fund and the Trust, on behalf of the Federated Fund, as described
under the caption "Federal Income Tax Consequences" below. The Plan may be
terminated and the Reorganization may be abandoned at any time before or after
approval by shareholders of the State Bond Fund prior to the Closing Date by
either party if it believes that consummation of the Reorganization would not be
in the best interests of its shareholders.
Federated Management is responsible for the payment of substantially all of the
expenses of the Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not limited to,
registration fees, transfer taxes (if any), the fees of banks and transfer
agents and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the State Bond Fund shareholders and the costs of
holding the Special Meeting (as hereinafter defined). ARM is responsible for
the payment of the legal fees of the State Bond Fund. The accountants' fees of
the State Bond Fund will be borne equally by Federated Management and ARM.
The foregoing description of the Plan entered into between the Trust, on behalf
of the Federated Fund, and the State Bond Fund is qualified in its entirety by
the terms and provisions of the Plan, a copy of which is attached hereto as
Exhibit A and incorporated herein by reference thereto.
Description of Federated Fund Shares
Full and fractional Class A Shares of the Federated Fund will be issued without
the imposition of a sales charge or other fee to the shareholders of the State
Bond Fund in accordance with the procedures described above. Class A Shares of
the Federated Fund to be issued to shareholders of the State Bond Fund under the
Plan will be fully paid and nonassessable when issued and transferable without
restriction and will have no preemptive or conversion rights. Reference is
hereby made to the Prospectus of the Federated Fund dated December 31, 1995,
provided herewith for additional information about Class A Shares of the
Federated Fund.
Federal Income Tax Consequences
As a condition to the Reorganization, the Trust, on behalf of the Federated
Fund, and the State Bond Fund will receive an opinion from Dickstein
Shapiro Morin & Oshinsky LLP, counsel to the Trust, to the effect that, on the
basis of the existing provisions of the Code, current administrative rules and
court decisions, for federal income tax purposes: (1) the Reorganization as set
forth in the Plan will constitute a tax-free reorganization under Section
368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the
Federated Fund upon its receipt of the State Bond Fund's assets solely in
exchange for Federated Fund Class A Shares; (3) no gain or loss will be
recognized by the State Bond Fund upon the transfer of its assets to the
Federated Fund in exchange for Federated Fund Class A Shares or upon the
distribution (whether actual or constructive) of the Federated Fund Class A
Shares to the State Bond Fund shareholders in exchange for their shares of the
State Bond Fund; (4) no gain or loss will be recognized by shareholders of the
State Bond Fund upon the exchange of their State Bond Fund shares for Federated
Fund Class A Shares; (5) the tax basis of the State Bond Fund's assets acquired
by the Federated Fund will be the same as the tax basis of such assets to the
State Bond Fund immediately prior to the Reorganization; (6) the tax basis of
Federated Fund Class A Shares received by each shareholder of the State Bond
Fund pursuant to the Plan will be the same as the tax basis of State Bond Fund
shares held by such shareholder immediately prior to the Reorganization; (7) the
holding period of the assets of the State Bond Fund in the hands of the
Federated Fund will include the period during which those assets were held by
the State Bond Fund; and (8) the holding period of Federated Fund Class A Shares
received by each shareholder of the State Bond Fund will include the period
during which the State Bond Fund shares exchanged therefor were held by such
shareholder, provided the State Bond Fund shares were held as capital assets on
the date of the Reorganization.
Shareholders should recognize that an opinion of counsel is not binding on the
Internal Revenue Service (`IRS'') or any court. The State Bond Fund does not
expect to obtain a ruling from the IRS regarding the consequences of the
Reorganization. Accordingly, if the IRS sought to challenge the tax treatment
of the Reorganization and was successful, neither of which is anticipated, the
Reorganization would be treated as a taxable sale of assets of the State Bond
Fund, followed by the taxable liquidation of the State Bond Fund.
The Federated Fund does not anticipate that taxable sales involving significant
amounts of securities of the combined portfolio will have to be made after the
Reorganization to effect a realignment with the policies and investment
practices of the Federated Fund.
Comparative Information on Shareholder Rights and Obligations
General. Both the Trust and the State Bond Fund are open-end, diversified
management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The Trust
is organized as a business trust pursuant to a Declaration of Trust under the
laws of the Commonwealth of Massachusetts. The Trust is governed by its
Declaration of Trust, Bylaws and Board of Trustees, in addition to applicable
state and federal law. The State Bond Fund is organized as a separate series of
State Bond Equity Funds, Inc. under the laws of the State of Maryland and is
governed by its Articles of Incorporation, Bylaws and Board of Directors, in
addition to applicable state and federal law. Set forth below is a brief
summary of the significant rights of shareholders of the Trust and the State
Bond Fund.
Shares of the Trust and the State Bond Fund. The Trust is authorized to issue
an unlimited number of shares of beneficial interest which have no par value.
The Federated Fund is a separate series of the Trust. The Board of Trustees has
established three classes of shares of the Federated Fund, known as Class A
Shares, Class B Shares and Class C Shares. The State Bond Fund has an
authorized capital of 10,000,000,000 shares of common stock with a par value of
$.00001 per share. The State Bond Fund is currently the sole investment
portfolio of State Bond Equity Funds, Inc. and has only one class of shares.
Issued and outstanding shares of both the Federated Fund and State Bond Fund are
fully paid and nonassessable, and freely transferable.
Voting Rights. Neither the Trust nor the State Bond Fund is required to hold
annual meetings of shareholders, except as required under the 1940 Act.
Shareholder approval is necessary only for certain changes in operations or the
election of trustees/directors under certain circumstances. The Trust requires
that a special meeting of shareholders be called for any permissible purpose
upon the written request of the holders of at least 10% of the outstanding
shares of the series of the Trust entitled to vote. A special meeting of the
shareholders of the State Bond Fund is required to be called upon the written
request of shareholders representing not less than 25% of the issued and
outstanding shares entitled to vote. Each share of the Federated Fund gives the
shareholder one vote in trustee elections and other matters submitted to
shareholders for vote. All shares of each fund or class in the Trust have equal
voting rights except that in matters affecting only a particular fund or class,
only shares of that fund or class are entitled to vote. All shares of the State
Bond Fund have equal voting rights.
Trustees and Directors. The Declaration of Trust of the Trust provides that the
term of office of each Trustee shall be for the lifetime of the Trust or the
earlier of his or her death, resignation, retirement, removal or mental or
physical incapacity. A Trustee of the Trust may be removed by:
(i) written instrument signed by at least two-thirds of the Trustees, (ii) a
majority vote of the Trustees if the Trustee has become mentally or physically
incapacitated or (iii) a vote of two-thirds of the outstanding shares at any
special meeting of shareholders. A vacancy on the Board may be filled by the
Trustees remaining in office. The Bylaws of the State Bond Fund provide that
each Director holds office from the time of his or her election until the next
annual meeting of shareholders or until his or her successor is duly elected and
qualifies or the earlier of his or her death, resignation, removal, or other
cause. A Director of the State Bond Fund may be removed, with or without cause,
by the affirmative vote of a majority of the votes entitled to be cast for the
election of Directors, and such shareholders may elect a qualified person as
Director to replace the Director so removed. In case of any vacancy on the
Board of Directors, a majority of the remaining Directors may elect a successor
to hold office until the next annual meeting of the shareholders and until his
or her successor is duly elected and qualifies. A meeting of shareholders will
be required for the purpose of electing additional Trustees or Directors
whenever fewer than a majority of the Trustees or Directors then in office were
elected by shareholders.
Liability of Trustees/Directors and Officers. Under the Declaration of Trust of
the Trust, a Trustee or officer will be personally liable only for his or her
own willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office, provided he or she has
acted under the belief that his or her actions are in the best interests of the
Trust. The Declaration of Trust further provides that Trustees and officers
will be indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses of litigation unless the person's conduct is
determined to constitute willful misfeasance, bad faith, gross negligence or
reckless disregard of the person's duties. The Amended and Restated Articles of
Incorporation of the State Bond Fund contain a provision eliminating liability
of directors and officers to the State Bond Fund or its shareholders to the
fullest extent permitted by Maryland law. Therefore, directors and officers of
the State Bond Fund will not be liable for monetary damages to the State Bond
Fund or its shareholders for breach of the duty of care. However, such
elimination of liability regarding a director's duty of care does not permit the
elimination or limitation of liability (1) to the extent that it is proved that
the person actually received an improper benefit or profit in money, property or
services; (2) to the extent that a judgment or other final adjudication adverse
to the person is entered in a proceeding based on a finding in the proceeding
that the person's action, or failure to act, was committed in bad faith or was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding; or (3) for any action or failure to act
occurring prior to February 18, 1988. In addition, due to the provisions of the
1940 Act, shareholders would still have the right to pursue monetary claims
against directors or officers for acts involving willful malfeasance, bad faith,
gross negligence or reckless disregard of their duties as directors or officers.
Under the agreement in principle by and among Federated, ARM and ARM Capital,
Federated has agreed for a period of three (3) years following the Closing Date
to provide coverage under a directors and officers liability insurance policy
for the current Directors of the State Bond Fund.
Shareholder Liability. Under certain circumstances, shareholders of the
Federated Fund may be held personally liable as partners under Massachusetts law
for obligations of the Trust on behalf of the Federated Fund. To protect its
shareholders, the Trust has filed legal documents with the Commonwealth of
Massachusetts that expressly disclaim the liability of its shareholders for such
acts or obligations of the Trust. These documents require that notice of this
disclaimer be given in each agreement, obligation or instrument that the Trust
or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of the Federated Fund, the Trust is required to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as
a shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Termination or Liquidation. In the event of the termination or liquidation of
the Trust or any fund or class of the Trust or of the termination or liquidation
of the State Bond Fund, the shareholders of the respective fund or class are
entitled to receive, when and as declared by the Trustees or the Directors, as
the case may be, the excess of the assets belonging to the respective fund or
class over the liabilities belonging to the respective fund or class. In either
case, the assets belonging to the fund or class will be distributed among the
shareholders in proportion to the number of shares of the respective fund or
class held by them.
Capitalization
The following table sets forth the unaudited capitalization of the Class A
Shares of the Federated Fund and the shares of the State Bond Fund as of October
11, 1996, and on a pro forma combined basis as of that date:
Federated Fund State Bond Pro Forma
(Class A Shares) Fund Combined
Net Assets $311,162,089 $73,446,817 $384,608,906
Net Asset Value Per Share $26.22 $11.20 $26.22
Shares Outstanding 11,867,188 6,560,540 14,668,324
INFORMATION ABOUT THE FEDERATED FUND, THE TRUST
AND THE STATE BOND FUND
Federated Growth Strategies Fund, a portfolio of Federated Equity Funds
Information about the Trust and the Federated Fund is contained in the Federated
Fund's current Prospectus dated December 31, 1995, a copy of which is included
herewith and incorporated herein by reference. Additional information about the
Federated Fund is included in the Federated Fund's Annual Report to Shareholders
dated October 31, 1995, the Semi-Annual Report to Shareholders, dated April 30,
1996, the Statement of Additional Information dated December 31, 1995, and the
Statement of Additional Information dated November 2, 1996 (relating to this
Prospectus/Proxy Statement), each of which is incorporated herein by reference.
Copies of the Annual Report, Semi-Annual Report and Statements of Additional
Information, which have been filed with the Securities and Exchange Commission
(the "SEC"), may be obtained upon request and without charge by contacting the
Federated Fund at 1-800-245-5051, option one, or by writing the Federated Fund
at Federated Investors Tower, Pittsburgh, PA 15222-3779. The Trust is subject
to the informational requirements of the Securities Act of 1933, as amended (the
`1933 Act''), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the 1940 Act and in accordance therewith files reports and other information
with the SEC. Reports, proxy and information statements, charter documents and
other information filed by the Trust or the Federated Fund can be obtained by
calling or writing the Federated Fund and can also be inspected and copied by
the public at the public reference facilities maintained by the SEC in
Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at certain of its regional offices located at Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven
World Trade Center, New York, NY 10048. Copies of such material can be obtained
from the Public Reference Branch, Office of Consumer Affairs and Information
Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Trust with the SEC under the 1933 Act, omits certain of
the information contained in the Registration Statement. Reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to the Trust and the Federated Fund and the shares
offered hereby. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable document
filed with the SEC.
State Bond Common Stock Fund
Information about the State Bond Fund and State Bond Equity Funds, Inc. is
contained in the State Bond Fund's current Prospectus dated May 1, 1996, the
Annual Report to Shareholders dated December 31, 1995, the Semi-Annual Report to
Shareholders dated June 30, 1996, the Statement of Additional Information dated
May 1, 1996 and the Statement of Additional Information dated
November 2, 1996 (relating to this Prospectus/Proxy Statement), each of which is
incorporated herein by reference. Copies of such Prospectus, Annual Report,
Semi-Annual Report, and Statements of Additional Information, which have been
filed with the SEC, may be obtained upon request and without charge from the
State Bond Fund by calling 1-800-328-4735 or by writing to the State Bond Fund
at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069. The
State Bond Fund is subject to the informational requirements of the 1933 Act,
the 1934 Act and the 1940 Act and in accordance therewith files reports and
other information with the SEC. Reports, proxy and information statements,
charter documents and other information filed by State Bond Equity Funds, Inc.
or its portfolio, the State Bond Fund, can be obtained by calling or writing the
State Bond Fund and can also be inspected at the public reference facilities
maintained by the SEC or obtained at prescribed rates at the addresses listed in
the previous section.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of the State Bond Fund of proxies for use at the
Special Meeting of Shareholders (the "Special Meeting") to be held at 3:00 p.m.
on December 9, 1996 at: 100 North Minnesota Street, New Ulm, Minnesota 56073-
0069, and at any adjournments thereof. The proxy confers discretionary
authority on the persons designated therein to vote on other business not
currently contemplated which may properly come before the Special Meeting. A
proxy, if properly executed, duly returned and not revoked, will be voted in
accordance with the specifications thereon; if no instructions are given, such
proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at
any time prior to use by filing with the Secretary of the State Bond Fund an
instrument revoking the proxy, by submitting a proxy bearing a later date or by
attending and voting at the Special Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Federated Management. In addition to solicitations
through the mails, proxies may be solicited by officers, employees and agents of
the State Bond Fund, Federated Management and their respective affiliates at no
additional cost to the State Bond Fund. Such solicitations may be by telephone,
telegraph or personal contact. Federated Management will reimburse custodians,
nominees and fiduciaries for the reasonable costs incurred by them in connection
with forwarding solicitation materials to the beneficial owners of shares held
of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Directors of the State Bond Fund has fixed the close of business on
October 11, 1996, as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting and any adjournments
thereof. As of the record date, there were 6,560,540 shares of the State Bond
Fund outstanding. Each of the State Bond Fund's shares is entitled to one vote
and fractional shares have proportionate voting rights. On the record date, the
Directors and officers of the State Bond Fund as a group owned less than 1% of
the outstanding shares of the State Bond Fund. To the best knowledge of ARM
Capital, as of the record date, no person owned beneficially or of record 5% or
more of the State Bond Fund's outstanding shares.
As of the record date, there were 11,867,188 Class A, 416,589 Class B and
143,569 Class C Shares of the Federated Fund outstanding. On the record date,
the Trustees and officers of the Federated Fund as a group owned less than 1% of
the outstanding Class A, Class B and Class C Shares of the Federated Fund. To
the best knowledge of Federated Management, as of the record date, no person,
except as set forth in the table below, owned beneficially or of record 5% or
more of the Federated Fund's outstanding Class A, Class B or Class C Shares.
Percent of
Class C Name and Address Shares Outstanding
Shares Owned Shares
Merrill Lynch Pierce
Fenner & Smith
Jacksonville, Florida 21,569.911 15.03%
The Troy Savings Bank,
RPO Gorman Group
Troy, New York 18,921.407 13.18%
Approval of the Plan requires the affirmative vote of a majority of the
outstanding shares of the State Bond Fund. The votes of shareholders of the
Federated Fund are not being solicited since their approval is not required in
order to effect the Reorganization.
One-third of the issued and outstanding shares of the State Bond Fund,
represented in person or by proxy, will be required to constitute a quorum at
the Special Meeting for the purpose of voting on the proposed Reorganization.
For purposes of determining the presence of a quorum, shares represented by
abstentions and "broker non-votes" will be counted as present, but not as votes
cast, at the Special Meeting. Because approval of the Reorganization requires
the approval of a majority of the outstanding shares of the State Bond Fund,
abstentions and "broker non-votes" will have the same effect as if they were
votes against the Reorganization.
Dissenter's Right of Appraisal
Shareholders of the State Bond Fund objecting to the Reorganization have no
appraisal rights under the State Bond Fund's Articles of Incorporation or
Maryland law. Under the Plan, if approved by State Bond Fund shareholders, each
shareholder will become the owner of Class A Shares of the Federated Fund having
a total net asset value equal to the total net asset value of his or her
holdings in the State Bond Fund at the Closing Date.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY
Management of the State Bond Fund knows of no other matters that may properly
be, or which are likely to be, brought before the Special Meeting. However, if
any other business shall properly come before the Special Meeting, the persons
named in the proxy intend to vote thereon in accordance with their best
judgment.
If at the time any session of the Special Meeting is called to order, a quorum
is not present in person or by proxy, the persons named as proxies may vote
those proxies which have been received to adjourn the Special Meeting to a later
date. In the event that a quorum is present but sufficient votes in favor of
one or more of the proposals have not been received, the persons named as
proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies with respect to
any such proposal. All such adjournments will require the affirmative vote of a
majority of the shares present in person or by proxy at the session of the
Special Meeting to be adjourned. The persons named as proxies will vote those
proxies which they are entitled to vote in favor of the proposal, in favor of
such an adjournment, and will vote those proxies required to be voted against
the proposal, against any such adjournment. Whether or not shareholders expect
to attend the Special Meeting, all shareholders are urged to sign, fill in and
return the enclosed proxy form promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated September 23, 1996 (the "Agreement"),
between FEDERATED EQUITY FUNDS, a Massachusetts business trust (the "Trust"), on
behalf of its portfolio FEDERATED GROWTH STRATEGIES FUND (hereinafter called the
"Acquiring Fund"), and STATE BOND EQUITY FUNDS, INC., a Maryland corporation
(hereinafter called the "Corporation") on behalf of its portfolio STATE BOND
COMMON STOCK FUND (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the net assets of the
Acquired Fund in exchange solely for Class A Shares of the Acquiring Fund (the
"Acquiring Fund Shares") and the distribution, after the Closing Date (as
hereinafter defined), of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Corporation and the Trust are registered open-end management
investment companies and the Acquired Fund owns securities in which the
Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to issue
shares of common stock or shares of beneficial interest, as the case may be;
WHEREAS, the Board of Trustees, including a majority of the trustees who are not
"interested persons" (as defined under the Investment Company Act of 1940, as
amended (the "1940 Act")), of the Trust has determined that the exchange of all
of the net assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund shareholders and that the interests of the
existing shareholders of the Acquiring Fund would not be diluted as a result of
this transaction; and
WHEREAS, the Board of Directors, including a majority of the directors who are
not "interested persons" (as defined under the 1940 Act), of the Corporation has
determined that the exchange of all of the net assets of the Acquired Fund for
Acquiring Fund Shares is in the best interests of the Acquired Fund
shareholders;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired Fund
agrees to assign, transfer and convey to the Acquiring Fund all of the net
assets of the Acquired Fund, including all securities and cash, other than cash
in an amount necessary to pay any unpaid dividends and distributions as provided
in paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring
Fund agrees in exchange therefor to deliver to the Acquired Fund the number of
Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3. Such transaction shall take place at the closing
(the "Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund
Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account, for the benefit of its shareholders, on the stock
record books of the Acquiring Fund and shall deliver a confirmation thereof to
the Acquired Fund.
1.2 The Acquired Fund will discharge or make provision for the discharge of all
of its liabilities and obligations prior to or on the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall be made
on the Closing Date and shall be delivered to State Street Bank and Trust
Company (hereinafter called "State Street"), Boston, Massachusetts, the
Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring
Fund, together with proper instructions and all necessary documents to transfer
to the account of the Acquiring Fund, free and clear of all liens, encumbrances,
rights, restrictions and claims created by the Acquired Fund. All cash
delivered shall be in the form of immediately available funds payable to the
order of the Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any
dividends or interest received on or after the Closing Date with respect to
assets transferred to the Acquiring Fund thereunder. The Acquired Fund will
transfer to the Acquiring Fund any distributions, rights or other assets
received by the Acquired Fund after the Closing Date as distributions on or with
respect to the securities transferred. Such assets shall be deemed included in
assets transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, the Acquired
Fund will liquidate and distribute pro rata to the Acquired Fund's shareholders
of record, determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund
Shareholder shall have the right to receive any unpaid dividends or other
distributions which were declared before the Valuation Date (as hereinafter
defined) with respect to the shares of the Acquired Fund that are held by the
shareholder on the Valuation Date. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the Acquired
Fund Shareholders, and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders, based on their ownership of shares
of the Acquired Fund on the Closing Date. All issued and outstanding Shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such Acquiring Fund Shares are to be
issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain the
responsibility of the Corporation up to and including the Closing Date and such
later dates, with respect to dissolution and deregistration of the Corporation,
on which the Corporation is dissolved and deregistered.
1.9 The Corporation shall be deregistered as an investment company under the
1940 Act and dissolved as a Maryland corporation as promptly as practicable
following the Closing Date and the making of all distributions pursuant to
paragraph 1.5.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the Acquiring
Fund hereunder shall be the value of such assets computed as of the close of the
New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date
(such time and date being herein called the "Valuation Date"), using the
valuation procedures set forth in the Acquiring Fund's then-current prospectus
or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Fund's net assets shall be
determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1, by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be December 13, 1996 or such later date as the
parties may mutually agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at
4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated
Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as
the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 ARM Transfer Agency, Inc., as transfer agent for the Acquired Fund, shall
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Acquired Fund Shareholders and
the number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue
and deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Secretary of the Acquired Fund, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, assumption agreements, share certificates, if any, receipts or
other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Corporation represents and warrants to the Trust as follows:
(a) The Corporation is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and has power to own all
of its properties and assets and to carry out this Agreement.
(b) The Corporation is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) The Corporation is not, and the execution, delivery and performance of this
Agreement will not result, in material violation of the Corporation's Articles
of Incorporation or Bylaws or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Acquired Fund is a party or by which it
is bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability to it
after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or before
any court or governmental body is currently pending or to its knowledge
threatened against the Acquired Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquired Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired Fund at December
31, 1994 has been audited by independent auditors and at December 31, 1995 has
been audited by Ernst & Young LLP, independent auditors, and have been prepared
in accordance with generally accepted accounting principles, consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as
of such dates, and there are no known contingent liabilities of the Acquired
Fund as of such dates not disclosed therein.
(h) The unaudited Statement of Assets and Liabilities of the Acquired Fund at
June 30, 1996 has been prepared in accordance with generally accepted accounting
principles, consistently applied, although subject to year-end adjustments, and
on a basis consistent with the Statement of Assets and Liabilities of the
Acquired Fund at December 31, 1995 which has been audited by Ernst & Young LLP,
independent auditors, and such statement (copies of which have been furnished to
the Acquiring Fund) fairly reflects the financial condition of the Acquired Fund
as of such date, and there are no known liabilities of the Acquired Fund,
contingent or otherwise, as of such date not disclosed therein.
(i) Since June 30, 1996, there has not been any material adverse change in the
Acquired Fund's financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any incurrence by the
Acquired Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(j) At the Closing Date, all federal and other tax returns and reports of the
Acquired Fund required by law to have been filed by such date shall have been
filed or an appropriate extension obtained, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(k) For each fiscal year of its operation, subject to applicable statute of
limitation periods, the Acquired Fund has met the requirements of Subchapter M
of the Code for qualification and treatment as a regulated investment company.
(l) All issued and outstanding shares of the Acquired Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the time of the Closing, be held by the persons and in the amounts set
forth in the records of the transfer agent as provided in paragraph 3.3. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares.
(m) On the Closing Date, the Acquired Fund will have full right, power and
authority to sell, assign, transfer and deliver the assets to be transferred by
it hereunder.
(n) The execution, delivery and performance of this Agreement will have been
duly authorized prior to the Closing Date by all necessary action on the part of
the Corporation and, subject to the approval of the Acquired Fund Shareholders,
this Agreement constitutes the valid and legally binding obligation of the
Acquired Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(o) The prospectus/proxy statement of the Acquired Fund (the "Prospectus/Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.5 (only insofar as it relates to the Acquired Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
4.2 The Trust represents and warrants to the Corporation as follows:
(a) The Trust is a business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and has the power
to carry on its business as it is now being conducted and to carry out this
Agreement.
(b) The Trust is registered under the 1940 Act as an open-end, diversified,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery and performance of
this Agreement will not result, in material violation of the Trust's Declaration
of Trust or Bylaws or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquiring Fund is a party or by which it is
bound.
(d) No litigation or administrative proceeding or investigation of or before
any court or governmental body is currently pending or to its knowledge
threatened against the Acquiring Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) The Statement of Assets and Liabilities of the Acquiring Fund at October
31, 1994 and 1995, have been audited by Ernst & Young LLP, independent auditors,
and have been prepared in accordance with generally accepted accounting
principles, and such statements (copies of which have been furnished to the
Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as
of such dates, and there are no known contingent liabilities of the Acquiring
Fund as of such dates not disclosed therein.
(g) The unaudited Statement of Assets and Liabilities of the Acquiring Fund at
April 30, 1996 has been prepared in accordance with generally accepted
accounting principles, consistently applied, although subject to year-end
adjustments, and on a basis consistent with the Statement of Assets and
Liabilities of the Acquiring Fund at October 31, 1995 which has been audited by
Ernst & Young LLP, independent auditors, and such statement (copies of which
have been furnished to the Acquired Fund) fairly reflects the financial
condition of the Acquiring Fund as of such date, and there are no known
liabilities of the Acquiring Fund, contingent or otherwise, as of such date not
disclosed therein.
(h) Since April 30, 1996, there has not been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any incurrence by the
Acquiring Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed to and accepted by the Acquired
Fund.
(i) At the Closing Date, all federal and other tax returns and reports of the
Acquiring Fund required by law to have been filed or an appropriate extension
obtained, by such date shall have been filed, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of the Acquiring
Fund's knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, subject to applicable statute of
limitation periods, the Acquiring Fund has met the requirements of Subchapter M
of the Code for qualification and treatment as a regulated investment company.
(k) All issued and outstanding Acquiring Fund Shares are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and non-
assessable. The Acquiring Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquiring Fund Shares,
nor is there outstanding any security convertible into any Acquiring Fund
Shares.
(l) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Trust, and this Agreement
constitutes the valid and legally binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the discretion of
the court (regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(m) The Prospectus/Proxy Statement to be included in the Registration Statement
(only insofar as it relates to the Acquiring Fund) will, on the effective date
of the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and distributions.
5.2 The Corporation will call a meeting of the Acquired Fund Shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after the
Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form
as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings
and profits of the Acquired Fund for federal income tax purposes which will be
carried over to the Acquiring Fund as a result of Section 381 of the Code and
which will be certified by the Corporation's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of the Prospectus/Proxy Statement,
referred to in paragraph 4.1(o), all to be included in a Registration Statement
on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income, if any, plus the excess of its interest income, if any, excludable from
gross income under Section 103(a) of the Code over its deductions disallowed
under Sections 265 and 171(a)(2) of the Code for the taxable periods or years
ended on or before December 31, 1995 and for the period from said date to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in taxable
periods or years ended on or before December 31, 1995 and in the period from
said date to and including the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided for
herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Corporation contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of
the Acquired Fund's assets, together with a list of the Acquired Fund's
portfolio securities showing the tax costs of such securities by lot and the
holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing
Date a certificate executed in its name by its President or Vice President and
its Treasurer, in form and substance satisfactory to the Acquiring Fund, to the
effect that the representations and warranties of the Corporation made in this
Agreement are true and correct in all material respects at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions provided
herein shall be subject, at its election, to the performance by the Acquiring
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Trust contained in this Agreement
shall be true and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated by this
Agreement, as of the Closing Date with the same force and effect as if made on
and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the Closing
Date a certificate executed in its name by its President or Vice President and
its Treasurer, in form and substance satisfactory to the Acquired Fund, to the
effect that the representations and warranties of the Trust made in this
Agreement are true and correct in all material respects at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquired Fund shall reasonably
request.
7.3 There shall not have been any material adverse change in the Acquiring
Fund's financial condition, assets, liabilities or business since the date
hereof other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of any indebtedness, except as otherwise
disclosed to and accepted by the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the Closing
Date with respect to the Acquired Fund or the Acquiring Fund, either party to
this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Corporation's Articles of
Incorporation and the 1940 Act.
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities) deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
8.5 The Trust and the Corporation shall have received an opinion of Dickstein
Shapiro Morin & Oshinsky LLP substantially to the effect that for federal income
tax purposes:
(a) The transfer of all of the Acquired Fund net assets in exchange for the
Acquiring Fund Shares and the distribution of the Acquiring Fund Shares to the
Acquired Fund Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No
gain or loss will be recognized by the Acquiring Fund upon the receipt of the
assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares;
(c) No gain or loss will be recognized by the Acquired Fund upon the transfer of
the Acquired Fund assets to the Acquiring Fund in exchange for the Acquiring
Fund Shares or upon the distribution (whether actual or constructive) of the
Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares
of the Acquired Fund; (d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund shares for the
Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets acquired by
the Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization; (f) The tax basis of the
Acquiring Fund Shares received by each of the Acquired Fund Shareholders
pursuant to the Reorganization will be the same as the tax basis of the Acquired
Fund shares held by such shareholder immediately prior to the Reorganization;
(g) The holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held by
the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Shareholder will include the period during which
the Acquired Fund shares exchanged therefor were held by such shareholder
(provided the Acquired Fund shares were held as capital assets on the date of
the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Directors of the Corporation or the
Board of Trustees of the Trust at any time prior to the Closing Date (and
notwithstanding any vote of the Acquired Fund Shareholders) if circumstances
should develop that, in the opinion of either of the parties' Board, make
proceeding with this Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated hereby is
abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the directors, trustees or officers of the Corporation or the Trust or
the shareholders of the Acquiring Fund or of the Acquired Fund, in respect of
this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions may be
waived by the Board of Trustees of the Trust or the Board of Directors of the
Corporation, if, in the judgment of either, such waiver will not have a material
adverse effect on the benefits intended under this Agreement to the shareholders
of the Acquiring Fund or of the Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for herein
shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof, and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them relating to the subject matter hereof. Neither party
shall be bound by any condition, definition, warranty or representation, other
than as set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York, without giving effect to principles of
conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof of any rights or obligations hereunder shall be made by any party without
the written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust of the Trust
and agrees that the obligations assumed by the Acquiring Fund pursuant to this
Agreement shall be limited in any case to the Acquiring Fund and its assets and
the Acquired Fund shall not seek satisfaction of any such obligation from the
shareholders of the Acquiring Fund, the trustees, officers, employees or agents
of the Trust or any of them.
11.7 An agreement has been entered into under which Federated Management will
assume substantially all of the expenses of the reorganization including
registration fees, transfer taxes (if any), the fees of banks and transfer
agents and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the Acquired Fund Shareholders and the costs of
holding the special meeting of shareholders. ARM Financial Group, Inc. will
assume the legal fees of the Acquired Fund. The accountants' fees of the State
Bond Fund will be borne equally by Federated Management and ARM Financial Group,
Inc.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and attested on
its behalf by its duly authorized representatives as of the date first above
written.
Acquired Fund:
STATE BOND EQUITY FUNDS, INC.,
on behalf of its portfolio,
STATE BOND COMMON STOCK FUND
Attest:
By: /s/ Kevin L. Howard
Kevin L. Howard
Vice President and Secretary
/s/ Sheri Bean
Sheri Bean
Assistant Secretary
Acquiring Fund:
FEDERATED EQUITY FUNDS
on behalf of its portfolio,
FEDERATED GROWTH
STRATEGIES FUND
Attest:
By: /s/ J. Christopher Donahue
J. Christopher Donahue
Executive Vice President
/s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary
G01866-03
STATEMENT OF ADDITIONAL INFORMATION
November 2, 1996
Acquisition of the Assets of
STATE BOND COMMON STOCK FUND,
a Portfolio of
STATE BOND EQUITY FUNDS, INC.
100 North Minnesota Street
P.O. Box 69
New Ulm, Minnesota 56073-0069
Telephone Number: 1-800-328-4735
By and in exchange for Class A Shares of
FEDERATED GROWTH STRATEGIES FUND,
a Portfolio of
FEDERATED EQUITY FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245 5051, option one
This Statement of Additional Information dated November 2, 1996 is not a
prospectus. A Prospectus/Proxy Statement dated November 2, 1996 related to the
above-referenced matter may be obtained from Federated Equity Funds, Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of
Additional Information should be read in conjunction with such Prospectus/Proxy
Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Federated Growth Strategies Fund, a
portfolio of Federated Equity Funds, dated December 31, 1995.
2. Statement of Additional Information of State Bond Common Stock Fund, a
portfolio of State Bond Equity Funds, Inc., dated May 1, 1996.
3. Financial Statements of Federated Growth Strategies Fund, a portfolio of
Federated Equity Funds, dated October 31, 1995.
4. Financial Statements (unaudited) of Federated Growth Strategies Fund, a
portfolio of Federated Equity Funds, dated April 30, 1996.
5. Financial Statements of State Bond Common Stock Fund, a portfolio of State
Bond Equity Funds, Inc., dated December 31, 1995.
6. Financial Statements (unaudited) of State Bond Common Stock Fund, a
portfolio of State Bond Equity Funds, Inc., dated June 30, 1996.
7. Pro Forma Financial Information of Federated Growth Strategies Fund, a
portfolio of Federated Equity Funds, dated October 31, 1995 and April 30, 1996.
The Statement of Additional Information of Federated Growth Strategies Fund (the
"Federated Fund"), a portfolio of Federated Equity Funds (the "Trust"), dated
December 31, 1995, is incorporated herein by reference to Post-Effective
Amendment No. 29 to the Trust's Registration Statement on Form N-1A (File Nos.
2-91090 and 811-4017) which was filed with the Securities and Exchange
Commission on or about December 27, 1995. A copy may be obtained, upon request
and without charge, from the Federated Fund at Federated Investors Tower,
Pittsburgh, PA 15222-3279; telephone number: 1-800-245-5051, option one.
The Statement of Additional Information of State Bond Common Stock Fund (the
"State Bond Fund"), a portfolio of State Bond Equity Funds, Inc. (the
"Corporation"), dated May 1, 1996, is incorporated herein by reference to Post-
Effective Amendment No. 58 to the Corporation's Registration Statement on Form
N-1A (File Nos. 2-19600 and 811-1138) which was filed with the Securities and
Exchange Commission on or about March 1, 1996. A copy may be obtained, upon
request and without charge, from the State Bond Fund at 100 North Minnesota
Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number: 1-800-
328-4735.
The audited financial statements of the Federated Fund, dated October 31, 1995,
are incorporated herein by reference to the Federated Fund's Annual Report to
Shareholders dated October 31, 1995 which was filed with the Securities and
Exchange Commission. A copy may be obtained, upon request and without charge,
from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279;
telephone number: 1-800-245-5051, option one.
The audited financial statements of the State Bond Fund, dated December 31,
1995, are incorporated herein by reference to the State Bond Fund's Annual
Report to Shareholders dated December 31, 1995, which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box
69, New Ulm, Minnesota 56073-0069; telephone number 1-800-328-4735.
The unaudited financial statements of the Federated Fund, dated April 30, 1996,
are incorporated herein by reference to the Federated Fund's Semi-Annual Report
to Shareholders, dated April 30, 1996, which was filed with the Securities and
Exchange Commission. A copy may be obtained, upon request and without charge,
from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279;
telephone number: 1-800-245-5051, option one.
The unaudited financial statements of the State Bond Fund, dated June 30, 1996,
are incorporated herein by reference to the State Bond Fund's Semi-Annual Report
to Shareholders, dated June 30, 1996, which was filed with the Securities and
Exchange Commission. A copy may be obtained, upon request and without charge,
from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm,
Minnesota 56073-0069; telephone number: 1-800-328-4735.
The pro forma financial information of the Federated Fund, dated October 31,
1995 and April 30, 1996 is included herein.
Federated Growth Strategies Fund
(formerly, Federated Growth Trust)
State Bond Common Stock Fund
Introduction to Proposed Merger
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated Growth
Strategies Fund and State Bond Common Stock Fund, collectively (the `Funds''),
at October 31, 1995. These statements have been derived from the books and
records utilized in calculating the daily net asset value at October 31, 1995.
The accompanying unaudited Pro Forma Combining Statement of Operations reflects
the accounts of Federated Growth Strategies Fund and State Bond Common Stock
Fund for the years ended October 31, 1995, and December 31, 1995, respectively,
the most recent fiscal year ends of the Funds.
In addition, included are the unaudited Pro Forma Combining Portfolio of
Investments and Statement of Assets and Liabilities reflecting the accounts of
the Funds at April 30, 1996. These statements have been derived from the books
and records utilized in calculating the daily net asset value at April 30, 1996.
The accompanying unaudited Pro Forma Combining Statement of Operations reflects
the accounts of Federated Growth Strategies Fund and State Bond Common Stock
Fund for the six months ended April 30, 1996, and the six months ended June 30,
1996, respectively, the most recent semi-annual periods of the Funds.
The Pro Forma statements give effect to the proposed transfer of assets from
State Bond Common Stock Fund in exchange for Class A Shares of Federated Growth
Strategies Fund.
<TABLE>
<CAPTION>
Pro Forma Combining Portfolio of Investments
October 31, 1995 (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Federated State Bond Federated State Bond
Growth Common Growth Common Stock
Strategies Stock Pro Forma Strategies Fund Pro Forma
Fund Fund Combined Fund Combined
Shares Shares Shares Value Value Value
Common Stocks--90.4%
Basic Industry--5.8%
50,700 ------ 50,700 AK Steel Holding $1,571,700 $----- $1,571,700
Corp.
- ------ 26,045 26,045 Archer-Daniels- ------ 419,976 419,976
Midland Co.
60,000 ------ 60,000 Champion 3,210,000 ------ 3,210,000
International Corp.
- ------ 30,000 30,000 Morton ------ 915,000 915,000
International, Inc.
67,500 ------ 67,500 Potash Corporation
of Saskatchewan, 4,699,688 ------ 4,699,688
Inc.
125,000 ------ 125,000 Praxair, Inc. 3,375,000 ------ 3,375,000
104,500 ------ 104,500 UCAR Global 2,978,250 ------ 2,978,250
Enterprises, Inc.
- ------ 30,000 30,000 WMX Technologies, ------ 843,750 843,750
Inc.
Total 15,834,638 2,178,726 18,013,364
Consumer Durables--
2.3%
- ------ 20,000 20,000 American Greetings ------ 631,250 631,250
164,500 ------ 164,500 Brunswick Corp. 3,207,750 ------ 3,207,750
- ------ 8,000 8,000 Goodyear Tire & ------ 304,000 304,000
Rubber Co.
58,100 ------ 58,100 Oakley, Inc. 2,004,450 ------ 2,004,450
- ------ 40,000 40,000 Rubbermaid, Inc. ------ 1,045,000 1,045,000
Total 5,212,200 1,980,250 7,192,450
Consumer Non-
Durables--9.0%
- ------ 30,000 30,000 Anheuser-Busch Cos., ------ 1,980,000 1,980,000
Inc.
47,500 ------ 47,500 Coca-Cola Co. 3,414,062 ------ 3,414,062
5
- ------ 12,000 12,000 ConAgra, Inc. ------ 463,500 463,500
- ------ 20,000 20,000 CPC International ------ 1,327,500 1,327,500
145,000 ------ 145,000 (a) Gymboree Corp. 3,280,625 ------ 3,280,625
53,400 ------ 53,400 IBP, Inc. 3,197,325 ------ 3,197,325
- ------ 21,000 21,000 International
Flavors and ------ 1,013,250 1,013,250
Fragrances, Inc.
57,000 ------ 57,000 Nike, Inc., Class B 3,234,750 ------ 3,234,750
52,000 ------ 52,000 Philip Morris Cos., 4,394,000 ------ 4,394,000
Inc.
- ------ 30,000 30,000 Procter & Gamble Co. ------ 2,430,000 2,430,000
- ------ 50,000 50,000 Sara Lee Corp. ------ 1,468,750 1,468,750
- ------ 40,000 40,000 The Gillette Company ------ 1,935,000 1,935,000
Total 17,520,762 10,618,000 28,138,762
Energy Minerals--
3.8%
31,000 ------ 31,000 British Petroleum, 2,735,750 ----- 2,735,750
Ltd., ADR
- ------ 15,000 15,000 Burlington ------ 540,000 540,000
Resources, Inc.
Common Stock - continued
Energy Minerals--
continued
- ------ 25,000 25,000 Phillips Petroleum $------ $806,250 $806,250
Co.
- ------ 12,000 12,000 Royal Dutch ------ 1,474,500 1,474,500
Petroleum Co.
6
79,100 ------ 79,100 (a) Western Atlas, 3,470,513 ------ 3,470,513
Inc.
168,500 ------ 168,500 (a) YPF Sociedad 2,885,563 ------ 2,885,563
Anonima, ADR
Total 9,091,826 2,820,750 11,912,576
Finance--15.4%
78,400 ------ 78,400 Aflac, Inc. 3,194,800 ------ 3,194,800
- ------ 33,750 33,750 American ------ 2,847,656 2,847,656
International Group,
Inc.
106,000 ------ 106,000 Bank of New York 4,452,000 ------ 4,452,000
Co., Inc.
- ------ 20,000 20,000 Capital One ------ 490,000 490,000
Financial
70,000 ------ 70,000 Citicorp 4,541,250 ------ 4,541,250
- ------ 15,000 15,000 Federal National
Mortgage Association ------ 1,573,125 1,573,125
80,200 ------ 80,200 First Commerce Corp. 2,486,200 ------ 2,486,200
- ------ 60,000 60,000 Green Tree Financial ------ 1,597,500 1,597,500
Corp.
110,300 ------ 110,300 Lehman Brothers 2,399,025 ------ 2,399,025
Holdings, Inc.
- ------ 8,000 8,000 MBIA, Inc. ------ 557,000 557,000
125,000 ------ 125,000 MBNA Corp. 4,609,375 ------ 4,609,375
- ------ 15,000 15,000 Mellon Bank Corp. ------ 751,875 751,875
70,000 20,000 90,000 MGIC Investment 3,981,250 1,137,500 5,118,750
Corp.
7
44,800 ------ 44,800 NationsBank Corp. 2,945,600 ------ 2,945,600
- ------ 10,000 10,000 Providian Corp. ------ 392,500 392,500
- ------ 10,000 10,000 Reuters Holding PLC ------ 555,625 555,625
- ------ 20,000 20,000 Signet Bank Corp. ------ 475,000 475,000
81,400 ------ 81,400 Sunamerica, Inc. 5,067,150 ------ 5,067,150
65,100 15,001 80,101 Travelers Group, 3,287,550 757,534 4,045,084
Inc.
Total 36,964,200 11,135,315 48,099,515
Health Care--14.4%
- ------ 30,000 30,000 Abbott Laboratories ----- 1,192,500 1,192,500
74,500 ------ 74,500 (a) Amgen, Inc. 3,576,000 ------ 3,576,000
- ------ 15,000 15,000 Bristol-Myers Squibb ------ 1,143,750 1,143,750
Co.
- ------ 15,000 15,000 Columbia HCA ------ 736,875 736,875
Healthcare Corp.
100,000 ------ 100,000 (a) Foundation 4,237,500 ----- 4,237,500
Health Corp
Common Stock - continued
Health Care--
continued
44,500 ------ 44,500 (a) Genzyme Corp. $2,592,125 $------ $2,592,125
50,000 ------ 50,000 Johnson & Johnson 4,075,000 ------ 4,075,000
31,900 ------ 31,900 Lilly (Eli) & Co. 3,082,337 ------ 3,082,337
57,000 40,000 97,000 Medtronic, Inc. 3,291,750 2,310,000 5,601,750
58,300 ------ 58,300 Merck & Co., Inc. 3,352,250 ------ 3,352,250
8
180,000 ------ 180,000 Mylan Laboratories, 3,420,000 ------ 3,420,000
Inc.
175,000 ------ 175,000 (a) Ornda Healthcorp 3,084,375 ------ 3,084,375
67,400 ------ 67,400 Pfizer, Inc. 3,867,075 ------ 3,867,075
- ------ 20,000 20,000 Schering-Plough ------ 1,072,500 1,072,500
Corp.
100,000 ------ 100,000 Teva Pharmaceutical
Industries, Ltd., 3,925,000 ------ 3,925,000
ADR
Total 38,503,412 6,455,625 44,959,037
Producer
Manufacturing--6.4%
90,500 ------ 90,500 (a) American 2,420,875 ------ 2,420,875
Standard Companies
98,000 ------ 98,000 Dover Corp. 3,871,000 ------ 3,871,000
- ------ 40,000 40,000 General Electric Co. ------ 2,530,000 2,530,000
100,000 ------ 100,000 Greenfield 3,000,000 ------ 3,000,000
Industries, Inc.
71,000 ------ 71,000 Magna International, 3,070,750 ------ 3,070,750
Inc., Class A
81,500 ------ 81,500 (a) Thermo Electron 3,749,000 ------ 3,749,000
Corp.
160,000 ------ 160,000 (a) Westinghouse Air 1,400,000 ------ 1,400,000
Brakes
Total 17,511,625 2,530,000 20,041,625
Retail Trade--2.4%
- ------ 11,000 11,000 Dayton Hudson Corp. ------ 756,250 756,250
9
- ------ 20,000 20,000 Fingerhut Companies, ------ 272,500 272,500
Inc.
- ------ 10,000 10,000 Home Depot, Inc. ------ 372,512 372,512
50,000 ------ 50,000 Premark 2,312,500 ----- 2,312,500
International, Inc.
79,200 ------ 79,200 (a) Safeway, Inc. 3,742,200 ------ 3,742,200
- ------ 8,000 8,000 Wal-Mart Stores, ------ 173,000 173,000
Inc.
Total 6,054,700 1,574,262 7,628,962
Services--7.3%
- ------ 10,000 10,000 Carnival Corp. - ------ 232,500 232,500
Class A
109,600 ------ 109,600 Coflexip, ADR 1,534,400 ------ 1,534,400
28,100 ------ 28,100 (a) Corrections 1,531,450 ------ 1,531,450
Corp. America
Common Stock - continued
Services - continued
- ------ 15,000 15,000 (a) CUC $------ $519,375 $519,375
International, Inc.
- ------ 20,000 20,000 Marriott ------ 737,500 737,500
International, Inc.
81,500 ------ 81,500 Olsten Corp. 3,137,750 ------ 3,137,750
99,000 ------ 99,000 Service Corp. 3,972,375 ------ 3,972,375
International
- ------ 15,000 15,000 Tele-Communications, ------ 255,938 255,938
10
Inc.
- ------ 3,750 3,750 Tele-Communications
Liberty Media ------ 92,578 92,578
- ------ 20,000 20,000 The Walt Disney Co. ------ 1,152,500 1,152,500
- ------ 25,000 25,000 Time Warner, Inc. ------ 912,500 912,500
- ------ 5,000 5,000 Tribune Co. ------ 315,625 315,625
189,324 ------ 189,324 (a) USA Waste 3,975,804 ------ 3,975,804
Services, Inc.
90,000 ------ 90,000 (a) Viacom, Inc., 4,500,000 ------ 4,500,000
Class B
Total 18,651,779 4,218,516 22,870,295
Technology--15.4%
60,000 ------ 60,000 (a) Applied 3,007,500 ------ 3,007,500
Materials, Inc.
- ------ 10,000 10,000 (a) Arrow ------ 507,500 507,500
Electronics, Inc.
- ------ 8,000 8,000 Autodesk, Inc. ------ 270,500 270,500
45,000 10,000 55,000 (a) Cisco Systems, 3,487,500 775,625 4,263,125
Inc.
55,000 ------ 55,000 (a) Digital 2,976,875 ------ 2,976,875
Equipment Corp.
- ------ 20,000 20,000 (a) DSC ------ 741,250 741,250
Communications Corp.
114,000 ------ 114,000 (a) DST Systems, 2,394,000 ------ 2,394,000
Inc.
- ------ 10,000 10,000 (a) EMC Corp. ------ 155,000 155,000
120,000 ------ 120,000 Ericsson LM 2,563,125 ----- 2,563,125
11
- ------ 15,000 15,000 First Data Corp. ------ 991,875 991,875
- ------ 20,000 20,000 (a) General ------ 380,000 380,000
Instrument Co.
130,700 ------ 130,700 (a) Integrated
Device Technology, 2,483,300 ------ 2,483,300
Inc.
40,000 ------ 40,000 Intel Corp. 2,795,000 ------ 2,795,000
170,000 ------ 170,000 Loral Corp. 5,036,250 ------ 5,036,250
60,800 ------ 60,800 (a) LSI Logic Corp. 2,865,200 ------ 2,865,200
- ------ 12,000 12,000 (a) Microsoft Corp. ------ 1,200,750 1,200,750
53,800 20,000 73,800 Motorola, Inc. 3,530,625 1,312,500 4,843,125
- ------ 8,000 8,000 (a) Newbridge ------ 244,000 244,000
Networks Corp.
Common Stock - continued
12
Technology--
continued
57,700 ------ 57,700 Nokia (AB), ADR $3,216,775 $------ $3,216,775
61,800 30,000 91,800 (a) Oracle Corp. 2,696,025 1,310,625 4,006,650
46,500 ------ 46,500 Texas Instruments, 3,173,625 ------ 3,173,625
Inc.
Total 40,225,800 7,889,625 48,115,425
Transportation--
1.1%
50,000 ------ 50,000 Delta Air Lines, 3,281,250 ------ 3,281,250
Inc.
Utilities--7.1%
102,300 ------ 102,300 CMS Energy Corp. 2,826,037 ------ 2,826,037
- ------ 25,000 25,000 El Paso Natural Gas ------ 675,000 675,000
Co.
65,000 ------ 65,000 FPL Group, Inc. 2,721,875 ------ 2,721,875
- ------ 7,000 7,000 (a) Lin Television ------ 199,500 199,500
Corp.
160,000 40,000 200,000 MCI Communications 3,990,000 997,500 4,987,500
Corp.
- ------ 20,000 20,000 (a) Nextel ------ 278,750 278,750
Communications,
Inc.
167,500 ------ 167,500 (a) PanAmSat Corp. 2,533,438 ------ 2,533,438
122,100 ------ 122,100 Sonat, Inc. 3,510,375 ------ 3,510,375
- ------ 20,550 20,550 Sprint Corp. ------ 791,175 791,175
13
- ------ 10,000 10,000 Telefonos de ------ 275,000 275,000
Mexico, S.A.
- ------ 10,000 10,000 Telephone & Data ------ 400,000 400,000
Systems, Inc.
62,000 10,000 72,000 Vodafone Group 2,534,250 408,750 2,943,000
Total 18,115,975 4,025,675 22,141,650
Total Common
Stocks $226,968,167 $55,426,744 $282,394,911
(identified
cost $218,374,244)
Convertible Securities--4.2%
14
Consumer
Services--1.3%
$----- $13,400,000 Boston Chicken,
$13,400,000 Inc., Conv. LYON, $3,902,750 ------ $3,902,750
.08% accrual,
6/1/2015
Finance--1.6%
$120,000 ------ $120,000 First USA, Inc., 4,980,000 ------ 4,980,000
PRIDES, $1.99
Technology
Services--1.3%
60,900 ------ 60,900 General Motors
Corp., Conv. 4,080,300 ------ 4,080,300
Pfd., Series C,
$3.25
Total
Convertible $12,963,050 ------ $12,963,050
Securities
(identified
cost $10,591,019)
Short-Term Securities--2.1%
Finance--1.4%
$------ $1,750,000 $1,750,000 American Express
Credit Corp., $------ $1,748,054 $1,748,054
5.72%, due
15
11/8/1995
- ------ 1,600,000 1,600,000 Ford Motor Credit
Co., 5.73%, due ------ 1,600,000 1,600,000
11/1/1995
- ------ 925,000 925,000 Ford Motor Credit
Co., 5.76%, due ------ 924,704 924,704
11/3/1995
Total ------ 4,272,758 4,272,758
Retail Trade--
0.7%
- ------ 2,150,000 2,150,000 Sears Roebuck
Acceptance Corp., ------ 2,147,939 2,147,939
5.75%, due
11/7/1995
Total Short-
Term Securities $------ $6,420,697 $6,420,697
(at
amortized
cost)
(b) Repurchase Agreement--3.9%
12,310,000 ----- 12,310,000 J.P. Morgan
Securities, Inc.,
5.90%, dated $12,310,000 $------ $12,310,000
16
10/31/95, due
11/1/1995 (at
amortized cost)
Total
Investments $252,241,217 $61,847,441 $314,088,658
(identified
cost
$247,695,960)(c)
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through participation
in a joint account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to
$247,695,960. The net unrealized appreciation of investments on a
federal tax basis amounts to $66,392,698 which is comprised of $72,316,837
appreciation and $5,924,139 depreciation at October 31, 1995.
Note: The categories of investments are shown as a percentage of net
assets ($312,346,463) at October 31, 1995.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
LYON --Liquid Yield Option Note
PLC --Public Limited Company
PRIDES --Preferred Redeemable Increased Dividend Equity Securities
(See Notes to Pro Forma Financial Statements)
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
17
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FEDERATED STATE BOND
GROWTH COMMON PRO FORMA PRO FORMA
STRATEGIES STOCK FUND ADJUSTMENT COMBINED
FUND
ASSETS:
Investments in $ 252,241,217 $61,847,441 $---- $14,088,658
securities, at
value
Cash ---- 32,124 ---- 32,124
Receivables for:
Investments sold 3,776,069 ---- ---- 3,776,069
Shares of
beneficial interest 316,057 133 ---- 316,190
sold
216,664 60,900 ---- 277,564
Income
Total assets 256,550,007 61,940,598 ---- 318,490,605
LIABILITIES:
Payables for/ to:
Shares of
beneficial interest
redeemed 240,824 22,408 ---- 263,232
Investments 5,592,077 ---- ---- 5,592,077
purchased
Bank 117,346 ---- ---- 117,346
83,997 ---- 171,487
Accrued expenses and 87,490
other liabilities
Accrued expenses and
other liabilities 87,490 83,997 - 171,487
---
Total 6,037,737 106,405 ---- 6,144,142
liabilities
TOTAL NET ASSETS $ 250,512,270 $61,834,193 $---- $12,346,463
NET ASSETS CONSIST
OF:
Paid in capital $ 161,711,242 $30,643,355 $---- $92,354,597
Net unrealized
appreciation of
investments 37,433,997 28,959,022 ---- 66,393,019
Accumulated net realized gain
on investments 51,266,162 2,087,086 ---- 53,353,248
Undistributed net
investment 100,869 144,730 ---- 245,599
income
TOTAL NET ASSETS $ 250,512,270 $61,834,193 ---- 312,346,463
$
Class A Shares $ 249,109,599 $61,834,193 ---- $10,943,792
Class B Shares $ 1,345,476 $---- ---- 1,345,476
Class C Shares $ 57,195 $---- ---- $7,195
SHARES OUTSTANDING:
Class A Shares 9,499,332 6,567,862 (4,209,930) (1,857,264
a)
Class B Shares 51,294 ---- ---- 51,294
Class C Shares 2,181 ---- ---- 2,181
TOTAL SHARES 9,552,807 6,567,862 (4,209,930) 11,910,739
OUTSTANDING
FEDERATED STATE BOND
GROWTH COMMON PRO FORMA PRO FORMA
STRATEGIES STOCK FUND ADJUSTMENT COMBINED
FUND
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS
PER SHARE:
CLASS A SHARES:
Net Asset Value Per $ 26.22 $9.41 $ 26.22
Share
Offering Price Per $ 27.75* $9.88*** $ 27.75*
Share
Redemption Proceeds $ 26.22 $9.41 $ 26.22
Per Share
**
CLASS B SHARES:
Net Asset Value Per $ 26.23 $ N/A $ 26.23
Share
Offering Price Per $ 26.23 $N/A $ 26.23
Share
Redemption Proceeds $ 24.79** $N/A $ 24.79**
Per Share
**
CLASS C SHARES:
Net Asset Value Per $ 26.22 $N/A $ 26.22
Share
Offering Price Per $ 26.22 $N/A $ 26.22
Share
Redemption Proceeds $ 25.96** $N/A $ 25.96**
Per Share
**
INVESTMENTS, AT $ 214,807,54 $32,888,419 $ 247,695,96
IDENTIFIED COST 1 0
</TABLE>
(a) Adjustment to reflect share balance as a result of the combination,
based on the exchange ratio of 0.35901058822.
* See "How to Purchase Shares" in the Federated Growth Strategies Fund
Prospectus, dated December 31, 1995.
** See "How to Redeem Shares" in the Federated Growth Strategies Fund
Prospectus, dated December 31, 1995.
***See `How are the Fund's Sales Charges Determined?'' in the State Bond
Common Stock Fund Prospectus, dated May 1, 1996.
(See Notes to Pro Forma Financial Statements)
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1995 FOR FEDERATED GROWTH STRATEGIES FUND
AND THE YEAR ENDED DECEMBER 31, 1995 FOR STATE BOND COMMON STOCK FUND
Federated Growth Strategies Fund
(formerly, Federated Growth Trust)
State Bond Common Stock Fund
Pro Forma Combining Statement of Operations (continued)
For the Year Ended October 31, 1995 for Federated Growth Strategies Fund
and
the Year Ended December 31, 1995 for State Bond Common Stock Fund
(unaudited)
(a) Federated Management (the "Adviser") receives for its services an
annual investment advisory fee equal to 0.75% of Federated Growth
Strategies Fund's (the "Federated Fund") average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time in its sole
discretion. ARM Capital Advisors charged an annual rate of 0.65% on the
first $100 million of the average daily net assets, 0.60% of the next $100
million of the average daily net assets, and 0.55% of the average daily net
assets in excess of $200 million of the State Bond Common Stock Fund for
its advisory fee.
(b) Federated Services Company ("F Serv") provides the Federated Fund with
certain administrative personnel and services. The fee is based on the
level of average aggregate net assets of the Federated Fund for the period.
(c) State Street Bank and Trust Company is custodian for the securities
and cash of the Federated Fund. The custodian fee is based on a percentage
of assets, plus out-of-pocket expenses.
(d) F Serv also serves as transfer and dividend disbursing agent for the
Federated Fund. The fee is based on the size, type, and number of accounts
and transactions made by shareholders.
(e) Adjustment to reflect the audit fee and legal fee reductions due to
the combining of two portfolios into one.
(f) Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services (`FSS''), the Federated Fund will pay FSS up to 0.25%
of average daily net assets of the Federated Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive a
portion of its fee. FSS can modify or terminate this voluntary waiver at
any time in its sole discretion. SBM Financial Services, Inc. received
0.25% of the average daily net assets of State Bond Common Stock Fund under
the terms of a distribution plan pursuant to Rule 12b-1 of the Investment
Company Act of 1940, as amended, to finance activities intended to result
in the sale of State Bond Common Stock Fund's shares and to provide certain
services for shareholders and to maintain shareholder accounts. Class A
Shares of the Federated Fund do not have a distribution plan.
(g) Adjustment to reflect the printing and postage expense reduction due
to the combining of two portfolios into one.
(h) Adjustment to reflect the elimination of the Directors'/Trustees' fees
for State Bond Common Stock Fund and the reduction of state registration
fees and insurance fees due to the combining of two portfolios into one.
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated
Growth Strategies Fund and State Bond Common Stock Fund, collectively (the
`Funds'') as of October 31, 1995. These statements have been derived from
the books and records utilized in calculating daily net asset values at
October 31, 1995. The Statement of Operations reflects the accounts of
Federated Growth Strategies Fund and State Bond Common Stock Fund for the
twelve months ended October 31, 1995 and the twelve months ended December
31, 1995, respectively, the most recent fiscal year ends of the Funds.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds which are incorporated by
reference in the Statement of Additional Information. The Funds follow
generally accepted accounting principles applicable to management
investment companies which are disclosed in the historical financial
statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of
the assets of State Bond Common Stock Fund in exchange for Class A Shares
of Federated Growth Strategies Fund. Under generally accepted accounting
principles, Federated Growth Strategies Fund will be the surviving entity
for accounting purposes with its historical cost of investment securities
and results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administration fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change
as a result of the reorganization are currently undeterminable.
For the twelve months ended October 31, 1995 and the twelve months ended
December 31, 1995, Federated Growth Strategies Fund and State Bond Common
Stock Fund, respectively, paid investment advisory fees computed at the
annual rate of each Fund's average net assets as follows:
FUND PERCENT OF EACH FUND'S
AVERAGE NET ASSETS
Federated Growth 0.75%
Strategies Fund
State Bond Common Stock 0.65% on the first $100
Fund million
0.60% on the next $100
million
0.55% in excess of $200
million
The advisers may voluntarily choose to waive a portion of their fees and
reimburse certain operating expenses.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 2,357,932
Class A Shares of Federated Growth Strategies Fund in exchange for
6,567,862 shares of State Bond Common Stock Fund which would have been
issued at October 31, 1995, in conjunction with the proposed
reorganization.
Pro Forma Combining Portfolio of Investments
April 30, 1996 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Federated Federated
Growth State Growth State
Strategies Bond Pro Forma Strategies Bond Pro Forma
Fund Common Combined Fund Common Combined
Stock Stock
Fund Fund
Shares Shares Shares Value Value Value
Common Stocks-93.2%
Basic Industry--
5.7%
- ------ 26,045 26,045 ARCHER-DANIELS- $------ $491,599 $491,599
MIDLAND CO.
90,000 ------ 90,000 BARRICK GOLD CORP. 2,756,250 ------ 2,756,250
19,600 ----- 19,600 Monsanto Co. 2,969,400 ------ 2,969,400
- ------- 30,000 30,000 Morton ------ 1,061,250 1,061,250
International,
Inc.
69,800 ------ 69,800 Potash Corporation
of Saskatchewan, 4,920,900 ------ 4,920,900
Inc.
71,500 ------ 71,500 Praxair, Inc. 2,761,688 ------ 2,761,688
95,000 ------ 95,000 UCAR Global 3,895,000 ------ 3,895,000
Enterprises, Inc.
- ------ 30,000 30,000 WMX Technologies, ------ 1,042,500 1,042,500
Inc.
Total 17,303,238 2,595,349 19,898,587
Consumer Durables-
-3.5%
- ------ 20,000 20,000 American Greetings ------ 553,750 553,750
Corp.
69,600 ------ 69,600 Anthony 1,983,600 ------ 1,983,600
Industries, Inc.
56,593 ------ 56,593 General Motors 3,190,430 ------ 3,190,430
Corp., Class E
- ------ 8,000 8,000 Goodyear Tire & ------ 417,000 417,000
Rubber Co.
50,500 ------ 50,500 Harley Davidson, 2,228,312 ------ 2,228,312
Inc.
85,000 ------ 85,000 Oakley, Inc. 3,910,000 ------ 3,910,000
Total 11,312,342 970,750 12,283,092
Consumer Non-
Durables--7.7%
- ------ 30,000 30,000 Anheuser-Busch ------ 2,013,750 2,013,750
Cos., Inc.
42,500 ------ 42,500 Campbell Soup Co. 2,656,250 ------ 2,656,250
16,200 ------ 16,200 Coca-Cola Co. 1,320,300 ------ 1,320,300
- ------ 12,000 12,000 ConAgra, Inc. ------ 463,500 463,500
- ------ 20,000 20,000 CPC International, ------ 1,382,500 1,382,500
Inc.
- ------ 21,000 21,000 International
Flavors and ------ 1,031,625 1,031,625
Fragrances, Inc.
107,700 ------ 107,700 Mossimo, Inc. 4,092,600 ------ 4,092,600
51,500 ------ 51,500 Nike, Inc., Class 4,506,250 ------ 4,506,250
B
35,500 ------ 35,500 Philip Morris 3,199,438 ------ 3,199,438
Cos., Inc.
- ------ 30,000 30,000 Procter & Gamble ------ 2,535,000 2,535,000
Co.
- ------ 50,000 50,000 Sara Lee Corp. ------ 1,550,000 1,550,000
- ------ 40,000 40,000 The Gillette ------ 2,160,000 2,160,000
Company
Total 15,774,838 11,136,375 26,911,213
Energy Minerals--
6.2%
28,000 ------ 28,000 British Petroleum 3,059,000 ------ 3,059,000
Co. PLC, ADR
Common Stocks-continued
Energy Minerals--
continued
- ------ 15,000 15,000 Burlington $------ $558,750 $558,750
Resources, Inc.
285,000 ------ 285,000 Global Marine, 3,241,875 ------ 3,241,875
Inc.
95,000 ------ 95,000 Petroleum Geo- 3,004,375 ------ 3,004,375
Services, ADR
- ------ 25,000 25,000 Phillips Petroleum ------ 1,037,500 1,037,500
Co.
156,900 ------ 156,900 Reading & Bates 3,844,050 ------ 3,844,050
Corp.
- ------ 12,000 12,000 Royal Dutch ------ 1,719,000 1,719,000
Petroleum Co.
26,700 ------ 26,700 Western Atlas, 1,602,000 ------ 1,602,000
Inc.
153,000 ------ 153,000 YPF Sociedad 3,346,875 ------ 3,346,875
Anonima, ADR
Total 18,098,175 3,315,250 21,413,425
Finance--12.1%
79,500 ------ 79,500 Aflac, Inc. 2,464,500 ------ 2,464,500
- ------ 33,750 33,750 American ------ 3,083,906 3,083,906
International
Group, Inc.
144,900 ------ 144,900 (a) Amerin Corp. 3,278,362 ------ 3,278,362
- ------ 20,000 20,000 Capital One ------ 590,000 590,000
Financial
36,500 ------ 36,500 Citicorp 2,874,375 ------ 2,874,375
- ------ 60,000 60,000 Federal National ------ 1,837,500 1,837,500
Mortgage
Association
- ------ 60,000 60,000 Green Tree ------ 2,025,000 2,025,000
Financial Corp.
- ------ 8,000 8,000 MBIA, Inc. ------ 571,000 571,000
127,500 ------ 127,500 MBNA Corp. 3,617,812 ------ 3,617,812
45,500 15,000 60,500 Mellon Bank Corp. 2,445,625 806,250 3,251,875
- ------ 20,000 20,000 MGIC Investment ------ 1,085,000 1,085,000
Corp.
- ------ 10,000 10,000 Providian Corp. ------ 461,250 461,250
- ------ 10,000 10,000 Reuters Holding ------ 676,875 676,875
PLC
117,900 ------ 117,900 Schwab (Charles) 2,888,550 ------ 2,888,550
Corp.
- ------ 20,000 20,000 Signet Bank Corp. ------ 490,000 490,000
85,000 ------ 85,000 Sunamerica, Inc. 4,632,500 ------ 4,632,500
93,600 ------ 93,600 TCF Financial 3,311,100 ------ 3,311,100
Corp.
65,000 15,000 80,000 Travelers Group, 3,997,500 922,500 4,920,000
Inc.
Total 29,510,324 12,549,281 42,059,605
Health Care--13.7%
- ------ 30,000 30,000 Abbott ------ 1,218,750 1,218,750
Laboratories
52,900 ------ 52,900 (a) Amgen, Inc. 3,041,750 ------ 3,041,750
- ------ 15,000 15,000 Bristol-Myers ------ 1,233,750 1,233,750
Squibb Co.
- ------ 15,000 15,000 Columbia HCA ------ 796,875 796,875
Healthcare Corp.
Common Stocks-continued
Health Care--
continued
55,000 ------ 55,000 (a) Foundation $2,151,875 $------ $2,151,875
Health Corp.
29,800 ------ 29,800 (a) Geltex 700,300 ------ 700,300
Pharmaceuticals,
Inc.
53,400 ------ 53,400 (a) Genzyme Corp. 3,003,750 ------ 3,003,750
28,100 ------ 28,100 Johnson & Johnson 2,599,250 ------ 2,599,250
38,600 ------ 38,600 (a) KeraVision, 612,775 ------ 612,775
Inc.
58,000 ------ 58,000 Lilly (Eli) & Co. 3,422,000 ------ 3,422,000
51,500 40,000 91,500 Medtronic, Inc. 2,735,938 2,125,000 4,860,938
53,000 ------ 53,000 Merck & Co., Inc. 3,206,500 ------ 3,206,500
105,000 ------ 105,000 Mylan 2,047,500 ------ 2,047,500
Laboratories, Inc.
143,200 ------ 143,200 (a) Ornda 3,938,000 ------ 3,938,000
Healthcorp
50,000 ------ 50,000 Pfizer, Inc. 3,443,750 ------ 3,443,750
30,000 ------ 30,000 (a) Quintiles 2,197,500 ------ 2,197,500
Transnational
Corp.
- ------ 20,000 20,000 Schering-Plough ------ 1,147,500 1,147,500
Corp.
60,000 ------ 60,000 Teva
Pharmaceutical 2,692,500 ------ 2,692,500
Industries, Ltd.,
ADR
100,000 ------ 100,000 (a) Thermedics, 3,025,000 ------ 3,025,000
Inc.
74,100 ------ 74,100 (a) Veterinary 2,260,050 ------ 2,260,050
Centers of America
Total 41,078,438 6,521,875 47,600,313
Producer
Manufacturing--
4.8%
82,000 ------ 82,000 (a) American 2,316,500 ------ 2,316,500
Standard Cos.
71,300 ------ 71,300 (a) Cable Design
Technologies, 2,352,900 ------ 2,352,900
Class A
Class A
- ------ 40,000 40,000 General Electric ------ 3,100,000 3,100,000
Co.
81,600 ------ 81,600 Greenfield 3,100,800 ------ 3,100,800
Industries, Inc.
49,400 ------ 49,400 Magna 2,290,925 ------ 2,290,925
International,
Inc., Class A
60,000 ------ 60,000 (a) Thermo 3,697,500 ------ 3,697,500
Electron Corp.
Total 13,758,625 3,100,000 16,858,625
Retail Trade--4.9%
- ------ 11,000 11,000 Dayton-Hudson ------ 1,050,500 1,050,500
Corp.
- ------ 16,100 16,100 Fingerhut ------ 205,275 205,275
Companies
131,600 ------ 131,600 (a) General 2,566,200 ------ 2,566,200
Nutrition Cos.,
Inc.
- ------ 10,000 10,000 Home Depot, Inc. ------ 473,750 473,750
69,800 ------ 69,800 (a) Kohl's Corp. 2,399,375 ------ 2,399,375
102,700 ------ 102,700 (a) MSC Industrial 3,735,713 ------ 3,735,713
Direct Co.
124,900 ------ 124,900 (a) Safeway, Inc. 4,215,375 ------ 4,215,375
Common Stocks-continued
Retail Trade--
continued
75,600 ------ 75,600 TJX Cos., Inc. $2,230,200 $------ $2,230,200
- ------ 8,000 8,000 Wal-Mart Stores, ------ 191,000 191,000
Inc.
Total 15,146,863 1,920,525 17,067,388
Services--7.3%
122,000 ------ 122,000 (a) Calenergy, 3,172,000 ------ 3,172,000
Inc.
- ------ 10,000 10,000 Carnival Corp. ------ 290,000 290,000
35,500 ------ 35,500 (a) Corrections 2,263,125 ------ 2,263,125
Corp. America
- ------ 15,000 15,000 (a) CUC ------ 493,125 493,125
International,
Inc.
- ------ 6,000 6,000 Hewlett-Packard ------ 635,250 635,250
Co.
48,800 ------ 48,800 (a) HFS, Inc. 2,507,100 ------ 2,507,100
- ------ 20,000 20,000 Marriott ------ 975,000 975,000
International,
Inc.
89,550 ------ 89,550 Olsten Corp. 2,720,081 ------ 2,720,081
62,500 ------ 62,500 Reynolds & 2,890,625 ------ 2,890,625
Reynolds Co.,
Class A
61,500 ------ 61,500 Service Corp. 3,267,188 ------ 3,267,188
International
- ------ 15,000 15,000 (a) Tele- ------ 287,813 287,813
Communications,
Inc.
- ------ 20,000 20,000 The Walt Disney ------ 1,240,000 1,240,000
Co.
- ------ 25,000 25,000 Time Warner, Inc. ------ 1,021,875 1,021,875
- ------ 5,000 5,000 Tribune Co. ------ 348,750 348,750
127,400 ------ 127,400 (a) USA Waste 3,312,400 ------ 3,312,400
Services, Inc.
Total 20,132,519 5,291,813 25,424,332
Technology--18.2%
49,000 ------ 49,000 (a) Altera Corp. 2,584,750 ------ 2,584,750
- ------ 10,000 10,000 (a) Arrow ------ 501,250 501,250
Electronics, Inc.
43,000 ------ 43,000 (a) Atmel Corp. 1,720,000 ------ 1,720,000
- ------ 8,000 8,000 Autodesk, Inc. ------ 328,000 328,000
9,500 ------ 9,500 (a) Cascade 952,375 ------ 952,375
Communications
Corp.
113,500 ------ 113,500 (a) Cheyenne 2,582,125 ------ 2,582,125
Software, Inc.
63,900 20,000 83,900 (a) Cisco Systems, 3,314,812 1,038,750 4,353,562
Inc.
- ------ 20,000 20,000 DSC ------ 627,500 627,500
Communications
Corp.
35,300 ------ 35,300 (a) Digital 2,109,175 ------ 2,109,175
Equipment Corp.
79,400 ------ 79,400 (a) DST Systems, 2,917,950 ------ 2,917,950
Inc.
- ------ 10,000 10,000 (a) EMC Corp. ------ 205,000 205,000
129,000 ------ 129,000 Ericsson LM 2,628,375 ------ 2,628,375
73,200 ------ 73,200 (a) ESS 1,656,150 ------ 1,656,150
Technology, Inc.
27,800 15,000 42,800 First Data Corp., 2,112,800 1,140,000 3,252,800
Class
Common Stocks-continued
Technology--
continued
35,000 ------ 35,000 (a) FORE Systems, $2,765,000 $------ $2,765,000
Inc.
- ------ 20,000 20,000 (a) General ------ 655,000 655,000
Instrument Corp.
38,500 ------ 38,500 HMC Software 1,434,125 ------ 1,434,125
46,100 ------ 46,100 (a) Informix Corp. 1,215,887 ------ 1,215,887
50,000 ------ 50,000 Intel Corp. 3,387,500 ------ 3,387,500
102,300 ------ 102,300 Lucent 3,593,287 ------ 3,593,287
Technologies, Inc.
62,700 ------ 62,700 MEMC Electronic 3,127,162 ------ 3,127,162
Materials
48,000 ------ 48,000 Micron Technology, 1,746,000 ------ 1,746,000
Inc.
28,000 12,000 40,000 (a) Microsoft 3,174,500 1,358,250 4,532,750
Corp.
- ------ 20,000 20,000 Motorola, Inc. ------ 1,225,000 1,225,000
- ------ 8,000 8,000 Newbridge Networks ------ 515,000 515,000
Corp.
41,400 45,000 86,400 (a) Oracle Corp. 1,397,250 1,515,937 2,913,187
54,200 ------ 54,200 (a) Solectron 2,411,900 ------ 2,411,900
Corp.
65,400 ------ 65,400 (a) StorMedia, 2,779,500 ------ 2,779,500
Inc.
44,300 ------ 44,300 (a) Sun 2,403,275 ------ 2,403,275
Microsystems, Inc.
39,600 ------ 39,600 Varian 2,262,150 ------ 2,262,150
Association, Inc.
Total 54,276,048 9,109,687 63,385,735
Transportation--
1.1%
34,000 ------ 34,000 (a) Continental 1,929,500 ------ 1,929,500
Airlines, Inc.,
Class B
103,000 ------ 103,000 (a) Trans World 1,841,125 ------ 1,841,125
Airlines, Inc.
Total 3,770,625 ------ 3,770,625
Utilities--8.0%
- ------ 6,850 6,850 360 Communications ------ 160,975 160,975
Corp.
103,000 ------ 103,000 CMS Energy Corp. 2,999,875 ------ 2,999,875
- ------ 25,000 25,000 El Paso Natural ------ 925,000 925,000
Gas Co.
29,000 ------ 29,000 FPL Group, Inc. 1,250,625 ------ 1,250,625
- ------ 7,000 7,000 (a) Lin Television ------ 231,875 231,875
Corp.
94,800 40,000 134,800 MCI Communications 2,790,675 1,175,000 3,965,675
Corp.
- ------ 20,000 20,000 (a) Nextel ------ 360,000 360,000
Communication
115,700 ------ 115,700 (a) Paging 2,718,950 ------ 2,718,950
Network, Inc.
123,000 ------ 123,000 (a) PanAmSat Corp. 4,089,750 ------ 4,089,750
91,300 ------ 91,300 Sonat, Inc. 3,982,963 ------ 3,982,963
- ------ 20,550 20,550 Sprint Corp. ------ 865,669 865,669
- ------ 10,000 10,000 Telefonos De ------ 340,000 340,000
Mexico, S.A.
Common Stocks-continued
Utilities--
continued
- ------ 10,000 10,000 Telephone & $------ $465,000 $465,000
Data Systems,
Inc.
76,500 10,000 86,500 Vodafone 3,069,563 401,250 3,470,813
Group PLC,
ADR
42,300 ------ 42,300 Williams 2,162,588 ------ 2,162,588
Cos., Inc.
(The)
Total 23,064,989 4,924,769 27,989,758
Total
Common Stocks $263,227,024 $61,435,674 $324,662,698
(identified
cost
$226,607,749)
Convertible Securities--1.6%
Finance--1.0%
$71,200 $------ $71,200 First USA,
Inc., $3,471,000 $------ $3,471,000
Cumulative
PRIDES, $1.99
Services--
0.6%
6,870,000 ------ 6,870,000 Boston
Chicken, 2,026,650 ------ 2,026,650
Inc., Conv.
LYON, .08%
accrual,
6/1/2015
Total
Corporate $5,497,650 $------ $5,497,650
Bonds
(identified
cost
$3,806,807)
Short-Term Securities-1.7%
Finance--1.7%
$------ $2,125,000 $2,125,000 American
Express $------ $2,124,392 $2,124,392
Credit Corp.,
5.15%, due
5/3/1996
- ------ 1,875,000 1,875,000 American
General ------ 1,875,000 1,875,000
Corp., 5.27%,
due 5/1/1996
- ------ 2,100,000 2,100,000 Ford Motor
Credit ------ 2,098,159 2,098,159
Company,
5.26%, due
5/7/1996
Total
Short-Term $------ $6,097,551 $6,097,551
Securities(at
amortized
cost)
(b) Repurchase Agreement--3.8%
13,330,000 ------ 13,330,000 BT Securities
Corporation,
5.35%, dated $13,330,000 $------ $13,330,000
4/30/1996,
due 5/1/1996
(at amortized
cost)
Total
Investments $282,054,674 $67,533,225 $349,587,899
(identified
cost
$249,842,107)
(c)
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to
$249,842,107. The net unrealized appreciation of investments on a federal
tax basis amounts to $99,745,792 which is comprised of $101,888,744
appreciation and $2,142,952 depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net
assets ($348,485,113) at April 30, 1996.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
LYON --Liquid Yield Option Note
PLC --Public Limited Company
PRIDES --Preferred Redeemable Increased Dividend Equity Securities
<TABLE>
<CAPTION>
(See Notes to Pro Forma Financial Statements)
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FEDERATED STATE BOND
GROWTH COMMON PRO FORMA PRO FORMA
STRATEGIES STOCK FUND ADJUSTMENT COMBINED
FUND
ASSETS:
Investments in $ 282,054,674 $67,533,225 ---- $ 349,587,899
securities, at value
Cash ---- 28,820 ---- 28,820
Receivables for:
Investments ---- 50,425 ---- 50,425
sold
Shares of beneficial 390,933 ---- ---- 390,933
interest sold
Income 156,277 70,906 ---- 227,183
Total 282,601,884 67,683,376 ---- 350,285,260
assets
LIABILITIES:
Payables for/to:
Shares of beneficial
interest
redeemed 1,038 ---- ---- 1,038
Investments 1,721,833 ---- ---- 1,721,833
purchased
Taxes withheld 7,257 ---- ---- 7,257
Accrued expenses and 10,086 59,933 ---- 70,019
other liabilities
Total 1,740,214 59,933 ---- 1,800,147
liabilities
TOTAL NET ASSETS $ 280,861,670 $67,623,443 $---- $ 348,485,113
NET ASSETS CONSIST OF:
Paid in capital $ 199,433,838 $31,701,047 ---- $ 231,134,885
Net unrealized
appreciation of
investments 64,980,492 34,765,300 ---- 99,745,792
Accumulated net realized gain
on 16,463,686 1,034,826 ---- 17,498,512
investments
Undistributed (Distributions in
excess
of) net investment (16,346) 122,270 ---- 105,924
income
TOTAL NET ASSETS $ 280,861,670 $67,623,443 $ $ 348,485,113
Class A Shares $ 273,758,200 $67,623,443 $ $ 341,381,643
Class B Shares $ 6,490,546 $---- $---- $ 6,490,546
Class C Shares $ 612,924 $---- $---- $ 612,924
SHARES OUTSTANDING
Class A Shares 11,002,704 6,685,292 (3,967,216) (a) 13,720,780
Class B Shares 261,369 ---- ---- 261,369
Class C Shares 24,688 ---- ---- 24,688
TOTAL SHARES 11,288,761 6,685,292 (3,967,216) 14,006,837
OUTSTANDING
</TABLE>
FEDERATED STATE BOND
GROWTH COMMON PRO FORMA PRO FORMA
STRATEGIES STOCK FUND ADJUSTMENT COMBINED
FUND
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
CLASS A SHARES:
Net Asset Value Per $ 24.88 $10.12 $ 24.88
Share
Offering Price Per $ 26.33* $10.62*** $ 26.33*
Share
Redemption Proceeds $ 24.88 $10.12 $ 24.88
Per Share
**
CLASS B SHARES:
Net Asset Value $ 24.83 $N/A $ 24.83
Per Share
Offering Price $ 24.83 $N/A $ 24.83
Per Share
Redemption
Proceeds Per $ 23.46** $N/A $ 23.46**
Share
CLASS C
SHARES:
Net Asset Value Per $ 24.83 $N/A $ 24.83
Share
Offering Price Per $ 24.83 $N/A $ 24.83
Share
Redemption
Proceeds Per $ 24.58** $N/A $ 24.58**
Share
TOTAL INVESTMENTS, AT $ 217,074,18 $32,767,925 $ 249,842,10
IDENTIFIED COST 2 7
(a) Adjustment to reflect share balance as a result of the combination,
based on the exchange ratio of 0.40657550934.
* See "How to Purchase Shares" in the Federated Growth Strategies
Fund Prospectus,
as ofdated December 31, 1995.
** See "How to Redeem Shares" in the Federated Growth Strategies Fund
Prospectus,
as ofdated December 31, 1995.
***See `How are the Fund's Sales Charges Determined?'' in the State
Bond Common Stock Fund Prospectus, dated
May 1, 1996.
(See Notes to Pro Forma Financial Statements)
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST FUND)
STATE BOND COMMON STOCK FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 FOR FEDERATED GROWTH STRATEGIES FUND
AND
THE SIX MONTHS ENDED JUNE 30, 1996 FOR STATE BOND COMMON STOCK FUND
FEDERATED STATE BOND
GROWTH COMMON
STRATEGIES STOCK PRO FORMA PRO FORMA
FUND FUND ADJUSTMEN COMBINED
TS
INVESTMENT INCOME:
Dividen $1,256,732 $439,481 $---- $1,696,213
ds
Inter 451,207 168,622 619,829
est ----
Total Investment 1,707,939 608,103 ---- 2,316,042
Income
EXPENSES:
Investment 940,146 217,199 39,959 (a) 1,197,304
advisory fee
Administrative personnel 94,789 ---- 25,900 (b) 120,689
and services fee
Custodian 19,849 16,202 (4,666) (c) 31,385
fees
Transfer and dividend
disbursing agent fees and 79,077 32,290 (1,469) (d) 109,898
expenses
Directors'/Trustee 4,006 ---- ---- 4,006
s' fees
Professional 12,922 17,044 (17,044) (e) 12,922
fees
Portfolio 45,328 ---- ---- 45,328
accounting fees
Distribution services fee -
State Bond Common Stock Fund ---- 83,538 (83,538) (f) ----
Distribution services fee - 12,828 ---- ---- 12,828
Class B Shares
Distribution services fee - 1,493 ---- ---- 1,493
Class C Shares
Shareholder services fee - 308,610 ---- 83,538 (f) 392,148
Class A Shares
Shareholder services fee - 4,276 ---- ---- 4,276
Class B Shares
Shareholder services fee - 498 ---- ---- 498
Class C Shares
Share registration 15,106 ---- ---- 15,106
costs
Printing and 19,058 20,548 (3,851) (g) 35,755
postage
Insurance 3,821 ---- ---- 3,821
premiums
Taxes 6,309 ---- ---- 6,309
Miscellaneous 4,975 18,731 12,313 (h) 36,019
Total 1,573,091 405,552 51,142 2,029,785
expenses
Deduct-
Waiver of shareholder
services fee--Class A (185,166) ---- ---- (185,166)
Shares
Net 1,387,925 405,552 51,142 1,844,619
expenses
Net 320,014 202,551 (51,142) 471,423
investment income
FEDERATED STATE BOND
GROWTH COMMON
STRATEGIES STOCK PRO FORMA PRO
FORMA
FUND FUND ADJUSTMENTS COMBINED
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on $16,464,514 $1,294,939 ---- $17,759,453
investments
Net change in unrealized 27,546,495 5,802,490 ---- 33,348,985
appreciation of investments
Net realized and 44,011,009 7,097,429 ---- 51,108,438
unrealized gain on
investments
Change in net $44,331,023 $7,299,980 ($51,142) $51,579,861
assets resulting from
operations
(See Legend on
following page)
(See Notes to Pro Forma Financial
Statements)
Federated Growth Strategies Fund
(formerly, Federated Growth Trust)
State Bond Common Stock Fund
Pro Forma Combining Statement of Operations (continued)
For the Six Months Ended April 30, 1996 for Federated Growth Strategies Fund and
the Six Months Ended June 30, 1996 for State Bond Common Stock Fund
(unaudited)
(a) Federated Management (the "Adviser") receives for its services an annual
investment advisory fee equal to 0.75% of Federated Growth Strategies Fund's
(the "Federated Fund") average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time in its sole discretion. ARM Capital Advisors
charged an annual rate of 0.65% on the first $100 million of the average daily
net assets, 0.60% of the next $100 million of the average daily net assets, and
0.55% of the average daily net assets in excess of $200 million of the State
Bond Common Stock Fund for its advisory fee.
(b) Federated Services Company ("F Serv") provides the Federated Fund with
certain administrative personnel and services. The fee is based on the level of
average aggregate net assets of the Federated Fund for the period.
(c) State Street Bank and Trust Company is custodian for the securities and
cash of the Federated Fund. The custodian fee is based on a percentage of
assets, plus out-of-pocket expenses.
(d) F Serv also serves as transfer and dividend disbursing agent for the
Federated Fund. The fee is based on the size, type, and number of accounts and
transactions made by shareholders.
(e) Adjustment to reflect the audit fee and legal fee reductions due to the
combining of two portfolios into one.
(f) Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services (`FSS''), the Federated Fund will pay FSS up to 0.25% of
average daily net assets of the Federated Fund for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive a portion of its fee.
FSS can modify or terminate this voluntary waiver at any time in its sole
discretion. SBM Financial Services, Inc. received 0.25% of the average daily
net assets of State Bond Common Stock Fund under the terms of a distribution
plan pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended,
to finance activities intended to result in the sale of State Bond Common Stock
Fund's shares and to provide certain services for shareholders and to maintain
shareholder accounts. Class A Shares of the Federated Fund do not have a
distribution plan.
(g) Adjustment to reflect the printing and postage expense reduction due to the
combining of two portfolios into one.
(h) Adjustment to reflect the elimination of the Directors'/Trustees' fees for
State Bond Common Stock Fund and the reduction of state registration fees and
insurance fees due to the combining of two portfolios into one.
FEDERATED GROWTH STRATEGIES FUND
(FORMERLY, FEDERATED GROWTH TRUST)
STATE BOND COMMON STOCK FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated Growth
Strategies Fund and State Bond Common Stock Fund, collectively (the `Funds'')
as of April 30, 1996. These statements have been derived from the books and
records utilized in calculating daily net asset values at April 30, 1996. The
Statement of Operations reflects the accounts of Federated Growth Strategies
Fund and State Bond Common Stock Fund for the six months ended April 30, 1996,
and the six months ended June 30, 1996, respectively, the most recent semi-
annual periods of the Funds.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds which are incorporated by reference
in the Statement of Additional Information. The Funds follow generally accepted
accounting principles applicable to management investment companies which are
disclosed in the historical financial statements of each fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of State Bond Common Stock Fund in exchange for Class A Shares of
Federated Growth Strategies Fund. Under generally accepted accounting
principles, Federated Growth Strategies Fund will be the surviving entity for
accounting purposes with its historical cost of investment securities and
results of operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the anticipated
advisory and administration fee arrangements for the surviving entity. Certain
other operating costs have also been adjusted to reflect anticipated expenses of
the combined entity. Other costs which may change as a result of the
reorganization are currently undeterminable.
For the six months ended April 30, 1996 and the six months ended June 30, 1996,
Federated Growth Strategies Fund and State Bond Common Stock Fund, respectively,
paid investment advisory fees computed at the annual rate of each Fund's average
net assets as follows:
FUND PERCENT OF EACH FUND'S
AVERAGE NET ASSETS
Federated Growth 0.75%
Strategies Fund
State Bond Common Stock 0.65% on the first $100
Fund million
0.60% on the next $100
million
0.55% in excess of $200
million
The advisers may voluntarily choose to waive a portion of their fees and
reimburse certain operating expenses.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 2,718,076
Class A Shares of Federated Growth Strategies Fund in exchange for 6,685,292
shares of State Bond Common Stock Fund which would have been issued at April 30,
1996 in conjunction with the proposed reorganization.
G01866-09
SBM Financial Services
Proxy Services
P.O. Box 9156
Farmingdale, NY 11735
STATE BOND COMMON STOCK FUND,
a Portfolio of
STATE BOND EQUITY FUNDS, INC.,
SPECIAL MEETING OF SHAREHOLDERS
December 9, 1996
STATE BOND COMMON STOCK FUND,
a Portfolio of
STATE BOND EQUITY FUNDS, INC.
The undersigned shareholder(s) of State Bond Common Stock Fund, a portfolio of
State Bond Equity Funds, Inc. (the `State Bond Fund''), hereby appoint(s)
Kevin L. Howard, Keith O. Martens and Dale C. Bauman, or any of them true and
lawful proxies, with power of substitution of each, to vote all shares of the
State Bond Fund which the undersigned is entitled to vote, at the Special
Meeting of Shareholders to be held on December 9, 1996, at 100 North Minnesota
Street, New Ulm, Minnesota 56073-0069, at 3:00 p.m. (local time) and at any
adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The proxies named
will vote the shares represented by this proxy in accordance with the choice
made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED
AFFIRMATIVELY ON THAT MATTER.
The Board of Directors unanimously recommends a vote FOR the proposal below.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN
THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
STATE BOND COMMON STOCK FUND
RECORD DATE SHARES:
-----------------
Vote on Proposal
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN THE
STATE BOND FUND AND FEDERATED EQUITY FUNDS, ON BEHALF OF FEDERATED GROWTH
STRATEGIES FUND.
FOR AGAINST ABSTAIN
- -----------------------------------
Signature
Signature(Joint Owners)
Date:
-----------------------------
