1933 Act File No. 2-91090
1940 Act File No. 811-4017
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment No. .......................
Post-Effective Amendment No. 41_....................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 35 ...................................... X
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FEDERATED EQUITY FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) on _________________
pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a) (i)
X on December 31, 1998 pursuant to paragraph (a) (i). 75 days after filing
pursuant to paragraph (a)(ii) on _________________ pursuant to paragraph
(a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copy to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
Prospectus December 31, 1998
FEDERATED AGGRESSIVE GROWTH FUND
Class A Shares, Class B Shares and Class C Shares
A mutual fund seeking appreciation of capital by investing primarily in equity
securities of companies with superior prospects for earnings growth.
Fund Shares are not bank deposits, federally insured, or guaranteed, and may
lose value. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Table of Contents
Risk/Return Summary What are the Fund's Fees and Expenses? What are the Fund's
Investment Strategies?
What are the Principal Securities in Which the Fund Invests? What are the
Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide appreciation of capital.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing in equity securities of
companies offering superior prospects for earnings growth.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money. Other risks of investing in the Fund include:
Liquidity Risks, Risks Related to Company Size, Sector Risk, and Risk of Foreign
Investing.
<PAGE>
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class B Shares of Federated
Aggressive Growth Fund as of the calendar year-end for one year.
The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 5 up to 30.
The `x' axis represents the calculation period for the calendar year ended
December 31, 1997. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the
total return percentage for the calendar year stated directly at its base.
The calculated total return percentage for the Class B Shares of Federated
Aggressive Growth Fund for the calendar year, stated directly at the top
of the bar, is 29.46%.
The Bar Chart shows the variability of the Fund's Class B Shares on a yearly
basis.
The Fund's Class B Shares are sold subject to a contingent deferred sales charge
(load). The impact of the contingent deferred sales charge is not reflected in
the total return above, and if this amount was reflected, the return would be
less than that shown.
The Fund's average annual total return as of the most recent calendar quarter of
September 30, 1998 was -22.11%.
Within the period shown in the Chart, the Fund's highest quarterly return was
26.33% (quarter ended September 30, 1997). Its lowest quarterly return was
- -7.02% (quarter ended December 31, 1997).
Average Annual Total Return for the Fund's Class A, Class B, and Class C
Shares, compared to the S&P 500 Index (S&P 500) and the
Lipper Capital Appreciation Fund Index (LCAFI).
Calendar Period Class A Class B Class C S&P 500 LCAFI
1 Year __ % __% __% __% __%
Since Inception* __ % __% __% __% __%
* The Fund's Class A, Class B, and Class C Shares start of performance date was
November 26, 1996.
The table shows the Fund's Class A, Class B, and Class C Shares average annual
total returns compared to the S&P 500, a broad-based market index, and the
LCAFI, an average of funds with similar investment objectives.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED AGGRESSIVE GROWTH FUND
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
Shareholder Fees ( fees paid directly from your investment)
Class A Class B Class C
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............... 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
( as a percentage of offering price)........................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee...................................................None None None
Maximum Account Fee...............................................................................................................
None None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) (as
a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Management Fee ................................................1.00% 1.00% 1.00%
Shareholder Services Fee ......................................0.25% 0.25% 0.25%
Distribution (12b-1) Fee.......................................0.25% 0.75% 0.75%
Other Expenses ................................................___% ___% ___%
Total Annual Fund Operating Expenses (before waivers).......... ___% ____% ___%
- --------------------------------------------------------------------------------------------
</TABLE>
Although not contractually obligated to do so, the adviser waived and
distributor reimbursed certain amounts. These are shown below along with the net
expenses the Fund ACTUALLY paid for the fiscal year ended October 31, 1998.
Waiver of Fund expenses
(2)(3)..................................................................____%
- ---% ---% Total Actual Annual Fund Operating Expenses (after
waivers)..............................___% ___%(4) ____%
(1) Shareholders who purchased $1 million or more of Class A Shares through an
investment professional on or after August 3, 1998 may be charged a contingent
deferred sales charge (load) of 0.75% for redemptions made within 24 months of
purchase if the investment professional received an advance payment. For
shareholders of Class B Shares, the maximum deferred sales charge (load) is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred sales
charge ( load) assessed is 1.00% of the lesser of the original purchase price or
the net asset value of Shares redeemed within one year of their purchase date.
(2) The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund ( after the voluntary waiver) was ___% for the year ended October
31, 1998.
(3) Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended October 31, 1998. Class A Shares has no present intention of paying
or accruing the distribution (12b-1) fee during the year ended October 31, 1999.
(4) Class B Shares convert to Class A Shares ( which pay lower ongoing expenses)
approximately eight years after purchase.
The following Example is intended to help you compare the cost of investing in
the Fund's Class A, Class B, and Class C Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B, and
Class C Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Class A, Class B, and Class C Shares
operating expenses are before waivers as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Example:
Class A Class B Class C
Payment of the maximum sales charge:
1 Year
3 Years
5 Years
10 Years
Expenses assuming no redemption:
1 Year
3 Years
5 Years
10 Years
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing in equity securities of
companies offering superior prospects for earnings growth. The Fund will not be
restricted to specific market capitalization requirements. Using its own
quantitative process, the Adviser rates the future performance potential of
companies. The Adviser evaluates each company's earnings quality in light of
their current valuation to narrow the list of attractive companies. The Adviser
then evaluates product positioning, management quality and sustainability of
current growth trends of those companies. Using this type of fundamental
analysis, the Adviser selects the most promising companies for the Fund's
portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the S&P 500 Index. The Fund's allocation to a sector will be no more than 200%
of the Index's allocation to that sector or 20% of the total portfolio,
whichever is greater.
The Fund ordinarily will hold between 100 and 200 companies in its portfolio.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
American Depositary Receipts represent interests in underlying securities issued
by a foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are traded
in the U.S. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. Depositary Receipts
involve many of the same risks of investing directly in foreign securities,
including Country Risk and Currency Risk.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Stock Market Risks
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
Liquidity Risks
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
Sector Risk
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. As the adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
Risk of Foreign Investing
Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
Portfolio Turnover. The Fund may actively trade its portfolio securities in an
attempt to achieve its investment objective. Active trading will cause the Fund
to have an increased portfolio turnover rate, which is likely to generate
shorter-term gains (losses) for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively trading portfolio securities
increases the Fund's trading costs and may have an adverse impact on the Fund's
performance.
Temporary Investments. The Fund may temporarily depart from its principal
investment strategies by investing its assets in cash, cash items, and
shorter-term, higher quality debt securities. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to give up greater investment
returns to maintain the safety of principal, that is, the original amount
invested by shareholders.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.
The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open..
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
- -------------------------------------------------------------------------
Maximum Sales Charge
Shares Offered Minimum Front-End Contingent
Initial/Subsequent Sales Deferred
Investment Charge(2) Sales
Amounts(1) Charge(3)
- -------------------------------------------------------------------------
Class A $1500/$100 5.50% None
Class B $1500/$100 None 5.50%
Class C $1500/$100 None 1.00%
(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be invested
in Class A Shares instead of Class B Shares in order to maximize your return
and to minimize the sales charges and marketing fees. Accounts held in the
name of an investment professional may be treated differently. Class B Shares
will convert to Class A Shares at NAV approximately eight years after
purchase.
(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.
(3) See Sales Charge When You Redeem below.
<PAGE>
SALES CHARGE WHEN YOU PURCHASE
------------------------------------------------------------
Class A Shares
Purchase Amount Sales Charge as Sales Charge
a Percentage of as a
Public Offering Percentage of
Price NAV
------------------------------------------------------------
------------------------------------------------------------
Less than $50,000 5.50% 5.82%
------------------------------------------------------------
------------------------------------------------------------
$50,000 but less than 4.50% 4.71%
$100,000
------------------------------------------------------------
------------------------------------------------------------
$100,000 but less than 3.75% 3.90%
$250,000
------------------------------------------------------------
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$250,000 but less than 2.50% 2.56%
$500,000
------------------------------------------------------------
------------------------------------------------------------
$500,000 but less than 2.00% 2.04%
$1 million
------------------------------------------------------------
------------------------------------------------------------
$1 million or greater(1) 0.00% 0.00%
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(1) A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase if an
investment professional received an advance payment on the transaction.
The sales charge at purchase may be reduced or eliminated by: opurchasing
Shares in greater quantities to reduce the applicable sales charge;
ocombining concurrent purchases of Shares:
oby you, your spouse, and your children under age 21; or
oof the same class of two or more Federated Funds (other than money
market funds);
oaccumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
osigning a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares: owithin 120
days of redeeming Shares of an equal or lesser amount; oas a Federated
Life Member; oby exchanging shares from the same share class of another
Federated Fund (other than a money market fund); othrough wrap accounts or
other investment programs where you pay the investment professional
directly for services; or othrough investment professionals that receive
no portion of the sales charge.
If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional must notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. You will
receive the reduced sales charge only on additional purchases, and not
retroactively on your previous purchases.
<PAGE>
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
------------------------------------------------------------
Class B Shares
Shares Held Up To: CDSC
------------------------------------------------------------
------------------------------------------------------------
1 year 5.50%
------------------------------------------------------------
------------------------------------------------------------
2 years 4.75%
------------------------------------------------------------
------------------------------------------------------------
3 years 4.00%
------------------------------------------------------------
------------------------------------------------------------
4 years 3.00%
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5 years 2.00%
------------------------------------------------------------
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6 years 1.00%
------------------------------------------------------------
------------------------------------------------------------
7 years or more 0.00%
------------------------------------------------------------
------------------------------------------------------------
Class C Shares
------------------------------------------------------------
------------------------------------------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
------------------------------------------------------------
You will not be charged a CDSC when redeeming Shares:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
where the original shares were held for seven years or more (other than a
money market fund);
opurchased through investment professionals that did not receive advanced
sales payments; or oif you have certain disabilities as defined by the
IRS.
<PAGE>
In addition, you will not be charged a CDSC:
owhenthe Fund redeems your Shares and closes your account for failing to meet
the minimum balance requirement;
oif your redemption is a required retirement plan distribution;
oupon the death of the shareholder(s) of the account or the redemption of
Shares by a designated beneficiary.
If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.
To keep the sales charge as low as possible, the Fund redeems your Shares
in this order: oShares that are not subject to a CDSC; oShares held the longest
(to determine the number of years your Shares have been held, include the time
you held shares of other Federated Funds that have been exchanged for Shares of
this Fund); and othen, the CDSC is based on the NAV at the time you purchased or
redeemed those Shares, whichever is lower.
HOW IS THE FUND SOLD?
The Fund offers three share classes: Class A Shares, Class B Shares and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the Class
choice on your form of payment, you automatically will receive Class A Shares.
<PAGE>
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within three business days. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New Account
Form; and w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
By Wire. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally
payable to someone other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
<PAGE>
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or o directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
By Mail. You may redeem or exchange Shares by mailing a written request to the
Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to: Federated Shareholder
Services Company 1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
o Fund Name and Share Class, account number and account registration; o amount
to be redeemed or exchanged; o signatures of all Shareholders exactly as
registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days; w a redemption is payable to someone other than the
shareholder(s) of record; or w if exchanging (transferring) into another fund
with a different shareholder registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
Redemption in Kind. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must: w ensure that the Share registrations are
identical; w meet any minimum initial investment requirements; and w receive a
prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
<PAGE>
Systematic Withdrawal Program (SWP) On Class B Shares. You will not be
charged a CDSC on SWP redemptions if: w you redeem 12% or less of your
account value in a single year; w your account is at least one year old; w
you reinvest all dividends and capital gains distributions; and w your
account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to
meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
Share Certificates. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
<PAGE>
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.Please consult your tax adviser
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The Fund's
portfolio managers are:
Keith J. Sabol has been the Fund's portfolio manager since inception. Mr. Sabol
joined Federated Investors, Inc. or its predecessor in 1994 and has been the
Equity Research Coordinator of the Fund's investment adviser since 1996. Mr.
Sabol was an Investment Analyst for the Fund's investment adviser from 1994 to
1996. Following his graduation from the U.S. Military Academy, Mr. Sabol was
commissioned as an officer in the U.S. Army where he served until 1992. Mr.
Sabol earned his Masters in Industrial Administration from Carnegie Mellon
University with a concentration in Finance and Operations Research.
Aash M. Shah has been the Fund's portfolio manager since its inception. Mr. Shah
joined Federated Investors, Inc. or its predecessor in 1993 and has been a Vice
President of the Fund's investment adviser since January 1997. Mr. Shah served
as an Assistant Vice President of the investment adviser from 1995 to 1996, and
as an Investment Analyst from 1993 to 1995. Mr. Shah was employed at
Westinghouse Credit Corp. from 1990 to 1993 as an Investment Analyst. Mr. Shah
received his Masters in Industrial Administration from Carnegie Mellon
University with a concentration in finance and accounting. Mr. Shah is a
Chartered Financial Analyst.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
Advisory Fees. The Adviser receives an annual investment advisory fee of 1.00%
of the Fund's average daily net assets. The Adviser may voluntarily waive a
portion of its fee or reimburse the Fund for certain operating expenses.
Year 2000 Readiness. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
To be filed by amendment.
<PAGE>
FEDERATED AGGRESSIVE GROWTH FUND
CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES
[A Portfolio of Federated Equity Funds]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Cusip 314172875
Cusip 314172867
Cusip 314172859
G01925-01-ABC(10/98)
[ Federated Name, Logo]
1940 Act File No. 811-4017
Statement of Additional Information December 31, 1998
Federated Aggressive Growth Fund
[A Portfolio of Federated Equity Funds]
Class A Shares, Class B Shares, Class C Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Aggressive Growth
Fund (Fund), dated December 31, 1998. This SAI incorporates by reference the
Fund's Annual Report.
Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.
Table of Contents
How is the Fund Organized
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
How to Buy Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services
to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314172875
CUSIP 314172867
CUSIP 314172859
G01925-02(10/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated Equity Funds (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on April 17, 1984. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares. (Shares). This
SAI relates to all classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Equity securities represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Preferred stocks have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. Securities with higher Credit Risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
Credit Risk.
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Investors regard agency securities as having low Credit Risk, but not as low
as Treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against Credit Risk, it does
not reduce the Market and Prepayment Risks of these mortgage backed
securities.
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The Credit Risks of corporate debt securities vary
widely among issuers.
Commercial paper is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to Fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The short maturity of commercial paper reduces both the Market and Credit
risk as compared to other debt securities of the same issuer.
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Instruments denominated in U.S. dollars and
issued by Non-U.S. branches of U.S. or foreign banks are commonly referred
to as Eurodollar instruments. Instruments denominated in U.S. dollars and
issued by U.S. branches of foreign banks are referred o as Yankee
instruments.
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.Insurance contracts include guaranteed
investment contracts, funding agreements and annuities.
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities convertible into shares of common stock at a conversion price
of $10 per share. If the market value of the shares reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income securities
to compensate for the value of the conversion option. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Derivative Contracts are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Futures contracts traded OTC
are frequently referred to as "forward contracts." Entering into a contract
to buy is commonly referred to as buying or purchasing a contract or holding
a long position. Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position. Futures are considered to be
commodity contracts.
The Fund may buy and sell financial futures and futures on indices.
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy call options on indexes in anticipation of an increase in the value of
the the underlying asset.
Buy put options on portfolio securities, indexes and futures in anticipation
of a decrease in the value of the the underlying asset.
Write call options on portfolio securities and indexes to generate income
from premiums, and in anticipation of a decrease or only limited increase in
the value of the the underlying asset). If a call written by a Fund is
exercised, the Fund foregoes any possible profit from an increase in the
market price of the underlying asset over the exercise price plus the premium
received.
Write put options on indexes to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of the
underlying asset). In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset when its current market
price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Foreign Securities are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S. In
addition to the risks normally associated with U.S. securities of the same type,
Foreign Securities are subject to Country Risk and Currency Risk. [Trading in
certain foreign markets is also subject to Liquidity Risk.]
Foreign Government Securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
Special Transactions
Repurchase Agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy.
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
When Issued Transactions are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
Securities Lending. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy. In return, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies, including the
securities of affiliated money market funds, as an efficient means of
carrying out its investment policies and managing its uninvested cash. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of
other investment companies may be subject to such duplicate expenses.
EQUITY SECURITIES INVESTMENT RISKS
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
FIXED INCOME SECURITIES INVESTMENT RISKS
Bond Market Risk
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risk
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating service's assessment
of the likelihood of default by the issuer. The lower the credit rating, the
greater the credit risk. In the case of unrated securities, the Fund must
rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or disrupt management of the Fund's portfolio
.
Call Risk
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a "call") at a price below it's current market
price. An increase in the likelihood of a call may reduce the security's
price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Liquidity Risks
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunities, making it
more difficult to sell or buy the security at a favorable price or time. In
response, the Fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk [also] refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it wants to.
If this happens, the Fund will be required to continue to hold the security
or keep the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Associated with Noninvestment Grade Securities
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
INVESTMENT LIMITATIONS
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry.
However, the Fund may at times invest 25% or more of the value of its total
assets in cash or cash items (not including certificates of deposit), securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or repurchase agreements secured by such instruments.
Investing in Commodities
The Fund will not purchase or sell commodities. The Fund reserves the right to
purchase financial futures and put options on stock index futures and on
financial futures.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in the
securities of companies whose business involves the purchase or sale of real
estate, or in securities which are secured by real estate or interests in real
estate.
Buying on Margin
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions and may
make margin payments in connection with buying financial futures, put options on
stock index futures, and put options on financial futures.
Selling Short
The Fund will not sell securities short unless at all times when a short
position is open, it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for securities of the same issuer as, and equal in amount to, the securities
sold short; and unless not more than 10% of the value of the Fund's net assets
(taken at current value) is held as collateral for such sales at any one time.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except as permitted by its investment
objective and policies, and except that the Fund may borrow money and engage in
reverse repurchase agreements only in amounts up to one-third of the value of
its net assets, including the amounts borrowed. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage, but rather
as a temporary, extraordinary, or emergency measure, or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any such
borrowings (including reverse repurchase agreements) are outstanding.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities. This shall
not prevent the purchase or holding of corporate or government bonds,
debentures, notes, certificates of indebtedness, or other debt securities of an
issuer, repurchase agreements, or other transactions which are permitted by the
Fund's investment objective and policies or Declaration of Trust.
<PAGE>
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral exploration
or development programs, although it may purchase the securities of issuers
which invest in or sponsor such programs.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase the securities of any issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government, its agencies,
or instrumentalities, securities of other investment companies and repurchase
agreements collateralized by such securities) if, as a result, more than 5% of
the value of its total assets would be invested in the securities of such issuer
and will not acquire more than 10% of the outstanding voting securities of any
issuer. For these purposes, the Fund takes all common stock and all preferred
stock of an issuer each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed unless authorized by the vote
of a majority of its outstanding voting securities. The following limitations,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material changes in these limitations
become effective.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including certain restricted securities not determined by
the Trustees to be liquid, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets, except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
its total assets at the time of the borrowing.
Purchasing Put Options
The Fund will not purchase put options on securities unless the securities are
held in the Fund's portfolio and not more than 5% of the value of the Fund's
total assets would be invested in premiums on open put options.
Writing Covered Call Options
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
<PAGE>
Acquiring Securities
The Fund will not purchase securities of a company for the purpose of exercising
control or management. However, the Fund may invest in up to 10% of the voting
securities of any one issuer and may exercise its voting powers consistent with
the best interests of the Fund. In addition, the Fund, other companies advised
by the Fund's adviser, and other affiliated companies may together buy and hold
substantial amounts of voting stock of a company and may vote together in regard
to such company's affairs. In some such cases, the Fund and its affiliates might
collectively be considered to be in control of such company. In some cases,
Trustees and other persons associated with the Fund and its affiliates might
possibly become directors of companies in which the Fund holds stock.
Investing in Warrants
The Fund will not invest more than 5% of its net assets in warrants. No more
than 2% of the Fund's net assets, to be included within the overall 5% limit on
investments in warrants, may be warrants which are not listed on the New York or
American Stock Exchanges. Warrants acquired in units or attached to securities
may be deemed to be without value for purposes of this policy.
Investing in Restricted and Illiquid Securities
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 15% of its net assets.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. The Fund has no intent to borrow money, sell securities short, or
invest in reverse repurchase agreements in excess of 5% of the value of its
total assets in the coming fiscal year. Short selling may accelerate the
recognition of gains.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
Quantity Discounts. Larger purchases of the same Share class reduce the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases. If you make an additional purchase of Shares, you can
count previous Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.
Concurrent Purchases. You can combine concurrent purchases of the
corresponding Share class of two or Federated Funds in calculating the
applicable sales charge.
Letter of Intent. You can sign a letter of intent committing to purchase a
certain amount of the same or corresponding class of Shares within a 13 month
period in order to combine such purchases in calculating the applicable sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete your commitment, the escrowed Shares
will be released to your account. If you do not complete your commitment within
13 months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.
Reinvestment Privilege. You may reinvest, within 120 days, your Share redemption
proceeds at the next determined NAV, without any sales charge. This sales charge
elimination is offered because a sales charge was previously assessed.
Purchases by Affiliates of the Fund. The following individuals and their
immediate family members may buy Shares at NAV without any sales charge because
there are nominal sales efforts associated with their purchases:
o the Trustees, employees, and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates; o Employees of State Street Bank
Pittsburgh who started their employment on January 1, 1998, and were employees
of Federated Investors,
Inc. (Federated) on December 31, 1997;
o any associated person of an investment dealer who has a sales agreement with
the Distributor; and o trusts, pension or profit-sharing plans for these
individuals.
<PAGE>
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
o representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account[,] following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements; o which are qualifying redemptions of
Class B Shares under a Systematic Withdrawal Program (as described below); o of
Shares that represent a reinvestment within 120 days of a previous redemption
that was assessed a CDSC; o of Shares held by the Directors/Trustees, employees,
and sales representatives of the Fund, the Adviser, the Distributor and their
affiliates; employees of any investment professional that sells Shares
pursuant to a sales agreement with the Distributor; and the immediate family
members of the foregoing persons; and
o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professional receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professional may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to
a reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares. Investment professionals purchasing Class A Shares for their
customers are eligible to receive an advance payment from the distributor based
on the following breakpoints:
Advance Payments
as a Percentage of
Transaction Amount Public Offering Price
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program. Investment professionals must notify the Fund once an account
reaches $1 million in order to qualify for advance payments.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC will be waived
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professional holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of 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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
<PAGE>
As of October 22, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class A Shares of the Fund:
BHC Securities Inc., Philadelphia, PA, owned approximately 45,253 shares
(6.98%); and MLPF&S for the sole benefit of its customers, Jacksonville, FL,
owned approximately 37,610 shares (5.80%).
As of October 22, 1998, the following shareholder owned of record, beneficially,
or both, 5% or more of the outstanding Class B Shares of the Fund: MLPF&S for
the sole benefit of its customers, Jacksonville, FL, owned approximately 129,136
shares (8.17%).
As of October 22, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class C Shares of the Fund:
MLPF&S for the sole benefit of its customers, Jacksonville, FL, owned
approximately 64,228 shares (23.78%); and Profit Resources Inc. 401K and Profit
Sharing Plan, Pension Administration and Consulting Services, Cincinnati, OH,
owned approximately 29,676 shares (10.99%).
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of seven funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of October 22, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Class A, B, C
Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
John F. Donahue*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Thomas G. Bigley
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
John T. Conroy, Jr.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Nicholas Constantakis
175 Woodshire Drive, Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Partner,
Andersen Worldwide SC;
Compensation from Trust $______
Compensation from Federated Fund Complex $______
William J. Copeland
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
James E. Dowd, Esq.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly, President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly, Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Edward L. Flaherty, Jr., Esq.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly,
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Peter E. Madden
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly, Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly, Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Marjorie P. Smuts
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Glen R. Johnson
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
J. Christopher Donahue
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
<PAGE>
Edward C. Gonzales
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
John W. McGonigle
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Richard B. Fisher
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.;
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services. Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting those brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal year ended October 31, 1998, the Fund's adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $___ for which the Fund
paid $___ in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year ended
October 31,
1998 1997 1996
Advisory Fee Earned............$............$.............$
Advisory Fee Reduction.........$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
12b-1 Fee......................$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Shareholder Services Fee.......$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-, five- and ten-year or since inception
periods
ended October 31, 1998.
Yield given for the 30-day period endedOctober 31, 1998.
- -------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------
- -------------------------------------------------------
Total Return
- -------------------------------------------------------
- -------------------------------------------------------
One Year: % % %
Five Year: NA NA NA
Ten Year: NA NA NA
Since Inception: %* %* %*
- -------------------------------------------------------
- -------------------------------------------------------
Yield
- -------------------------------------------------------
- -------------------------------------------------------
% % %
- -------------------------------------------------------
* Class A, Class B and Class C Shares' inception date was November 25, 1996.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices; o charts, graphs and illustrations
using the Fund's returns, or returns in general, that demonstrate investment
concepts such as
tax-deferred compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Standard & Poor's Low-Priced Index compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and year-to-date.
Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income mutual
funds. The highest rating is One, and ratings are effective for one month.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc., analyzes
price, current yield, risk, total return, and average rate of return (average
annual compounded growth rate) over specified time periods for the mutual fund
industry.
Dow Jones Industrial Average (DJIA). Represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
Financial publications. The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, Fortune and Money magazines, among others--provide
performance statistics over specified time periods.
Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Morningstar, Inc. An independent rating service, is the publisher of the
bi-weekly Mutual Fund Values, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
Stategic Insight Mutual Fund Research and Consulting, ranks funds in various
fund categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a specified
period of time. From time to time, the Fund will quote its Strategic Insight
ranking in the "growth funds" category in advertising and sales literature.
Mutual Fund Source Book, published by Morningstar, Inc., analyzes price, yield,
risk, and total return for equity and fixed income funds.
Value Line Composite Index, consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
Municipal funds. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
Equity funds. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
Corporate bond funds. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
Government funds. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
Money market funds. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment szectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
Mutual Fund Market. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
Bank Marketing. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
FINANCIAL INFORMATION
To be filed by amendment.
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
o Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
o Well established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
Federated Aggressive Growth Fund
Class A, Class B, Class C Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
Prospectus December 31, 1998
FEDERATED CAPITAL APPRECIATION FUND
Class A Shares, Class B Shares and Class C Shares
A mutual fund seeking capital appreciation by investing primarily in equity
securities of mid- to large-cap companies.
Fund Shares are not bank deposits, federally insured, or guaranteed, and may
lose value. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Table of Contents
Risk/Return Summary What are the Fund's Fees and Expenses? What are the Fund's
Investment Strategies?
What are the Principal Securities in Which the Fund Invests? What are the
Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide capital appreciation.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in common stock
of companies with medium and large market capitalizations that offer superior
growth prospects or of companies whose stock is undervalued.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money. Other risks of investing in the Fund include:
Liquidity Risks, Risks Related to Company Size, Sector Risk, and Risk of Foreign
Investing.
<PAGE>
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class A Shares of Federated
Capital Appreciation Fund as of the calendar year-end for each of ten
years.
The `y' axis reflects the "% Total Return" beginning with "-5.00" and
increasing in increments of 5 up to 40.
The `x' axis represents calculation periods for the last ten calendar
years of the Trust, beginning with the earliest year. The light gray
shaded chart features ten distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for
the calendar year stated directly at its base. The calculated total return
percentages for the Class A Shares of Federated Capital Appreciation Fund,
stated directly at the top of each respective bar for the calendar years
1988 through 1997, are 13.97%, 17.58%, ---4.43%, 27.42%, 11.38%, 11.31%,
-0.30%, 37.17%, 18.39%, and 30.62%.
The Bar Chart shows the variability of the Fund's Class A Shares on a yearly
basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, the returns would be less than those shown.
The Fund's Class A Shares average annual total return as of the most recent
calendar quarter of September 30, 1998 was -3.56%.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 16.36% (quarter ended March 31, 1997). Its lowest quarterly
return was -15.52% (quarter ended September 30, 1990).
Average Annual Total Return for the Fund's Class A, Class B, and Class C Shares
compared to the S&P 500 Index (S&P 500) and the
Lipper Growth and Income Funds Average (LGIFA).
Calendar Period Class A Class B* Class C* S&P 500 LGIFA
1 Year __ % __% __% __% __%
5 Years __ % .......__%... __% __% __%
10 Years __ %........__%... __ % __% __%
* The Fund's Class B and Class C Shares start of performance date was January 4,
1996.
The table shows the Fund's Class A, Class B, and Class C Shares average annual
total returns compared to the S&P 500, a broad-based market index, and the
LGIFA, an average of funds with similar investment objectives.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED CAPITAL APPRECIATION FUND
Fees and Expenses ..................
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
Shareholder Fees ( fees paid directly from your investment)
Class A Class B Class C
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............... 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
( as a percentage of offering price)........................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee...................................................None None None
Maximum Account Fee...............................................................................................................
None None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) (as
a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C>
Management Fee ................................................0.75% 0.75% 0.75%
Shareholder Services Fee ......................................0.25% 0.25% 0.25%
Distribution (12b-1) Fee.......................................0.25% 0.75% 0.75%
Other Expenses ................................................____% ____% ___%
Total Annual Fund Operating Expenses (before waivers).......... ____% ____% ___%
- --------------------------------------------------------------------------------------------
</TABLE>
Although not contractually obligated to do so, the adviser waived and
distributor reimbursed certain amounts. These are shown below along with the net
expenses the Fund ACTUALLY paid for the fiscal year ended October 31, 1998.
Waiver of Fund expenses
(2)(3)........................................................................
- ----% ---% ----% Total Actual Annual Fund Operating Expenses (after
waivers)..................................................................____%
___%(4) ____%
(1) Shareholders who purchased $1 million or more of Class A Shares through an
investment professional on or after August 3, 1998 may be charged a contingent
deferred sales charge (load) of 0.75% for redemptions made within 24 months of
purchase if the investment professional received an advance payment. For
shareholders of Class B Shares, the maximum deferred sales charge (load) is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred sales
charge ( load) assessed is 1.00% of the lesser of the original purchase price or
the net asset value of Shares redeemed within one year of their purchase date.
(2) The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund ( after the voluntary waiver) was ___% for the year ended October
31, 1998.
(3) Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended October 31, 1998. Class A Shares has no present intention of paying
or accruing the distribution (12b-1) fee during the year ended October 31, 1999.
(4) Class B Shares convert to Class A Shares ( which pay lower ongoing expenses)
approximately eight years after purchase.
The following Example is intended to help you compare the cost of investing in
the Fund's Class A, Class B, and Class C Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B, and
Class C Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Class A, Class B, and Class C Shares
operating expenses are before waivers as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Example:
Class A Class B Class C
Payment of the maximum sales charge:
1 Year
3 Years
5 Years
10 Years
Expenses assuming no redemption:
1 Year
3 Years
5 Years
10 Years....
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in common stock
of companies with medium and large market capitalizations that offer superior
growth prospects or of companies whose stock is undervalued. This includes
companies with market capitalization in excess of $500 million. Market
Capitalization is determined by multiplying the number of outstanding shares by
the current market price per share. The Fund also invests in convertible
securities issued by these companies.
Using its own quantitative process, the Adviser rates the future performance
potential of companies. The Adviser evaluates each company's earnings quality in
light of their current valuation to narrow the list of attractiv companies. The
Adviser then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, the Adviser selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the S&P 500 Index. The Fund's allocation to a sector will not be less than 50%
or more than 200% of the Index's allocation to that sector. The Fund ordinarily
will hold between 80 and 100 companies in its portfolio.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
American Depositary Receipts represent interests in underlying securities issued
by a foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are traded
in the U.S. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. Depositary Receipts
involve many of the same risks of investing directly in foreign securities,
including Country Risk and Currency Risk.
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. Convertible securities may provide
lower returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Stock Market Risks
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
Liquidity Risks
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
Sector Risk
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. As the adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
Risk of Foreign Investing
Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
Portfolio Turnover. The Fund may actively trade its portfolio securities in an
attempt to achieve its investment objective. Active trading will cause the Fund
to have an increased portfolio turnover rate, which is likely to generate
shorter-term gains (losses) for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively trading portfolio securities
increases the Fund's trading costs and may have an adverse impact on the Fund's
performance.
Temporary Investments. The Fund may temporarily depart from its principal
investment strategies by investing its assets in cash, cash items, and
shorter-term, higher quality debt securities. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to give up greater investment
returns to maintain the safety of principal, that is, the original amount
invested by shareholders.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.
The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open..
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
- -------------------------------------------------------------------------
Maximum Sales Charge
Shares Offered Minimum Front-End Contingent
Initial/Subsequent Sales Deferred
Investment Charge(2) Sales
Amounts(1) Charge(3)
- -------------------------------------------------------------------------
Class A $1500/$100 5.50% None
Class B $1500/$100 None 5.50%
Class C $1500/$100 None 1.00%
(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be invested
in Class A Shares instead of Class B Shares in order to maximize your return
and to minimize the sales charges and marketing fees. Accounts held in the
name of an investment professional may be treated differently. Class B Shares
will convert to Class A Shares at NAV approximately eight years after
purchase.
(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.
(3) See Sales Charge When You Redeem below.
<PAGE>
SALES CHARGE WHEN YOU PURCHASE
------------------------------------------------------------
Class A Shares
------------------------------------------------------------
------------------------------------------------------------
Purchase Amount Sales Charge as Sales Charge
a Percentage of as a
Public Offering Percentage of
Price NAV
------------------------------------------------------------
------------------------------------------------------------
Less than $50,000 5.50% 5.82%
------------------------------------------------------------
------------------------------------------------------------
$50,000 but less than 4.50% 4.71%
$100,000
------------------------------------------------------------
------------------------------------------------------------
$100,000 but less than 3.75% 3.90%
$250,000
------------------------------------------------------------
------------------------------------------------------------
$250,000 but less than 2.50% 2.56%
$500,000
------------------------------------------------------------
------------------------------------------------------------
$500,000 but less than 2.00% 2.04%
$1 million
------------------------------------------------------------
------------------------------------------------------------
$1 million or greater(1) 0.00% 0.00%
------------------------------------------------------------
------------------------------------------------------------
(1) A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase if an
investment professional received an advance payment on the transaction.
------------------------------------------------------------
The sales charge at purchase may be reduced or eliminated by: opurchasing
Shares in greater quantities to reduce the applicable sales charge;
ocombining concurrent purchases of Shares:
oby you, your spouse, and your children under age 21; or
oof the same class of two or more Federated Funds (other than money
market funds);
oaccumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
osigning a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares: owithin 120
days of redeeming Shares of an equal or lesser amount; oas a Federated
Life Member; oby exchanging shares from the same share class of another
Federated Fund (other than a money market fund); othrough wrap accounts or
other investment programs where you pay the investment professional
directly for services; or othrough investment professionals that receive
no portion of the sales charge.
If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional must notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. You will
receive the reduced sales charge only on additional purchases, and not
retroactively on your previous purchases.
<PAGE>
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
------------------------------------------------------------
Class B Shares
------------------------------------------------------------
------------------------------------------------------------
Shares Held Up To: CDSC
------------------------------------------------------------
------------------------------------------------------------
1 year 5.50%
------------------------------------------------------------
------------------------------------------------------------
2 years 4.75%
------------------------------------------------------------
------------------------------------------------------------
3 years 4.00%
------------------------------------------------------------
------------------------------------------------------------
4 years 3.00%
------------------------------------------------------------
------------------------------------------------------------
5 years 2.00%
------------------------------------------------------------
------------------------------------------------------------
6 years 1.00%
------------------------------------------------------------
------------------------------------------------------------
7 years or more 0.00%
------------------------------------------------------------
------------------------------------------------------------
Class C Shares
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
------------------------------------------------------------
You will not be charged a CDSC when redeeming Shares:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
where the original shares were held for seven years or more (other than a
money market fund);
opurchased through investment professionals that did not receive advanced
sales payments; or oif you have certain disabilities as defined by the
IRS.
<PAGE>
In addition, you will not be charged a CDSC:
owhen the Fund redeems your Shares and closes your account for failing to
meet the minimum balance requirement;
oif your redemption is a required retirement plan distribution;
oupon the death of the shareholder(s) of the account or the redemption of
Shares by a designated beneficiary.
If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.
To keep the sales charge as low as possible, the Fund redeems your Shares
in this order:
oShares that are not subject to a CDSC;
oShares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of other Federated Funds
that have been exchanged for Shares of this Fund); and
othen, the CDSC is based on the NAV at the time you purchased or redeemed
those Shares, whichever is lower.
HOW IS THE FUND SOLD?
The Fund offers three share classes: Class A Shares, Class B Shares and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the Class
choice on your form of payment, you automatically will receive Class A Shares.
<PAGE>
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within three business days. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New Account
Form; and w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
By Wire. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally
payable to someone other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
<PAGE>
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or o directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
By Mail. You may redeem or exchange Shares by mailing a written request to the
Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to: Federated Shareholder
Services Company 1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
o Fund Name and Share Class, account number and account registration; o amount
to be redeemed or exchanged; o signatures of all Shareholders exactly as
registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days; w a redemption is payable to someone other than the
shareholder(s) of record; or w if exchanging (transferring) into another fund
with a different shareholder registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
Redemption in Kind. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must: w ensure that the Share registrations are
identical; w meet any minimum initial investment requirements; and w receive a
prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
<PAGE>
Systematic Withdrawal Program (SWP) On Class B Shares. You will not be
charged a CDSC on SWP redemptions if: w you redeem 12% or less of your
account value in a single year; w your account is at least one year old; w
you reinvest all dividends and capital gains distributions; and w your
account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to
meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
Share Certificates. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
<PAGE>
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.Please consult your tax adviser
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The Fund's
portfolio managers are:
Arthur J. Barry has been the Fund's portfolio manager since March 1997. Mr.
Barry joined Federated Investors, Inc. or its predecessor in 1994 as an
Investment Analyst. He served as an Assistant Vice President of the Fund's
investment adviser from 1997 through June 1998 and has been a Vice President of
the adviser since July 1998.
James E. Grefenstette has been the Fund's portfolio manager since November
1997. Mr. Grefenstette joined Federated Investors, Inc. or its predecessor in
1992 and has been a Vice President of the Fund's investment adviser since 1996.
From 1994 until 1996, Mr. Grefenstette acted as an Assistant Vice President of
the Fund's investment adviser, and served as an Investment Analyst of the
investment adviser from 1992 to 1994. Mr. Grefenstette was a credit analyst at
Westinghouse Credit Corp. from 1990 until 1992. Mr. Grefenstette is a Chartered
Financial Analyst and received his M.S. in Industrial Administration from
Carnegie Mellon University.
J. Thomas Madden has been the Fund's portfolio manager since the Fund's
inception date. Mr. Madden joined Federated Investors, Inc. or its predecessor
in 1977, and has been an Executive Vice President of the Fund's investment
adviser since 1994. Mr. Madden served as a Senior Vice President of the Fund's
investment adviser from 1989 to 1993. Mr. Madden is a Chartered Financial
Analyst and received his M.B.A. with a concentration in Finance from the
Univeristy of Virginia.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Year 2000 Readiness. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights are intended to help you understand the
Fund's financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on a
per share basis. Total returns represent the rate an investor would have earned
(or lost) on an investment in the Fund, assuming reinvestment of all dividends
and distributions.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
To be filed by amendment.
<PAGE>
FEDERATED CAPITAL APPRECIATION FUND
CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES
[A Portfolio of Federated Equity Funds]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Cusip 314172701
Cusip 314172800
Cusip 314172883
G01489-01(10/98)
Federated Name, Logo
1940 Act File No. 811-4017
Statement of Additional Information December 31, 1998
Federated Capital Appreciation Fund
[A Portfolio of Federated Equity Funds]
Class A Shares, Class B Shares, Class C Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Capital
Appreciation Fund (Fund), dated December 31, 1998. This SAI incorporates by
reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.
Table of Contents
How is the Fund Organized
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
How to Buy Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services
to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
CUSIP 314172701
CUSIP 314172800
CUSIP 314172883
G01489-02(10/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversifiedportfolio of Federated Equity Funds (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on April 17, 1984. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares. (Shares). This
SAI relates to all classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Equity securities represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Preferred stocks have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are
typically issued to existing stockholders.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The Credit Risks of corporate debt securities vary
widely among issuers.
Zero Coupon Securities do not pay interest or principal until final maturity.
Most debt securities provide periodic payments of interest (referred to as a
"coupon payment"). In contrast, investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the price
and the amount paid at maturity represents interest on the zero coupon
security. This increases the market and credit risk of a zero coupon
security, because an investor must wait until maturity before realizing any
return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or
"capital appreciation" bonds. Others are created by separating the right to
receive coupon payments from the principal due at maturity, a process known
as "coupon stripping." Treasury STRIPs, IOs and POs are the most common forms
of "stripped" zero coupon securities. In addition, some securities give the
issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are
referred to as "pay-in-kind" or "PIK" securities.
Commercial paper is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to Fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The short maturity of commercial paper reduces both the market and Credit
Risk as compared to other debt securities of the same issuer.
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Instruments denominated in U.S. dollars and issued by
Non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars and issued by
U.S. branches of foreign banks are referred o as Yankee instruments.
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.Insurance contracts include guaranteed
investment contracts, funding agreements and annuities.
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities convertible into shares of common stock at a conversion price
of $10 per share. If the market value of the shares reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income securities
to compensate for the value of the conversion option. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Derivative Contracts are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Futures contracts traded OTC
are frequently referred to as "forward contracts." Entering into a contract
to buy is commonly referred to as buying or purchasing a contract or holding
a long position. Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position. Futures are considered to be
commodity contracts.
The Fund may buy and sell financial futures, futures on indices, foreign
currency exchange contracts, forward foreign currency exchange contracts,
foreign currency options, and foreign currency futures contracts.
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy call options on foreign currency in anticipation of an increase in the
value of the the underlying asset.
Buy put options on foreign currency, portfolio securities, and futures in
anticipation of a decrease in the value of the the underlying asset.
Write call options on portfolio securities and futures to generate income
from premiums, and in anticipation of a decrease or only limited increase in
the value of the the underlying asset. If a call written by a Fund is
exercised, the Fund foregoes any possible profit from an increase in the
market price of the underlying asset over the exercise price plus the premium
received.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Foreign Securities are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S. In
addition to the risks normally associated with U.S. securities of the same type,
Foreign Securities are subject to Country Risk and Currency Risk. [Trading in
certain foreign markets is also subject to Liquidity Risk.]
Foreign Exchange Contracts. In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, the Fund may
enter into "spot" currency trades. The Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. Use of these
derivative contracts may increase or decrease the Fund's exposure to Currency
Risk.
Foreign Government Securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
Special Transactions
Repurchase Agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
When Issued Transactions are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
Securities Lending. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy. In return, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies, including the
securities of affiliated money market funds, as an efficient means of
carrying out its investment policies and managing its uninvested cash. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of
other investment companies may be subject to such duplicate expenses.
EQUITY SECURITIES INVESTMENT RISKS
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
FIXED INCOME SECURITIES INVESTMENT RISKS
Bond Market Risk
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risk
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating service's assessment
of the likelihood of default by the issuer. The lower the credit rating, the
greater the credit risk. In the case of unrated securities, the Fund must
rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or disrupt management of the Fund's portfolio
.
Call Risk
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a "call") at a price below it's current market
price. An increase in the likelihood of a call may reduce the security's
price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Liquidity Risks
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunities, making it
more difficult to sell or buy the security at a favorable price or time. In
response, the Fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk [also] refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it wants to.
If this happens, the Fund will be required to continue to hold the security
or keep the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Associated with Noninvestment Grade Securities
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
INVESTMENT LIMITATIONS
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure, or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests where the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while any such borrowings are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing. Margin deposits for the purchase and
sale of financial futures contracts and related options are not deemed to be a
pledge.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933, as amended, in connection
with the sale of restricted securities which the Fund may purchase pursuant to
its investment objective, policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the purchase
or holding of corporate bonds, debentures, notes, certificates of indebtedness,
or other debt securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment objective and
policies.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not invest more than 5% of the value of its total assets in securities
of any one issuer (other than cash, cash items, or securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities, and
repurchase agreements collaterized by such securities) or acquire more than 10%
of any class of voting securities of any one issuer. For these purposes, the
Fund takes all common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
Investing in Real Estate
The Fund will not buy or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
Selling Short
The Fund will not sell securities short except, under strict limitations, it 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.
The above investment limitations cannot be changed unless authorized by the
vote of a majority of its outstanding voting securities. The following
limitation, however, may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective. Investing in Restricted and Illiquid Securities
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 15% of its net assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
The Fund has no present intent to borrow money or sell securities short in
excess of 5% of the value of its total assets in the coming fiscal year. Short
selling may accelerate the recognition of gains.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
Quantity Discounts. Larger purchases of the same Share class reduce the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases. If you make an additional purchase of Shares, you can
count previous Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.
Concurrent Purchases. You can combine concurrent purchases of the corresponding
Share class of two or Federated Funds in calculating the applicable sales
charge.
Letter of Intent. You can sign a letter of intent committing to purchase a
certain amount of the same or corresponding class of Shares within a 13 month
period in order to combine such purchases in calculating the applicable sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete your commitment, the escrowed Shares
will be released to your account. If you do not complete your commitment within
13 months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.
Reinvestment Privilege. You may reinvest, within 120 days, your Share redemption
proceeds at the next determined NAV, without any sales charge. This sales charge
elimination is offered because a sales charge was previously assessed.
Purchases by Affiliates of the Fund. The following individuals and their
immediate family members may buy Shares at NAV without any sales charge because
there are nominal sales efforts associated with their purchases:
o the Trustees, employees, and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates; o Employees of State Street Bank
Pittsburgh who started their employment on January 1, 1998, and were employees
of Federated Investors,
Inc. (Federated) on December 31, 1997;
o any associated person of an investment dealer who has a sales agreement with
the Distributor; and o trusts, pension or profit-sharing plans for these
individuals.
<PAGE>
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
o representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account[,] following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements; o which are qualifying redemptions of
Class B Shares under a Systematic Withdrawal Program (as described below); o of
Shares that represent a reinvestment within 120 days of a previous redemption
that was assessed a CDSC; o of Shares held by the Directors/Trustees, employees,
and sales representatives of the Fund, the Adviser, the Distributor and their
affiliates; employees of any investment professional that sells Shares
pursuant to a sales agreement with the Distributor; and the immediate family
members of the foregoing persons; and
o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professional for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professional receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professional may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to
a reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares. Investment professionals purchasing Class A Shares for their
customers are eligible to receive an advance payment from the distributor based
on the following breakpoints:
Advance Payments
as a Percentage of
Transaction Amount Public Offering Price
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program. Investment professionals must notify the Fund once an account
reaches $1 million in order to qualify for advance payments.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC will be waived
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
<PAGE>
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professional holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of 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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
<PAGE>
As of October 22, 1998, the following shareholder owned of record, beneficially,
or both, 5% or more of the outstanding Class A Shares of the Fund: Paulette M.
Boiardi, New York, NY, owned approximately 548,140 shares (6.48%).
As of October 22, 1998, the following shareholder owned of record, beneficially,
or both, 5% or more of the outstanding Class C Shares of the Fund: MLPF&S for
the sole benefit of its customers, Jacksonville, FL, owned approximately 30,753
shares (9.78%).
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of seven funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of October 22, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Class A, B, C
Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
John F. Donahue*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Thomas G. Bigley
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
John T. Conroy, Jr.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Nicholas Constantakis
175 Woodshire Drive, Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Partner, Andersen
Worldwide SC;
Compensation from Trust $______
Compensation from Federated Fund Complex $______
William J. Copeland
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
James E. Dowd, Esq.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly, President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly, Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Edward L. Flaherty, Jr., Esq.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly,
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Peter E. Madden
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly, Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly, Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Marjorie P. Smuts
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Glen R. Johnson
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
J. Christopher Donahue
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
<PAGE>
Edward C. Gonzales
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
John W. McGonigle
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Richard B. Fisher
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.;
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services. Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting those brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal year ended October 31, 1998, the Fund's adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $___ for which the Fund
paid $___ in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year ended
October 31,
1998 1997 1996
Advisory Fee Earned............$............$.............$
Advisory Fee Reduction.........$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
12b-1 Fee......................$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Shareholder Services Fee.......$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-, five- and ten-year or since inception
periods
ended October 31, 1998.
Yield given for the 30-day period ended October 31, 1998.
- -------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------
- -------------------------------------------------------
Total Return
- -------------------------------------------------------
- -------------------------------------------------------
One Year: % % %
Five Year: NA NA NA
Ten Year: NA NA NA
Since Inception: %* %* %*
- -------------------------------------------------------
- -------------------------------------------------------
Yield
- -------------------------------------------------------
- -------------------------------------------------------
% % %
- -------------------------------------------------------
*Class A, Class B and Class C Shares' inception date was January 4, 1996.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
<PAGE>
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices; o charts, graphs and illustrations
using the Fund's returns, or returns in general, that demonstrate investment
concepts such as
tax-deferred compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income mutual
funds. The highest rating is One, and ratings are effective for one month.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc., analyzes
price, current yield, risk, total return, and average rate of return (average
annual compounded growth rate) over specified time periods for the mutual fund
industry.
<PAGE>
Dow Jones Industrial Average (DJIA). Represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
Financial publications. The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, Fortune and Money magazines, among others--provide
performance statistics over specified time periods.
Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Morningstar, Inc. An independent rating service, is the publisher of the
bi-weekly Mutual Fund Values, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
Lipper Growth Fund Average is an average of the total returns for 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.
Lipper Growth Fund Index is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.
Stategic Insight Mutual Fund Research and Consulting, ranks funds in various
fund categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a specified
period of time. From time to time, the Fund will quote its Strategic Insight
ranking in the "growth funds" category in advertising and sales literature.
Mutual Fund Source Book, published by Morningstar, Inc., analyzes price, yield,
risk, and total return for equity and fixed income funds.
Value Line Composite Index, consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.
Strategic Insight Growth Funds Index consists of mutual funds that invest in
well-established companies primarily for long-term capital gains rather than
current income.
Financial Publications: The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, Fortune, and Money Magazines, among others - provide
performance statistics over specified time periods.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
Municipal funds. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
Equity funds. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
Corporate bond funds. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
Government funds. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
Money market funds. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high
yield - J. Thomas Madden; U.S. fixed income -
William D. Dawson, III; and global equities and fixed income - Henry
A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
Mutual Fund Market. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
Bank Marketing. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
FINANCIAL INFORMATION
To be filed by amendment.
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
o Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
o Well established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
Federated Capital Appreciation Fund
Class A, Class B, Class C Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
Prospectus December 31, 1998
FEDERATED GROWTH STRATEGIES FUND
Class A Shares, Class B Shares and Class C Shares
A mutual fund seeking capital appreciation by investing primarily in growth
equity securities.
Fund Shares are not bank deposits, federally insured, or guaranteed, and may
lose value. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Table of Contents
Risk/Return Summary What are the Fund's Fees and Expenses? What are the Fund's
Investment Strategies?
What are the Principal Securities in Which the Fund Invests? What are the
Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is appreciation of capital.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in common stock
of companies with market capitalizations above $100 million that offer superior
growth prospects.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money. Other risks of investing in the Fund include:
Liquidity Risks, Risks Related to Company Size, Sector Risk, and Risk of Foreign
Investing.
<PAGE>
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class A Shares of Federated
Growth Strategies Fund as of the calendar year-end for each of ten years.
The `y' axis reflects the "% Total Return" beginning with "-20.00" and
increasing in increments of 10 up to 50.
The `x' axis represents calculation periods for the last ten calendar
years of the Trust, beginning with the earliest year. The light gray
shaded chart features ten distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for
the calendar year stated directly at its base. The calculated total return
percentages for the Class A Shares of Federated Growth Strategies Fund,
stated directly at the top of each respective bar for the calendar years
1988 through 1997, are 28.75%, 29.24%, -4.90%, 35.08%, 8.59%, 6.62%,
-11.87%, 40.02%, 23.33%, and 27.06%.
The Bar Chart shows the variability of the Fund's Class A Shares on a yearly
basis.
The Fund's Class A Shares are sold subject to a sales charge (load). The impact
of the sales charges are not reflected in the total returns above, and if these
amounts were reflected, the returns would be less than those shown.
The Fund's Class A Shares average annual total return as of the most recent
calendar quarter of September 30, 1998 was -18.26%.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 22.12% (quarter ended March 31, 1988). Its lowest quarterly
return was -18.26% (quarter ended September 30, 1990).
Average Annual Total Return for the Fund's Class A, Class B, and Class C Shares,
compared to the S&P 500 Index (S&P 500) and the
Lipper Growth Fund Index (LGFI).
Calendar Period Class A Class B* Class C* S&P 500 LGFI
1 Year __ % __% __% __% __%
5 Years __ % .......__%... __% __% __%
10 Years __ %........__%... __ % __% __%
* The Fund's Class B and Class C Shares start of performance date was August 16,
1995.
The table shows the Fund's Class A, Class B, and Class C Shares average annual
total returns compared to the S&P 500, a broad-based market index, and the LGFI,
an average of funds with similar investment objectives.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED GROWTH STRATEGIES FUND
Fees and Expenses ..................
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
Shareholder Fees ( fees paid directly from your investment)
Class A Class B Class C
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............... 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
( as a percentage of offering price)........................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee...................................................None None None
Maximum Account Fee...............................................................................................................
None None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) (as
a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Management Fee ................................................0.75% 0.75% 0.75%
Shareholder Services Fee ......................................0.25% 0.25% 0.25%
Distribution (12b-1) Fee.......................................None 0.75% 0.75%
Other Expenses ................................................___% ___% ____%
Total Annual Fund Operating Expenses (before waivers).......... ___% ____% ____%
- -------------------------------------------------------------------------------
</TABLE>
Although not contractually obligated to do so, the adviser waived and
distributor reimbursed certain amounts. These are shown below
along with the net expenses the Fund ACTUALLY paid for the fiscal year ended
October 31, 1998.
Waiver of Fund expenses
(2)..........................................................................
- ---% ---% ----%
Total Actual Annual Fund Operating Expenses (after waivers)...............___
% ___%(3) ___%
(1) Shareholders who purchased $1 million or more of Class A Shares through an
investment professional on or after August 3, 1998 may be charged a contingent
deferred sales charge (load) of 0.75% for redemptions made within 24 months of
purchase if the investment professional received an advance payment. For
shareholders of Class B Shares, the maximum deferred sales charge (load) is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred sales
charge ( load) assessed is 1.00% of the lesser of the original purchase price or
the net asset value of Shares redeemed within one year of their purchase date.
(2) The shareholder services fee for Class A and Class C Shares has been
voluntarily reduced. This voluntary reduction can be terminated at any time. The
shareholder services fee paid by the Fund's Class A Shares and Class C Shares (
after the voluntary reduction) was 0.24% and 0.23%, respectively.
(3) Class B Shares convert to Class A Shares ( which pay lower ongoing expenses)
approximately eight years after purchase.
The following Example is intended to help you compare the cost of investing in
the Fund's Class A, Class B, and Class C Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B, and
Class C Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Class A, Class B, and Class C Shares
operating expenses are before waivers as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Example:
Class A Class B Class C
Payment of the maximum sales charge:
1 Year
3 Years
5 Years
10 Years
Expenses assuming no redemption:
1 Year
3 Years
5 Years
10 Years
..............................
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in common stock
of companies with market capitalizations above $100 million that offer superior
growth prospects. Using its own quantitative process, the Adviser rates the
future performance potential of companies. The Adviser evaluates each company's
earnings quality in light of their current valuation to narrow the list of
attractive companies. The Adviser then evaluates product positioning, management
quality and sustainability of current growth trends of those companies. Using
this type of fundamental analysis, the Adviser selects the most promising
companies for the Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the S&P 500 Index. The Fund's allocation to a sector will not be less than 50%
or more than 200% of the Index's allocation to that sector. The Fund ordinarily
will hold between 100 and 150 companies in its portfolio.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
American Depositary Receipts represent interests in underlying securities issued
by a foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are traded
in the U.S. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. Depositary Receipts
involve many of the same risks of investing directly in foreign securities,
including Country Risk and Currency Risk
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Stock Market Risks
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
Liquidity Risks
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
Sector Risk
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. As the adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
Risk of Foreign Investing
Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
Portfolio Turnover. The Fund may actively trade its portfolio securities in an
attempt to achieve its investment objective. Active trading will cause the Fund
to have an increased portfolio turnover rate, which is likely to generate
shorter-term gains (losses) for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively trading portfolio securities
increases the Fund's trading costs and may have an adverse impact on the Fund's
performance.
Temporary Investments. The Fund may temporarily depart from its principal
investment strategies by investing its assets in cash, cash items, and
shorter-term, higher quality debt securities. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to give up greater investment
returns to maintain the safety of principal, that is, the original amount
invested by shareholders.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.
The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open..
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
- -------------------------------------------------------------------------
Maximum Sales Charge
Shares Offered Minimum Front-End Contingent
Initial/Subsequent Sales Deferred
Investment Charge(2) Sales
Amounts(1) Charge(3)
- -------------------------------------------------------------------------
Class A $1500/$100 5.50% None
Class B $1500/$100 None 5.50%
Class C $1500/$100 None 1.00%
(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be invested
in Class A Shares instead of Class B Shares in order to maximize your return
and to minimize the sales charges and marketing fees. Accounts held in the
name of an investment professional may be treated differently. Class B Shares
will convert to Class A Shares at NAV approximately eight years after
purchase.
(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.
(3) See Sales Charge When You Redeem below.
<PAGE>
SALES CHARGE WHEN YOU PURCHASE
------------------------------------------------------------
Class A Shares
------------------------------------------------------------
------------------------------------------------------------
Purchase Amount Sales Charge as Sales Charge
a Percentage of as a
Public Offering Percentage of
Price NAV
------------------------------------------------------------
------------------------------------------------------------
Less than $50,000 5.50% 5.82%
------------------------------------------------------------
------------------------------------------------------------
$50,000 but less than 4.50% 4.71%
$100,000
------------------------------------------------------------
------------------------------------------------------------
$100,000 but less than 3.75% 3.90%
$250,000
------------------------------------------------------------
------------------------------------------------------------
$250,000 but less than 2.50% 2.56%
$500,000
------------------------------------------------------------
------------------------------------------------------------
$500,000 but less than 2.00% 2.04%
$1 million
------------------------------------------------------------
------------------------------------------------------------
$1 million or greater(1) 0.00% 0.00%
------------------------------------------------------------
------------------------------------------------------------
(1) A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase if an
investment professional received an advance payment on the transaction.
------------------------------------------------------------
The sales charge at purchase may be reduced or eliminated by: opurchasing
Shares in greater quantities to reduce the applicable sales charge;
ocombining concurrent purchases of Shares:
oby you, your spouse, and your children under age 21; or
oof the same class of two or more Federated Funds (other than money
market funds);
oaccumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
osigning a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares: owithin 120
days of redeeming Shares of an equal or lesser amount; oas a Federated
Life Member; oby exchanging shares from the same share class of another
Federated Fund (other than a money market fund); othrough wrap accounts or
other investment programs where you pay the investment professional
directly for services; or othrough investment professionals that receive
no portion of the sales charge.
If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional must notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. You will
receive the reduced sales charge only on additional purchases, and not
retroactively on your previous purchases.
<PAGE>
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
------------------------------------------------------------
Class B Shares
------------------------------------------------------------
------------------------------------------------------------
Shares Held Up To: CDSC
------------------------------------------------------------
------------------------------------------------------------
1 year 5.50%
------------------------------------------------------------
------------------------------------------------------------
2 years 4.75%
------------------------------------------------------------
------------------------------------------------------------
3 years 4.00%
------------------------------------------------------------
------------------------------------------------------------
4 years 3.00%
------------------------------------------------------------
------------------------------------------------------------
5 years 2.00%
------------------------------------------------------------
------------------------------------------------------------
6 years 1.00%
------------------------------------------------------------
------------------------------------------------------------
7 years or more 0.00%
------------------------------------------------------------
------------------------------------------------------------
Class C Shares
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
------------------------------------------------------------
You will not be charged a CDSC when redeeming Shares:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
where the original shares were held for seven years or more (other than a
money market fund);
opurchased through investment professionals that did not receive advanced
sales payments; or oif you have certain disabilities as defined by the
IRS.
<PAGE>
In addition, you will not be charged a CDSC:
owhen the Fund redeems your Shares and closes your account for failing to
meet the minimum balance requirement;
oif your redemption is a required retirement plan distribution;
oupon the death of the shareholder(s) of the account or the redemption of
Shares by a designated beneficiary.
If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.
To keep the sales charge as low as possible, the Fund redeems your Shares
in this order:
oShares that are not subject to a CDSC;
oShares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of other Federated Funds
that have been exchanged for Shares of this Fund); and
othen, the CDSC is based on the NAV at the time you purchased or redeemed
those Shares, whichever is lower.
HOW IS THE FUND SOLD?
The Fund offers three share classes: Class A Shares, Class B Shares and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the Class
choice on your form of payment, you automatically will receive Class A Shares.
<PAGE>
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within three business days. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New Account
Form; and w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
By Wire. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally
payable to someone other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
<PAGE>
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or o directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
By Mail. You may redeem or exchange Shares by mailing a written request to the
Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to: Federated Shareholder
Services Company 1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
o Fund Name and Share Class, account number and account registration; o amount
to be redeemed or exchanged; o signatures of all Shareholders exactly as
registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days; w a redemption is payable to someone other than the
shareholder(s) of record; or w if exchanging (transferring) into another fund
with a different shareholder registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
Redemption in Kind. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must: w ensure that the Share registrations are
identical; w meet any minimum initial investment requirements; and w receive a
prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
<PAGE>
Systematic Withdrawal Program (SWP) On Class B Shares. You will not be
charged a CDSC on SWP redemptions if: w you redeem 12% or less of your
account value in a single year; w your account is at least one year old; w
you reinvest all dividends and capital gains distributions; and w your
account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to
meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
Share Certificates. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
<PAGE>
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.Please consult your tax adviser
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Fund's portfolio managers are:
James E. Grefenstette has been the Fund's portfolio manager since December,
1994. Mr. Grefenstette joined Federated Investors, Inc. or its predecessor in
1992 as an Investment Analyst and has been a Vice President of the Fund's
investment adviser since July 1996. From 1994 until 1996, Mr. Grefenstette acted
as an Assistant Vice President of the Fund's investment adviser. Mr.
Grefenstette was a credit analyst at Westinghouse Credit Corp. from 1990 until
1992. Mr. Grefenstette is a Chartered Financial Analyst and received his M.S. in
Industrial Administration from Carnegie Mellon University.
Salvatore Esposito has been the Fund's portfolio manager since November 1997.
Mr. Esposito joined Federated Investors, Inc. or its predecessor in 1995 as an
Investment Analyst of the Fund's adviser and has been an Assistant Vice
President of the Fund's adviser since October 1997. From 1987 to 1995, Mr.
Esposito served in various positions at PNC Bank, culminating in that of Vice
President/Lead Reviewer. Mr. Esposito earned his M.B.A., concentrating in
Finance, from Duquesne University.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Year 2000 Readiness. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights are intended to help you understand the
Fund's financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on a
per share basis. Total returns represent the rate an investor would have earned
(or lost) on an investment in the Fund, assuming reinvestment of all dividends
and distributions.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
To be filed by amendment.
<PAGE>
FEDERATED GROWTH STRATEGIES FUND
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
[A Portfolio of Federated Equity Funds]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Cusip 314172107
Cusip 314172206
Cusip 314172305
G01228-01 (10/98)
Federated Name, Logo]
1940 Act File No. 811-4017
Statement of Additional Information December 31, 1998
Federated Growth Strategies Fund
[A Portfolio of Federated Equity Funds]
Class A Shares, Class B Shares, Class C Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Growth Strategies
Fund (Fund), dated December 31, 1998. This SAI incorporates by reference the
Fund's Annual Report.
Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.
Table of Contents
How is the Fund Organized
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
How to Buy Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services
to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
CUSIP 314172107
CUSIP 314172206
CUSIP 314172305
G01228-02(10/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversifiedportfolio of Federated Equity Funds (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on April 17, 1984. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares). This
SAI relates to all classes of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Equity securities represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Preferred stocks have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
Warrants give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are
typically issued to existing stockholders.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The Credit Risks of corporate debt securities vary
widely among issuers.
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.Insurance contracts include guaranteed
investment contracts, funding agreements and annuities.
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities convertible into shares of common stock at a conversion price
of $10 per share. If the market value of the shares reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income securities
to compensate for the value of the conversion option. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Derivative Contracts are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Futures contracts traded OTC
are frequently referred to as "forward contracts." Entering into a contract
to buy is commonly referred to as buying or purchasing a contract or holding
a long position. Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position. Futures are considered to be
commodity contracts.
The Fund may buy and sell financial futures and futures on indices.
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy put options on portfolio securities and futures in anticipation of a
decrease in the value of the underlying asset.
Write call options on portfolio securities to generate income from premiums,
and in anticipation of a decrease or only limited increase in the value of
the the underlying asset. If a call written by a Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Foreign Securities are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S. In
addition to the risks normally associated with U.S. securities of the same type,
Foreign Securities are subject to Country Risk and Currency Risk. [Trading in
certain foreign markets is also subject to Liquidity Risk.]
Depositary Receipts represent interests in underlying securities issued by a
foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are
traded in the U.S. ADRs provide a way to buy shares of foreign-based
companies in the U.S. rather than in overseas markets. ADRs are also traded
in U.S. dollars, eliminating the need for foreign exchange transactions. The
foreign securities underlying European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs), and International Depositary Receipts (IDRs), are
traded globally or outside the U.S. Depositary Receipts involve many of the
same risks of investing directly in foreign securities, including Country
Risk and Currency Risk.
Foreign Exchange Contracts. In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, the Fund may
enter into "spot" currency trades. The Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. Use of these
derivative contracts may increase or decrease the Fund's exposure to Currency
Risk.
Foreign Government Securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
Special Transactions
Repurchase Agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
When Issued Transactions are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
Securities Lending. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy.. In return,, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies, including the
securities of affiliated money market funds, as an efficient means of
carrying out its investment policies and managing its uninvested cash. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of
other investment companies may be subject to such duplicate expenses.
EQUITY SECURITIES INVESTMENT RISKS
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
FIXED INCOME SECURITIES INVESTMENT RISKS
Bond Market Risk
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risk
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating service's assessment
of the likelihood of default by the issuer. The lower the credit rating, the
greater the credit risk. In the case of unrated securities, the Fund must
rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or disrupt management of the Fund's portfolio
.
Call Risk
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a "call") at a price below it's current market
price. An increase in the likelihood of a call may reduce the security's
price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Liquidity Risks
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunities, making it
more difficult to sell or buy the security at a favorable price or time. In
response, the Fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk [also] refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it wants to.
If this happens, the Fund will be required to continue to hold the security
or keep the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Associated with Noninvestment Grade Securities
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
INVESTMENT LIMITATIONS
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry.
However, the Fund may at times invest 25% or more of the value of its total
assets in cash or cash items (not including certificates of deposit), securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or repurchase agreements secured by such instruments.
Investing in Commodities
The Fund will not purchase or sell commodities. The Fund reserves the right to
purchase financial futures and put options on stock index futures and on
financial futures.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in the
securities of companies whose business involves the purchase or sale of real
estate, or in securities which are secured by real estate or interests in real
estate.
Buying on Margin
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions and may
make margin payments in connection with buying financial futures, put options on
stock index futures, and put options on financial futures.
Selling Short
The Fund will not sell securities short unless at all times when a short
position is open, it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for securities of the same issuer as, and equal in amount to, the securities
sold short; and unless not more than 10% of the value of the Fund's net assets
(taken at current value) is held as collateral for such sales at any one time.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except as permitted by its investment
objective and policies, and except that the Fund may borrow money and engage in
reverse repurchase agreements only in amounts up to one-third of the value of
its net assets, including the amounts borrowed. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage, but rather
as a temporary, extraordinary, or emergency measure, or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any such
borrowings (including reverse repurchase agreements) are outstanding.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities. This shall
not prevent the purchase or holding of corporate or government bonds,
debentures, notes, certificates of indebtedness, or other debt securities of an
issuer, repurchase agreements, or other transactions which are permitted by the
Fund's investment objective and policies or Declaration of Trust.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral exploration
or development programs, although it may purchase the securities of issuers
which invest in or sponsor such programs.
Diversification of Investments
The Fund will not purchase the securities of any issuer (other than securities
of the U.S. government, its agencies, or instrumentalities, or instruments
secured by securities of such issuers, such as repurchase agreements) if, as a
result, more than 5% of the value of its total assets would be invested in the
securities of such issuer or acquire more than 10% of any class of voting
securities of any issuer. For these purposes, the Fund takes all common stock
and all preferred stock of an issuer each as a single class, regardless of
priorities, series, designations, or other differences.
The above investment limitations cannot be changed unless authorized by the vote
of a majority of its outstanding voting securities. The following limitations,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material changes in these limitations
become effective.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days after notice and certain restricted securities not
determined by the Trustees to be liquid.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets, except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing.
Writing Covered Call Options
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
Acquiring Securities
The Fund will not purchase securities of a company for the purpose of exercising
control or management. However, the Fund may invest in up to 10% of the voting
securities of any one issuer and may exercise its voting powers consistent with
the best interests of the Fund. In addition, the Fund, other companies advised
by the Fund's investment adviser, and other affiliated companies may together
buy and hold substantial amounts of voting stock of a company and may vote
together in regard to such company's affairs. In some such cases, the Fund and
its affiliates might collectively be considered to be in control of such
company. In some cases, Trustees and other persons associated with the Fund and
its affiliates might possibly become directors of companies in which the Fund
holds stock.
Investing in Restricted and Illiquid Securities
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 15% of its net assets.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. The Fund did not borrow money, sell securities short, or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year. Short selling may accelerate the recognition of gains.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
Quantity Discounts. Larger purchases of the same Share class reduce the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases. If you make an additional purchase of Shares, you can
count previous Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.
Concurrent Purchases. You can combine concurrent purchases of the corresponding
Share class of two or Federated Funds in calculating the applicable sales
charge.
Letter of Intent. You can sign a letter of intent committing to purchase a
certain amount of the same or corresponding class of Shares within a 13 month
period in order to combine such purchases in calculating the applicable sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete your commitment, the escrowed Shares
will be released to your account. If you do not complete your commitment within
13 months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.
Reinvestment Privilege. You may reinvest, within 120 days, your Share redemption
proceeds at the next determined NAV, without any sales charge. This sales charge
elimination is offered because a sales charge was previously assessed.
Purchases by Affiliates of the Fund. The following individuals and their
immediate family members may buy Shares at NAV without any sales charge because
there are nominal sales efforts associated with their purchases:
o the Trustees, employees, and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates; o Employees of State Street Bank
Pittsburgh who started their employment on January 1, 1998, and were employees
of Federated Investors,
Inc. (Federated) on December 31, 1997;
o any associated person of an investment dealer who has a sales agreement with
the Distributor; and o trusts, pension or profit-sharing plans for these
individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
o representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account[,] following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements; o which are qualifying redemptions of
Class B Shares under a Systematic Withdrawal Program (as described below); o of
Shares that represent a reinvestment within 120 days of a previous redemption
that was assessed a CDSC; o of Shares held by the Directors/Trustees, employees,
and sales representatives of the Fund, the Adviser, the Distributor and their
affiliates; employees of any investment professional that sells Shares
pursuant to a sales agreement with the Distributor; and the immediate family
members of the foregoing persons; and
o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professional for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professional receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professional may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to
a reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares. Investment professionals purchasing Class A Shares for their
customers are eligible to receive an advance payment from the distributor based
on the following breakpoints:
Advance Payments
as a Percentage of
Transaction Amount Public Offering Price
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program. Investment professionals must notify the Fund once an account
reaches $1 million in order to qualify for advance payments.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC will be waived
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
<PAGE>
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professional holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of 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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of October 22, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class C Shares of the Fund:
MLPF&S for the sole benefit of its customers, Jacksonvill, FL, owned
approximately 32,552 shares (5.92%); and Laurel Trust Company, Johnstown, PA,
owned approximately 27,548 shares (5.01%).
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of seven funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of October 22, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Class A, B, C
Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
John F. Donahue*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Thomas G. Bigley
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
John T. Conroy, Jr.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Nicholas Constantakis
175 Woodshire Drive, Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Partner, Andersen
Worldwide SC;
Compensation from Trust $______
Compensation from Federated Fund Complex $______
William J. Copeland
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
James E. Dowd, Esq.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly, President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly, Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Edward L. Flaherty, Jr., Esq.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly,
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Peter E. Madden
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly, Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly, Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Marjorie P. Smuts
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Glen R. Johnson
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
J. Christopher Donahue
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
<PAGE>
Edward C. Gonzales
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
John W. McGonigle
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Richard B. Fisher
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.;
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services. Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting those brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal year ended October 31, 1998, the Fund's adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $___ for which the Fund
paid $___ in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year ended
October 31,
1998 1997 1996
Advisory Fee Earned............$............$.............$
Advisory Fee Reduction.........$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
12b-1 Fee......................$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Shareholder Services Fee.......$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-, five- and ten-year or since inception
periods
ended October 31, 1998.
Yield given for the 30-day period endedOctober 31, 1998.
- -------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------
- -------------------------------------------------------
Total Return
- -------------------------------------------------------
- -------------------------------------------------------
One Year: % % %
Five Year: % NA NA
Ten Year: % NA NA
Since Inception: NA %* %*
- -------------------------------------------------------
- -------------------------------------------------------
Yield
- -------------------------------------------------------
- -------------------------------------------------------
% % %
- -------------------------------------------------------
*Class A Share's inception date was August 23, 1984. Class B and Class C Shares'
inception date was August 15, 1995.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
<PAGE>
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices; o charts, graphs and illustrations
using the Fund's returns, or returns in general, that demonstrate investment
concepts such as
tax-deferred compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Standard & Poor's Low-Priced Index compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and year-to-date.
Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income mutual
funds. The highest rating is One, and ratings are effective for one month.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc., analyzes
price, current yield, risk, total return, and average rate of return (average
annual compounded growth rate) over specified time periods for the mutual fund
industry.
<PAGE>
Dow Jones Industrial Average (DJIA). Represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
Financial publications. The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, Fortune and Money magazines, among others--provide
performance statistics over specified time periods.
Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Morningstar, Inc. An independent rating service, is the publisher of the
bi-weekly Mutual Fund Values, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
Lipper Growth Fund Average is an average of the total returns for 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.
Lipper Growth Fund Index is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.
Stategic Insight Mutual Fund Research and Consulting, ranks funds in various
fund categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a specified
period of time. From time to time, the Fund will quote its Strategic Insight
ranking in the "growth funds" category in advertising and sales literature.
Mutual Fund Source Book, published by Morningstar, Inc., analyzes price, yield,
risk, and total return for equity and fixed income funds.
Value Line Composite Index, consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.
Strategic Insight Growth Funds Index consists of mutual funds that invest in
well-established companies primarily for long-term capital gains rather than
current income.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
Municipal funds. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
Equity funds. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
<PAGE>
Corporate bond funds. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
Government funds. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
Money market funds. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high
yield - J. Thomas Madden; U.S. fixed income -
William D. Dawson, III; and global equities and fixed income - Henry A.
Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
Mutual Fund Market. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
Bank Marketing. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
FINANCIAL INFORMATION
To be filed by amendment.
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
o Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
o Well established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
Federated Growth Strategies Fund
Class A, Class B, Class C
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
Prospectus December 31, 1998
FEDERATED SMALL CAP STRATEGIES FUND
Class A Shares, Class B Shares, Class C Shares
A mutual fund seeking capital appreciation by investing primarily in equity
securities of small-cap companies.
Fund Shares are not bank deposits, federally insured, or guaranteed, and may
lose value. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Table of Contents
Risk/Return Summary What are the Fund's Fees and Expenses? What are the Fund's
Investment Strategies?
What are the Principal Securities in Which the Fund Invests? What are the
Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide capital appreciation.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies that fall within the market
capitalization range of the S&P 600 Small Cap Index. The Adviser invests in
companies that offer growth prospects or in companies whose stock is
undervalued.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money. Other risks of investing in the Fund include:
Liquidity Risks, Risks Related to Company Size, Sector Risk, and Risk of Foreign
Investing.
<PAGE>
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class B Shares of Federated Small
Cap Strategies Fund as of the calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0.00" and
increasing in increments of 5 up to 35.
The `x' axis represents calculation periods for the last two calendar
years of the Trust, beginning with the earliest year. The light gray
shaded chart features two distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for
the calendar year stated directly at its base. The calculated total return
percentages for the Class B Shares of Federated Small Cap Strategies Fund,
stated directly at the top of each respective bar for the calendar years
1996 and 1997, are 34.15% and 13.40%.
The Bar Chart shows the variability of the Fund's Class B Shares on a yearly
basis.
The Fund's Class B Shares are sold subject to a contingent deferred sales charge
(load). The impact of the contingent deferred sales charges are not reflected in
the total returns above, and if these amounts were reflected, the returns would
be lower than those shown.
The Fund's Class B Shares average annual total return as of the most recent
calendar quarter of September 30, 1998 was -19.18%.
Within the period shown in the Chart, the Fund's Class B Shares highest
quarterly return was 22.19% (quarter ended September 30, 1997). Its lowest
quarterly return was -11.35% (quarter ended December 31, 1997).
Average Annual Total Return for the Fund's Class A, Class B, and Class C Shares,
compared to the Russell 2000 Index (RUS2).
Calendar Period Class A Class B Class C RUS2
1 Year __ % __% __% __%
Since Inception* ......__ % __% __% __%
* The start of performance date for the Class A, Class B, and Class C Shares was
November 1, 1995.
The table shows the Fund's Class A, Class B, and Class C Shares average annual
total returns compared to the RUS2, a broad-based market index.
While past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED SMALL CAP STRATEGIES FUND
Fees and Expenses ..................
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund's Class A, B, and C Shares.
Shareholder Fees ( fees paid directly from your investment)
Class A Class B Class C
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............... 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
( as a percentage of offering price)........................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee...................................................None None None
Maximum Account Fee...............................................................................................................
None None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) (as
a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Management Fee ................................................0.75% 0.75% 0.75%
Shareholder Services Fee ......................................0.25% 0.25% 0.25%
Distribution (12b-1) Fee.......................................0.25% 0.75% 0.75%
Other Expenses ................................................____% ___% ____%
Total Annual Fund Operating Expenses (before waivers).......... ____% ____% ___%
</TABLE>
Although not contractually obligated to do so, the adviser waived and
distributor reimbursed certain amounts. These are shown below along with the net
expenses the Fund ACTUALLY paid for the fiscal year ended October 31, 1998.
Waiver of Fund expenses
(2)(3).........................................................................
- ---% ----% ---% Total Actual Annual Fund Operating Expenses (after
waivers)..................................................................____%
____%(4) ____%
(1) Shareholders who purchased $1 million or more of Class A Shares through an
investment professional on or after August 3, 1998 may be charged a contingent
deferred sales charge (load) of 0.75% for redemptions made within 24 months of
purchase if the investment professional received an advance payment. For
shareholders of Class B Shares, the maximum deferred sales charge (load) is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred sales
charge ( load) assessed is 1.00% of the lesser of the original purchase price or
the net asset value of Shares redeemed within one year of their purchase date.
(2) The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund ( after the voluntary waiver) was ___% for the year ended October
31, 1998.
(3) Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended October 31, 1998. Class A Shares has no present intention of paying
or accruing the distribution (12b-1) fee during the year ended October 31, 1999.
(4) Class B Shares convert to Class A Shares ( which pay lower ongoing expenses)
approximately eight years after purchase.
The following Example is intended to help you compare the cost of investing in
the Fund's Class A, Class B, and Class C Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B, and
Class C Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Class A, Class B, and Class C Shares
operating expenses are before waivers as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be: Example: Class A Class B Class C Payment of the maximum
sales charge: 1 Year 3 Years 5 Years 10 Years
Expenses assuming no redemption:
1 Year
3 Years
5 Years
10 Years..........
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies that fall within the market
capitalization range of the S&P 600 Small Cap Index (Index). As of October 21,
1998 this range was $18.5 million to $3.2 billion. Market capitalization is
determined by multiplying the number of outstanding shares by the current market
price per share.
The Adviser invests in companies that offer growth prospects or in companies
whose stock is undervalued. Using its own quantitative process, the Adviser
rates the future performance potential of companies. The Adviser evaluates each
company's earnings quality in light of their current valuation to narrow the
list of attractive companies. The Adviser then evaluates product positioning,
management quality and sustainability of current growth trends of those
companies. Using this type of fundamental analysis, the Adviser selects the most
promising companies for the Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the Index. The Fund's allocation to a sector will not be less than 50% or more
than 200% of the Index's allocation to that sector. The Fund ordinarily will
hold between 80 and 300 companies in its portfolio.
The Fund will also seek capital appreciation by buying securities in initial
public offerings. The Fund will participate in such offerings without regard to
the issuer's market capitalization. The Adviser will select initial public
offerings based solely on its fundamental analysis of the issuer.
The Fund may attempt to manage market risk by buying and selling financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small capitalization
stocks economically.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
American Depositary Receipts represent interests in underlying securities issued
by a foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are traded
in the U.S. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. Depositary Receipts
involve many of the same risks of investing directly in foreign securities,
including Country Risk and Currency Risk
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Stock Market Risks
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
Liquidity Risks
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
Sector Risk
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. As the adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
Risk of Foreign Investing
Exchange rates for currency fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
Portfolio Turnover. The Fund may actively trade its portfolio securities in an
attempt to achieve its investment objective. Active trading will cause the Fund
to have an increased portfolio turnover rate, which is likely to generate
shorter-term gains (losses) for its shareholders, which are taxed at a higher
rate than longer-term gains (losses). Actively trading portfolio securities
increases the Fund's trading costs and may have an adverse impact on the Fund's
performance.
Temporary Investments. The Fund may temporarily depart from its principal
investment strategies by investing its assets in cash, cash items, and
shorter-term, higher quality debt securities. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to give up greater investment
returns to maintain the safety of principal, that is, the original amount
invested by shareholders.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.
The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open..
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
- -------------------------------------------------------------------------
Maximum Sales Charge
Shares Offered Minimum Front-End Contingent
Initial/Subsequent Sales Deferred
Investment Charge(2) Sales
Amounts(1) Charge(3)
- -------------------------------------------------------------------------
Class A $1500/$100 5.50% None
Class B $1500/$100 None 5.50%
Class C $1500/$100 None 1.00%
(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be invested
in Class A Shares instead of Class B Shares in order to maximize your return
and to minimize the sales charges and marketing fees. Accounts held in the
name of an investment professional may be treated differently. Class B Shares
will convert to Class A Shares at NAV approximately eight years after
purchase.
(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.
(3) See Sales Charge When You Redeem below.
<PAGE>
SALES CHARGE WHEN YOU PURCHASE
------------------------------------------------------------
Class A Shares
------------------------------------------------------------
------------------------------------------------------------
Purchase Amount Sales Charge as Sales Charge
a Percentage of as a
Public Offering Percentage of
Price NAV
------------------------------------------------------------
------------------------------------------------------------
Less than $50,000 5.50% 5.82%
------------------------------------------------------------
------------------------------------------------------------
$50,000 but less than 4.50% 4.71%
$100,000
------------------------------------------------------------
------------------------------------------------------------
$100,000 but less than 3.75% 3.90%
$250,000
------------------------------------------------------------
------------------------------------------------------------
$250,000 but less than 2.50% 2.56%
$500,000
------------------------------------------------------------
------------------------------------------------------------
$500,000 but less than 2.00% 2.04%
$1 million
------------------------------------------------------------
------------------------------------------------------------
$1 million or greater(1) 0.00% 0.00%
------------------------------------------------------------
------------------------------------------------------------
(1) A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase if an
investment professional received an advance payment on the transaction.
------------------------------------------------------------
The sales charge at purchase may be reduced or eliminated by: opurchasing
Shares in greater quantities to reduce the applicable sales charge;
ocombining concurrent purchases of Shares:
oby you, your spouse, and your children under age 21; or
oof the same class of two or more Federated Funds (other than money
market funds);
oaccumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
osigning a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
The sales charge will be eliminated when you purchase Shares: owithin 120
days of redeeming Shares of an equal or lesser amount; oas a Federated
Life Member; oby exchanging shares from the same share class of another
Federated Fund (other than a money market fund); othrough wrap accounts or
other investment programs where you pay the investment professional
directly for services; or othrough investment professionals that receive
no portion of the sales charge.
If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional must notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. You will
receive the reduced sales charge only on additional purchases, and not
retroactively on your previous purchases.
<PAGE>
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
------------------------------------------------------------
Class B Shares
------------------------------------------------------------
------------------------------------------------------------
Shares Held Up To: CDSC
------------------------------------------------------------
------------------------------------------------------------
1 year 5.50%
------------------------------------------------------------
------------------------------------------------------------
2 years 4.75%
------------------------------------------------------------
------------------------------------------------------------
3 years 4.00%
------------------------------------------------------------
------------------------------------------------------------
4 years 3.00%
------------------------------------------------------------
------------------------------------------------------------
5 years 2.00%
------------------------------------------------------------
------------------------------------------------------------
6 years 1.00%
------------------------------------------------------------
------------------------------------------------------------
7 years or more 0.00%
------------------------------------------------------------
------------------------------------------------------------
Class C Shares
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
------------------------------------------------------------
You will not be charged a CDSC when redeeming Shares:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
where the original shares were held for seven years or more (other than a
money market fund);
opurchased through investment professionals that did not receive advanced
sales payments; or oif you have certain disabilities as defined by the
IRS.
<PAGE>
In addition, you will not be charged a CDSC:
owhen the Fund redeems your Shares and closes your account for failing to
meet the minimum balance requirement;
oif your redemption is a required retirement plan distribution;
oupon the death of the shareholder(s) of the account or the redemption of
Shares by a designated beneficiary.
If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.
To keep the sales charge as low as possible, the Fund redeems your Shares
in this order:
oShares that are not subject to a CDSC;
oShares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of other Federated Funds
that have been exchanged for Shares of this Fund); and
othen, the CDSC is based on the NAV at the time you purchased or redeemed
those Shares, whichever is lower.
HOW IS THE FUND SOLD?
The Fund offers three share classes: Class A Shares, Class B Shares and Class C
Shares, each representing interests in a single portfolio of securities.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
(Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the Class
choice on your form of payment, you automatically will receive Class A Shares.
<PAGE>
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within three business days. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New Account
Form; and w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
By Wire. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally
payable to someone other than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
<PAGE>
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or o directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
By Telephone. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
By Mail. You may redeem or exchange Shares by mailing a written request to the
Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by private courier or overnight delivery to: Federated Shareholder
Services Company 1099 Hingham Street, Rockland, MA 02370-3317.
All requests must include:
o Fund Name and Share Class, account number and account registration; o amount
to be redeemed or exchanged; o signatures of all Shareholders exactly as
registered; and
o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days; w a redemption is payable to someone other than the
shareholder(s) of record; or w if exchanging (transferring) into another fund
with a different shareholder registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, but not by a notary
public.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
Redemption in Kind. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must: w ensure that the Share registrations are
identical; w meet any minimum initial investment requirements; and w receive a
prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
<PAGE>
Systematic Withdrawal Program (SWP) On Class B Shares. You will not be
charged a CDSC on SWP redemptions if: w you redeem 12% or less of your
account value in a single year; w your account is at least one year old; w
you reinvest all dividends and capital gains distributions; and w your
account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to
meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
ADDITIONAL CONDITIONS
Telephone Transactions. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
Share Certificates. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
<PAGE>
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.Please consult your tax adviser
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The Fund's
portfolio managers are:
Aash M. Shah has been the Fund's portfolio manager since its inception. Mr. Shah
joined Federated Investors, Inc. or its predecessor in 1993 and has been a Vice
President of the Fund's investment adviser since January 1997. Mr. Shah served
as an Assistant Vice President of the investment adviser from 1995 to 1996, and
as an Investment Analyst from 1993 to 1995. Mr. Shah was employed at
Westinghouse Credit Corp. from 1990 to 1993 as an Investment Analyst. Mr. Shah
received his Masters in Industrial Administration from Carnegie Mellon
University with a concentration in finance and accounting. Mr. Shah is a
Chartered Financial Analyst.
Keith J. Sabol has been the Fund's portfolio manager since December 1997. Mr.
Sabol joined Federated Investors, Inc. or its predecessor in 1994 and has been
an Assistant Vice President of the Fund's investment adviser since January 1997.
Mr. Sabol was an Investment Analyst, and then Equity Research Coordinator for
the Fund's investment adviser from 1994 to 1996. During 1992 and 1993, Mr. Sabol
earned his M.S. in Industrial Administration from Carnegie Mellon University.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Adviser receives an annual investment advisory fee of 0.75%% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Year 2000 Readiness. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets. The financial
impact of these issues for the Fund is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Fund.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights are intended to help you understand the
Fund's financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on a
per share basis. Total returns represent the rate an investor would have earned
(or lost) on an investment in the Fund, assuming reinvestment of all dividends
and distributions.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
To be filed by amendment.
<PAGE>
FEDERATED SMALL CAP STRATEGIES FUND
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
[A Portfolio of Federated Equity Funds]
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Cusip 314172404
Cusip 314172503
Cusip 314172602
G01228-04(10/98)
[ Federated Name, Logo]
1940 Act File No. 811-4017
Statement of Additional Information December 31, 1998
Federated Small Cap Strategies Fund
[A Portfolio of Federated Equity Funds]
Class A Shares, Class B Shares, Class C Shares
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Small Cap
Strategies Fund (Fund), dated December 31, 1998. This SAI incorporates by
reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.
Table of Contents
How is the Fund Organized
Securities in Which the Fund Invests
What Do Shares Cost?
How is the Fund Sold?
How to Buy Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services
to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
CUSIP 314172404
CUSIP 314172503
CUSIP 314172602
G01228-06(10/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversifiedportfolio of Federated Equity Funds (Trust). The Trust
is an open-end, management investment company that was established under the
laws of the Commonwealth of Massachusetts on April 17, 1984. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares). This
SAI relates to all classes of the above-mentioned Shares.
<PAGE>
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Equity securities represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Preferred stocks have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
Warrants give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are
typically issued to existing stockholders.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risk.
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
GSEs with implied support include __________. Investors regard agency
securities as having low credit risk, but not as low as Treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The Credit Risks of corporate debt securities vary
widely among issuers.
Commercial paper is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to Fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The short maturity of commercial paper reduces both the market and credit
risk as compared to other debt securities of the same issuer.
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Instruments denominated in U.S. dollars and
issued by Non-U.S. branches of U.S. or foreign banks are commonly referred
to as Eurodollar instruments. Instruments denominated in U.S. dollars and
issued by U.S. branches of foreign banks are referred o as Yankee
instruments.
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.Insurance contracts include guaranteed
investment contracts, funding agreements and annuities.
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities convertible into shares of common stock at a conversion price
of $10 per share. If the market value of the shares reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income securities
to compensate for the value of the conversion option. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Derivative Contracts are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Futures contracts traded OTC
are frequently referred to as "forward contracts." Entering into a contract
to buy is commonly referred to as buying or purchasing a contract or holding
a long position. Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position. Futures are considered to be
commodity contracts.
The Fund may buy and sell financial futures and futures on indices.
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy call options on portfolio securities, indexes and futures in anticipation
of an increase in the value of the the underlying asset.
Buy put options on portfolio securities, indexes and futures in anticipation
of a decrease in the value of the the underlying asset.
Write call options on portfolio securities, indexes and futures to generate
income from premiums, and in anticipation of a decrease or only limited
increase in the value of the the underlying asset. If a call written by a
Fund is exercised, the Fund foregoes any possible profit from an increase in
the market price of the underlying asset over the exercise price plus the
premium received.
Write put options on portfolio securities, indexes and futures to generate
income from premiums, and in anticipation of an increase or only limited
decrease in the value of the underlying asset. In writing puts, there is a
risk that the Fund may be required to take delivery of the underlying asset
when its current market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Foreign Securities are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S. In
addition to the risks normally associated with U.S. securities of the same type,
Foreign Securities are subject to Country Risk and Currency Risk. [Trading in
certain foreign markets is also subject to Liquidity Risk.]
Depositary Receipts represent interests in underlying securities issued by a
foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are
traded in the U.S. ADRs provide a way to buy shares of foreign-based
companies in the U.S. rather than in overseas markets. ADRs are also traded
in U.S. dollars, eliminating the need for foreign exchange transactions. The
foreign securities underlying European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs), and International Depositary Receipts (IDRs), are
traded globally or outside the U.S. Depositary Receipts involve many of the
same risks of investing directly in foreign securities, including Country
Risk and Currency Risk.
Foreign Exchange Contracts. In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, the Fund may
enter into "spot" currency trades. The Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. Use of these
derivative contracts may increase or decrease the Fund's exposure to Currency
Risk.
Foreign Government Securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
Special Transactions
Repurchase Agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
When Issued Transactions are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
Securities Lending. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy. In return,, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
Investing in Securities of Other Investment Companies. The Fund may invest
its assets in securities of other investment companies, including the
securities of affiliated money market funds, as an efficient means of
carrying out its investment policies and managing its uninvested cash. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of
other investment companies may be subject to such duplicate expenses.
Hedging activities are intended to reduce various kinds of risks. For example,
in order to protect against certain events that might cause the value of its
portfolio securities to decline, the Fund can buy or sell a derivative contract
(or a combination of derivative contracts) intended to rise in value under the
same circumstances. Hedging activities will not eliminate risk, even if they
work as they are intended to. In addition, these strategies are not always
successful, and could result in increased expenses and losses to the Fund.
EQUITY SECURITIES INVESTMENT RISKS
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
FIXED INCOME SECURITIES INVESTMENT RISKS
Bond Market Risk
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
Credit Risk
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating service's assessment
of the likelihood of default by the issuer. The lower the credit rating, the
greater the credit risk. In the case of unrated securities, the Fund must
rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or disrupt management of the Fund's portfolio
.
Call Risk
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a "call") at a price below it's current market
price. An increase in the likelihood of a call may reduce the security's
price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Liquidity Risks
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunities, making it
more difficult to sell or buy the security at a favorable price or time. In
response, the Fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
Liquidity risk [also] refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it wants to.
If this happens, the Fund will be required to continue to hold the security
or keep the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Risks Associated with Noninvestment Grade Securities
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
Leverage Risk
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures contracts, put
options on stock index futures, put options on financial futures and portfolio
securities, and writing covered call options, but may obtain such short-term
credits as are necessary for the clearance of purchases and sales of portfolio
securities. The deposit or payment by the Fund of initial or variation margin in
connection with financial futures contracts or related options transactions is
not considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow money
directly or through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amount borrowed. The Fund will not
borrow money or engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any borrowings
in excess of 5% of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. For purposes of this limitation, the following will not be
deemed to be pledges of the Fund's assets: margin deposits for the purchase and
sale of financial futures contracts and related options, and segregation or
collateral arrangements made in connection with options activities or the
purchase of securities on a when-issued basis.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any one
industry, except that the Fund may invest 25% or more of the value of its total
assets in securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, and repurchase agreements collateralized by such
securities.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, the Fund may purchase put options on stock
index futures, put options on financial futures, stock index futures contracts,
and put options on portfolio securities, and may write covered call options.
Investing in Real Estate
The Fund will not buy or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
<PAGE>
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, and limitations or the
Trust's Declaration of Trust.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities issued by any one issuer (other than cash,
cash items, or securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets would
be invested in the securities of that issuer, and will not acquire more than 10%
of the outstanding voting securities of any one issuer. For these purposes, the
Fund takes all common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
The above investment limitations cannot be changed unless authorized by the vote
of a majority of its outstanding voting securities. The following limitations,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material changes in these limitations
become effective.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days after notice, non-negotiable fixed time deposits with
maturities over seven days, over-the-counter options, and certain restricted
securities not determined by the Trustees to be liquid.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for the purpose of exercising
control or management.
Writing Covered Call Options
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment. Investing in Restricted and Illiquid Securities
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 15% of its net assets.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund has no present intent to borrow money, pledge securities, or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
in the coming fiscal year. In addition, the Fund expects to lend not more than
5% of its total assets in the coming fiscal year.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
Quantity Discounts. Larger purchases of the same Share class reduce the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases. If you make an additional purchase of Shares, you can
count previous Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.
Concurrent Purchases. You can combine concurrent purchases of the
corresponding Share class of two or Federated Funds in calculating the
applicable sales charge.
Letter of Intent. You can sign a letter of intent committing to purchase a
certain amount of the same or corresponding class of Shares within a 13 month
period in order to combine such purchases in calculating the applicable sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete your commitment, the escrowed Shares
will be released to your account. If you do not complete your commitment within
13 months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.
Reinvestment Privilege. You may reinvest, within 120 days, your Share redemption
proceeds at the next determined NAV, without any sales charge. This sales charge
elimination is offered because a sales charge was previously assessed.
Purchases by Affiliates of the Fund. The following individuals and their
immediate family members may buy Shares at NAV without any sales charge because
there are nominal sales efforts associated with their purchases:
o the Trustees, employees, and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates; o Employees of State Street Bank
Pittsburgh who started their employment on January 1, 1998, and were employees
of Federated Investors,
Inc. (Federated) on December 31, 1997;
o any associated person of an investment dealer who has a sales agreement with
the Distributor; and o trusts, pension or profit-sharing plans for these
individuals.
<PAGE>
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
o representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account[,] following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements; o which are qualifying redemptions of
Class B Shares under a Systematic Withdrawal Program (as described below); o of
Shares that represent a reinvestment within 120 days of a previous redemption
that was assessed a CDSC; o of Shares held by the Directors/Trustees, employees,
and sales representatives of the Fund, the Adviser, the Distributor and their
affiliates; employees of any investment professional that sells Shares
pursuant to a sales agreement with the Distributor; and the immediate family
members of the foregoing persons; and
o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professional for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professionals.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professional receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professional may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When an investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to
a reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
Class A Shares. Investment professionals purchasing Class A Shares for their
customers are eligible to receive an advance payment from the distributor based
on the following breakpoints:
Advance Payments
as a Percentage of
Transaction Amount Public Offering Price
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program. Investment professionals must notify the Fund once an account
reaches $1 million in order to qualify for advance payments.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC will be waived
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professional holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust 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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of 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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of October 22, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class A Shares of the Fund:
FROJACK Co. #2006513, First National Bank North Dakota, Grand Forks, ND, owned
approximately 490,109 shares (5.31%).
As of October 22, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class B Shares of the Fund:
MLPF&S for the sole benefit of its customers, Jacksonville, FL, owned
approximately 1,073,340 shares (8.33%).
As of October 22, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class C Shares of the Fund:
MLPF&S for the sole benefit of its customers, Jacksonville, FL, owned
approximately 466,915 shares (20.82%); and HUBCO, Regions Financial Corp.,
Birmingham, AL, owned approximately 313,043 shares (13.96%).
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Trust is comprised of seven funds and the Federated Fund
Complex is comprised of 56 investment companies, whose investment advisers are
affiliated with the Fund's Adviser.As of October 22, 1998, the Fund's Board and
Officers as a group owned less than 1% of the Fund's outstanding Class A, B, C
Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
John F. Donahue*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Thomas G. Bigley
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
John T. Conroy, Jr.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Trustee
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Nicholas Constantakis
175 Woodshire Drive, Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Partner,
Andersen Worldwide SC;
Compensation from Trust $______
Compensation from Federated Fund Complex $______
William J. Copeland
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
James E. Dowd, Esq.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly, President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly, Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Edward L. Flaherty, Jr., Esq.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly,
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Peter E. Madden
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Federated Fund Complex; formerly, Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly, Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly, Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Marjorie P. Smuts
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
Glen R. Johnson
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors, Inc.; staff member, Federated Securities Corp.
Compensation from Trust $______
Compensation from Federated Fund Complex $______
J. Christopher Donahue
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F. Donahue, Chairman and Trustee of the Trust.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
<PAGE>
Edward C. Gonzales
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
John W. McGonigle
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Trust $0
Compensation from Federated Fund Complex $0
Richard B. Fisher
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.;
Compensation from Trust $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Other Related Services. Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Research Services. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting those brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal year ended October 31, 1998, the Fund's adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $___ for which the Fund
paid $___ in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
For the Year ended
October 31,
1998 1997 1996
Advisory Fee Earned............$............$.............$
Advisory Fee Reduction.........$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
12b-1 Fee......................$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Shareholder Services Fee.......$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Average Annual Total Returns and Yield
Total returns given for the one-, five- and ten-year or since inception
periods
ended October 31, 1998.
Yield given for the 30-day period endedOctober 31, 1998.
- -------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------
- -------------------------------------------------------
Total Return
- -------------------------------------------------------
- -------------------------------------------------------
One Year: % % %
Five Year: NA NA NA
Ten Year: NA NA NA
Since Inception: %* %* %*
- -------------------------------------------------------
- -------------------------------------------------------
Yield
- -------------------------------------------------------
- -------------------------------------------------------
% % %
- -------------------------------------------------------
*Class A, Class B and Class C Shares' inception date was November 1, 1995.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
<PAGE>
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices; o charts, graphs and illustrations
using the Fund's returns, or returns in general, that demonstrate investment
concepts such as
tax-deferred compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Russell 2000 Small Stock Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily in
small capitalization common stocks.
Standard & Poor's 600 Small Capitalization Index (S&P Small Cap 600) is an
unmanaged index of 600 small capitalization common stocks with a market
capitalization generally ranging between $80 million and $600 million. The
index, monitored by Standard & Poor's Corporation, is cited as an indicator of
small capitalization stock performance.
Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income mutual
funds. The highest rating is One, and ratings are effective for one month.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc., analyzes
price, current yield, risk, total return, and average rate of return (average
annual compounded growth rate) over specified time periods for the mutual fund
industry.
<PAGE>
Financial publications. The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, Fortune and Money magazines, among others--provide
performance statistics over specified time periods.
Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Lipper Small Company Growth Fund Average is an average of the total returns for
312 growth funds tracked by Lipper Analytical Services, Inc., an independent
mutual fund rating service.
Lipper Small Company Growth Fund Index is an average of the net asset-valuated
total returns for the top 30 small company growth funds tracked by Lipper
Analytical Services, Inc., an independent mutual fund rating service.
Morningstar, Inc. An independent rating service, is the publisher of the
bi-weekly Mutual Fund Values, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
Wilshire 5000 Equity Index consists of nearly 5,000 common equity securities,
covering all stocks in the U.S. for which daily pricing is available, and can be
used to compare to the total returns of funds whose portfolios are invested
primarily in common stocks.
Strategic Insight Small Company Growth Funds Index consists of mutual funds that
invest primarily in companies below $750 million in total market capitalization.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
Stategic Insight Mutual Fund Research and Consulting, ranks funds in various
fund categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a specified
period of time. From time to time, the Fund will quote its Strategic Insight
ranking in the "growth funds" category in advertising and sales literature.
Mutual Fund Source Book, published by Morningstar, Inc., analyzes price, yield,
risk, and total return for equity and fixed income funds.
Value Line Composite Index, consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
Municipal funds. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
Equity funds. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
Corporate bond funds. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
Government funds. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
Money market funds. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
Mutual Fund Market. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
Institutional Clients. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
Bank Marketing. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
FINANCIAL INFORMATION
To be filed by amendment.
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
o Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
o Well established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
Federated Small Cap Strategies Fund
Class A, Class B, Class C
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
PART C. OTHER INFORMATION.
Item 23. Exhibits
(a) Conformed copy of Declaration of Trust of the
Registrant; (11)
(i) Conformed copy of Amended and Restated
Declaration of Trust; (12)
(b) Copy of By-Laws of the Registrant as amended; (11)
(i) Copy of Amendment No. 2 to By-Laws, effective February 2, 1987; (11)
(ii) Copy of Amendment No. 3 to By-Laws, effective August 25, 1988; (11)
(iii) Copy of Amended and Restated By-Laws, effective August
15, 1995; (12) (iv) Copy of Amendment No. 5 to By-Laws,
effective February 23, 1998; (+)
(v) Copy of Amendment No. 6 to By-Laws, effective February 27, 1998; (+)
(vi) Copy of Amendment No. 7 to By-Laws, effective May 12, 1998; (+)
(c) (i) Copy of Specimen Certificate for Shares of Beneficial Interest of
the Registrant (Federated Small Cap Strategies
Fund); (7)
(ii) Copy of Specimen Certificate for Shares of Beneficial Interest of
the Registrant (Federated Growth Strategies Fund);
(8)
(iii) Copy of Specimen Certificate for Shares of Beneficial Interest of
the Registrant (Federated Capital Appreciation
Fund); (9)
(iv) Copy of Specimen Certificate for Shares of Beneficial Interest of
the Registrant (Federated Aggressive Growth Fund);
(13)
(d) (i) Conformed copy of Investment Advisory Contract on behalf
of the Registrant; (6) (ii) Conformed copy of Investment
Advisory Contract on behalf of the Registrant, which includes
......Exhibits A and B for Federated Small Cap Strategies
Fund and Federated Capital Appreciation
Fund, ..................respectively; (10)
+ All exhibits have been filed electronically.
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 29, 1994. (File Nos. 2-91090
and 811-4017)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed June 30, 1995. (File Nos. 2-91090 and
811-4017)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed July 17, 1995. (File Nos. 2-91090 and
811-4017)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed August 31, 1995. (File Nos. 2-91090 and
811-4017)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2- 91090
and 811-4017)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed June 11, 1996. (File Nos. 2-91090 and
811-4017)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed May 31, 1996. (File Nos. 2-91090 and
811-4017)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed December 30, 1996. (File Nos. 2-91090
and 811-4017)
<PAGE>
(iii) Conformed copy of Exhibit C to the Investment
Advisory Contract for Federated Aggressive
Growth ......Fund; (14)
(e) Conformed copy of Distributor's Contract of the Registrant;
(10)
(i) Conformed copy of Exhibit A to the Distributor's
Contract for Federated Small Cap Strategies Fund, Class
A Shares; (10)
(ii) Conformed copy of Exhibit B to the Distributor's
Contract for Federated Small Cap Strategies Fund, Class
B Shares; (10)
(iii) Conformed copy of Exhibit C to the Distributor's
Contract for Federated Small Cap Strategies Fund, Class
C Shares; (10)
(iv) Conformed copy of Exhibit D to the Distributor's
Contract for Federated Growth Strategies Fund, Class A
Shares; (10) (v) Conformed copy of Exhibit E to the
Distributor's Contract for Federated Growth Strategies Fund,
Class B Shares; (10)
(vi) Conformed copy of Exhibit F to the Distributor's
Contract for Federated Growth Strategies Fund, Class C Shares;
(10) (vii) Conformed copy of Exhibit G to the Distributor's
Contract for Federated Capital Appreciation Fund, Class A
Shares;
(10)
(viii) Conformed copy of Exhibit H to the Distributor's
Contract for Federated Capital Appreciation Fund, Class
B Shares; (10)
(ix) Conformed copy of Exhibit I to the Distributor's
Contract for Federated Capital Appreciation Fund, Class
C Shares; (10)
(x) Conformed copy of Exhibit J to the Distributor's
Contract for Federated Aggressive Growth Fund, Class A
Shares; (14) (xi) Conformed copy of Exhibit K to the
Distributor's Contract for Federated Aggressive Growth Fund,
Class B Shares; (14)
(xii) Conformed copy of Exhibit L to the Distributor's
Contract for Federated Aggressive Growth Fund, Class C Shares;
(14) (xiii) Conformed copy of Distributor's Contract (Class B
Shares); (16)
(xiv) Conformed copy of Amendment to the Distribution Plan
(Class B Shares); (16) (xv) The Registrant hereby
incorporates the conformed copy of the specimen Mutual Funds
Sales and Service Agreement;
Mutual Funds Service Agreement; and Plan Trustee/Mutual
Funds Service Agreement from Item 24(b)(6) of the Cash
Trust Series II Registration Statement on Form N-1A,
filed with the Commission on July 24, 1995.
(File No. 33-38550 and
811-6269)
(f) Not applicable;
+ All exhibits have been filed electronically.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2-
91090 and 811-4017)
14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 29 on Form N-1A filed May 29, 1997. (File Nos. 2-
910090 and 811-4017)
16. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 35 of Form N-1A filed December 30, 1997 (File
Nos. 2-910090 and 811-4017)
<PAGE>
(g) (i) Conformed Copy of the Custodian Agreement of the
Registrant; (6)
(ii) Conformed copy of Custodian Fee Schedule; (15)
(h) (i) Conformed copy of Amended and Restated Shareholder
Services Agreement; (15)
(ii) Conformed copy of Amended and Restated Agreement for
Fund Accounting Services, Administrative Services,
Shareholder
Transfer Agency Services and Custody Services
Procurement; (17)
(iii) Conformed copy of Principal Shareholder
Servicer's Agreement (Class B Shares); (16)
(iv) Conformed copy of Shareholder Services Agreement
(Class B Shares); (16)
(v) The responses and exhibits described in Item 23(e)(xv)
are hereby incorporated by reference.
(vi) The Registrant hereby incorporates by reference the
conformed copy of the Shareholder Services Sub-Contract
between Fidelity and Federated Shareholder Services from
Item 24(b)(9)(iii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the
Commission on March 25, 1996 (File Nos. 2-75670 and
811-3375).
(i) Conformed copy of the Opinion and Consent of Counsel
regarding legality of shares being registered; (6)
(j) Not applicable;
(k) Not applicable;
(l) Conformed copy of Initial Capital Understanding; (2)
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed February 28, 1985. (File Nos. 2-91090
and 811-4017)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 29, 1994. (File Nos. 2-91090
and 811-4017)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed October 30, 1997. (File Nos. 2- 91090
and 811-4017)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed December 30, 1997. (File Nos. 2-91090
and 811-4017)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 on Form N-1A filed October 9, 1998. (File Nos. 2-91090 and
811-4017)
<PAGE>
(m) Conformed Copy of Distribution Plan of the Registrant; (10)
(i) Conformed copy of Exhibit A to the Distribution Plan for
Federated Small Cap Strategies Fund, Class A Shares; (10)
(ii) Conformed copy of Exhibit B to the Distribution Plan for
Federated Small Cap Strategies Fund, Class B Shares; (10)
(iii) Conformed copy of Exhibit C to the Distribution Plan for
Federated Small Cap Strategies Fund, Class C Shares; (10)
(iv) Conformed copy of Exhibit D to the Distribution Plan for
Federated Growth Strategies Fund, Class B Shares; (10)
(v) Conformed copy of Exhibit E to the Distribution Plan
for Federated Growth Strategies Fund, Class C Shares;
(10)
(vi) Conformed copy of Exhibit F to the Distribution Plan for
Federated Capital Appreciation Fund, Class A Shares; (10)
(vii) Conformed copy of Exhibit I to the Distribution Plan for
Federated Aggressive Growth Fund, Class A Shares; (14)
(viii) Conformed copy of Exhibit J to the Distribution Plan for
Federated Aggressive Growth Fund, Class B Shares;(14) (ix)
Conformed copy of Exhibit K to the Distribution Plan for
Federated Aggressive Growth Fund, Class C Shares; (14)
(x) The responses described in Item 23(e)(xv) are hereby
incorporated by reference; (n) Not applicable.
(o) The Registrant hereby incorporates the conformed copy of
the specimen Multiple Class Plan from Item 24(b)(18) of
the World Investment Series, Inc. Registration Statement
on Form N-1A, filed with the Commission on January 26,
1996. (File Nos. 33-52149 and 811-07141);
(p) Conformed copy of Power of Attorney; (+)
Item 24. Persons Controlled by or Under Common Control with the Funds
None.
Item 25. Indemnification: (1)
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed July 9, 1984. (File Nos. 2-91090 and
811-4017)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2-91090
and 811-4017)
14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 29 on Form N-1A filed May 29, 1997. (File Nos. 2- 910090 and
811-4017)
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "Who Manages the Fund?"in Part A. The affiliations
with the Registrant of four of the Trustees and one of the Officers of
the investment adviser are included in Part B of this Registration
Statement under "Who Manages and Provides Services to the Fund?" The
remaining Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal occupation is:
Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107 W. Market
Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Keith J. Sabol
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Part B of
this Registration Statement.
Item 27. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end investment
companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Independence
One Mutual Funds; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Obligations Trust
II; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free Instruments Trust; The
Planters Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual
Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.;
World Investment Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; High Yield Cash Trust; Investment Series Trust; Peachtree Funds; Star
Funds; Targeted Duration Trust; The Virtus Funds; Trust for Financial
Institutions.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable.
<PAGE>
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(notices should be sent to the Agent for Service at above address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend 1001 Liberty Avenue
Disbursing Agent") Pittsburgh, PA 15222-3779
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, FEDERATED EQUITY FUNDS, has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, duly authorized, in the City of Pittsburgh and Commonwealth
of Pennsylvania, on the 30th day of October, 1998.
FEDERATED EQUITY FUNDS
BY: /s/ Matthew S. Hardin
Matthew S. Hardin, Assistant Secretary
Attorney in Fact for John F. Donahue
October 30, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Matthew S. Hardin Attorney In Fact October 30, 1998
Matthew S. Hardin For the Persons
ASSISTANT SECRETARY Listed Below
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
John W. McGonigle* Executive Vice President,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
Nicholas P. Constantakis* Trustee
William J. Copeland* Trustee
James E. Dowd, Esq.* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr., Esq.* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr., J.D., S.J.D.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit (b)(iv) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K
Federated Equity Funds
Amendment #5
to the By-Laws
(effective February 23, 1998)
Delete Sections 1, 2 and 3 of Article I, OFFICERS AND THEIR ELECTION, and
replace with:
Section 1. Officers. The Officers of the Trust shall be a President, one
or more Vice Presidents, a Treasurer, and a Secretary. The Board of
Trustees, in its discretion, may also elect or appoint a Chairman of the
Board of Trustees (who must be a Trustee) and other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries, and one or more Assistant Treasurers. A Vice President, the
Secretary or the Treasurer may appoint an Assistant Vice President, an
Assistant Secretary or an Assistant Treasurer, respectively, to serve
until the next election of Officers. Two or more offices may be held by a
single person except the offices of President and Vice President may not
be held by the same person concurrently. It shall not be necessary for any
Trustee or any Officer to be a holder of shares in any Series or Class of
the Trust.
Section 2. Election of Officers. The Officers shall be elected annually by
the Trustees. Each Officer shall hold office for one year and until the
election and qualification of his successor, or until earlier resignation
or removal. The Chairman of the Board of Trustees, if there is one, shall
be elected annually by and from the Trustees, and serve until a successor
is so elected and qualified, or until earlier resignation or removal.
Section 3. Resignations and Removals and Vacancies. Any Officer of the
Trust may resign at any time by filing a written resignation with the
Board of Trustees (or Chairman of the Trustees, if there is one), with the
President, or with the Secretary. Any such resignation shall take effect
at the time specified therein or, if no time is specified, at the time of
receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any Officer
elected by the Board of Trustees or whose appointment has been ratified by
the Board of Trustees may be removed with or without cause at any time by
a majority vote of all of the Trustees. Any other employee of the Trust
may be removed or dismissed at any time by the President. Any vacancy in
any of the offices, whether by resignation, removal or otherwise, may be
filled for the unexpired portion of the term by the President. A vacancy
in the office of Assistant Vice President may be filled by a Vice
President; in the office of Assistant Secretary by the Secretary; or in
the office of Assistant Treasurer by the Treasurer. Any appointment to
fill any vacancy shall serve subject to ratification by the Board of
Trustees at its next regular meeting.
Exhibit (b)(v) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K
Federated Equity Funds
Amendment #6
to the By-Laws
(effective February 27, 1998)
Delete Section 5 Proxies of Article IV Shareholders' Meetings, and replace with
the following:
Section 5. Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person, by telephone, by electronic means
including facsimile, or by proxy, but no proxy which is dated more than
six months before the meeting named therein shall be accepted unless
otherwise provided in the proxy. Every proxy shall be in writing,
subscribed by the shareholder or his duly authorized agent or be in such
other form as may be permitted by law, including documents conveyed by
electronic transmission. Every proxy shall be dated, but need not be
sealed, witnessed or acknowledged. The placing of a shareholder's name on
a proxy or authorizing another to act as the shareholder's agent, pursuant
to telephone or electronically transmitted instructions obtained in
accordance with procedures reasonably designed to verify that such
instructions have been authorized by such shareholder, shall constitute
execution of a proxy by or on behalf of such shareholder. Where Shares are
held of record by more than one person, any co-owner or co-fiduciary may
execute the proxy or give authority to an agent, unless the Secretary of
the Trust is notified in writing by any co-owner or co-fiduciary that the
joinder of more than one is to be required. All proxies shall be filed
with and verified by the Secretary or an Assistant Secretary of the Trust,
or the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid
after the final adjournment of such meeting.
Exhibit (b)(vi) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K
Federated Equity Funds
Amendment #7
to the By-Laws
(effective May 12, 1998)
Strike Section 3 - Place of Meeting of Article IV - Shareholders' Meetings and
replace it with the following:
Section 3. Place of Meeting. Meetings of the shareholders of the Trust or
a particular Series or Class shall be held at such place within or without
The Commonwealth of Massachusetts as may be fixed from time to time by
resolution of the Trustees.
Strike Section 6 - Place of Meeting of Article V - Trustees' Meetings and
replace it with the following:
Section 6. Place of Meeting. Meetings of the Trustees shall be held at
such place within or without The Commonwealth of Massachusetts as fixed
from time to time by resolution of the Trustees, or as the person or
persons requesting said meeting to be called may designate, but any
meeting may adjourn to any other place.
Exhibit (p) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretaries of FEDERATED EQUITY FUNDS and each of
them, their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and Trustee October 28, 1998
John F. Donahue (Chief Executive Officer)
/s/Glen R. Johnson President October 28, 1998
Glen R. Johnson
/s/John W. McGonigle Treasurer, Executive October 28, 1998
John W. McGonigle Vice President and Secretary
(Principal Financial and
Accounting Officer)
/s/Thoms G. Bigley October 28, 1998
Thomas G. Bigley
/s/John T. Conroy, Jr. October 28, 1998
John T. Conroy, Jr.
<PAGE>
SIGNATURES TITLE DATE
/s/Nicholas P. Constantakis October 28, 1998
Nicholas P. Constantakis
/s/William J. Copeland October 28, 1998
William J. Copeland
/s/James E. Dowd October 28, 1998
James E. Dowd
/s/Lawrence D. Ellis, M.D. October 28, 1998
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. October 28, 1998
Edward L. Flaherty, Jr.
/s/Peter E. Madden October 28, 1998
Peter E. Madden
/s/John E. Murray, Jr. October 28, 1998
John E. Murray, Jr.
/s/Wesley W. Posvar October 28, 1998
Wesley W. Posvar
/s/Marjorie P. Smuts October 28, 1998
Marjorie P. Smuts
Sworn to and subscribed before me this 28th day of October, 1998
/s/ Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
