PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report for Capital Growth Fund which
covers the six-month period from November 1, 1995, through April 30, 1996.
This report begins with an interview with portfolio manager Jim Grefenstette,
Assistant Vice President, Federated Research Corp. Next are two additional items
of shareholder interest: a complete listing of the fund's stock holdings and the
fund's financial statements.
Capital Growth Fund is managed to pursue long-term growth through a highly
diversified portfolio. The fund's portfolio includes common stocks and
convertible securities representing key business sectors with many familiar
names that you will recognize immediately.
This diversified portfolio performed very well in the highly favorable stock
market environment during the six-month period. The fund's Class A Shares
achieved a total return of 19.10% through dividend income of $0.01 per share,
capital gains of $1.67, and a 5% increase in net asset value. The fund's Class C
Shares achieved a total return of 18.74% through capital gains of $1.67 and a 5%
increase in net asset value.*
Thank you for participating in the growth potential of American companies
through Capital Growth Fund. We trust you were pleased with the positive
performance of your investment.
Sincerely,
J. Christopher Donahue
President
June 17, 1996
* Performance quoted is based on net asset value and reflects past performance.
Past performance is not indicative of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total returns for the
period based on offering price for Class A Shares and Class C Shares were
12.56% and 17.63%, respectively.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
A Discussion with Jim Grefenstette, Assistant Vice President, Federated Research
Corp.
Q While 1995 overall proved to be one of the most pleasantly memorable years
for stock investors, the first quarter of 1996 introduced a degree of
volatility. Do the positive signals still appear to outweigh the negatives?
A While the story has definitely become more complicated over the last couple
of quarters, we do believe that, the positives still outweigh the
negatives. In addition to the pickup in volatility, which is still below
long-term averages, interest rates have gone up measurably over the last six
months. On the other hand, however, the economy has continued to surprise us by
growing much faster than the experts anticipated. This has led to a good number
of companies reporting higher-than-expected earnings and should lead to
analysts' earnings projections being revised upward over the coming months. In
addition, the cash flow being put into stocks by individual investors is very
strong and is continuing to set new records. This bodes well for maintaining a
strong bid in the market for at least the near future.
Q How did Capital Growth Fund perform over the six-month reporting period
compared to the Lipper Growth Fund Average?
A The fund produced very strong total returns. For example, the Class A
Shares return was 19.10% based on net asset value, which includes capital
appreciation of the shares and adding income dividends and realized capital
gain to the fund's net asset value.* The return for Lipper Growth Fund Average
was 13.10%.**
Q Technology, Health Care, and Finance have been the fund's strongest
performing sectors. Do these sectors continue to offer high growth
potential?
A Technology has done well for us, and we think that it will be our strongest
sector for some time to come. Technology, as a whole, may not be an ultra
high growth sector every year, but, over the long run, it definitely is the
sector that offers the highest growth potential. Similarly, Health Care has done
well for us and we still like it. You may not see the big drug companies grow at
20% to 25% a year, as they did in the late 1980s, but we feel they will continue
to deliver earning growth at rates that are above the market averages. Finance
stocks tend to trade in the opposite direction of
*Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total return for the period based on
offering price for Class A Shares was 12.56%. Total return based on net asset
value and offering price for Class C Shares were 18.74% and 17.63%,
respectively.
**Lipper averages do not include the effect of sales charges.
- --------------------------------------------------------------------------------
interest rates. With rates drifting up, these stocks have been modest laggards.
We believe that rates will resume their longer term downward trend, and that
this will enhance the growth prospects and the stock prices in the finance
sector.
Q Can you list some of your current holdings, and provide a brief commentary
on each?
A CORRECTIONS CORP. OF AMERICA owns, operates and manages prisons for
governments. Private management saves governments 10-20% over their own
costs while providing a higher-quality facility. Fiscal responsibility is
in vogue with governments, so increased outsourcing of prisons is anticipated.
Currently the penetration of the private sector is low with only 3% market share
of prison beds. A public outcry against crime has led to the Crime Bill which
calls for 120,000 more prison beds and 100,000 more police officers. Corrections
Corp. of America is the market leader with 45-50% market share.
VETERINARY CENTERS OF AMERICA is the leader in the highly fragmented veterinary
hospital market. It will dwarf its private competitors upon the purchase of Pet
Practice (Pound2 in market and the only competitor). Veterinary Centers of
America is also the largest independent player in the niche vet lab business.
After this recent acquisition, Vet Centers will own 160 hospitals, 7 labs, and a
50.5% interest in the Vet's Choice (high-quality pet foods) joint venture with
H.J. Heinz. After buying Pet Practice, Vet Centers will still have less than 2%
of the market in revenues. This is a growth story that should last for years.
TRANS WORLD AIRLINES is the last of the airline-turnarounds. Prior management
saddled the company with debt and did not invest in technology, resulting in 2
bankruptcies and a significant operating disadvantage versus its competitors.
New management has been in place since 1994 (20 of 21 managers are new). Having
emerged out of the prepackaged bankruptcy in August 1995, Trans World Airlines
is now poised for a strong comeback.
QUINTILES TRANSNATIONAL is the largest outside provider of drug development
services to pharmaceutical and biotech companies. They help take new drugs from
pre-clinical trials all the way through to Food and Drug Administration
approval. Quintiles Transnational offers big and small drug companies access to
broader patient sample bases and expertise across more disease states than any
one company could manage alone. They are also at the forefront of
pharmacoeconomic consulting, which performs economic evaluations of drugs, a
crucial element in the determination of future drug pricing. This is one of the
fastest growing mid- to large-cap health care services companies around, with
earnings per share expected to grow at least 35%-40% annually for the next three
years.
SOLECTRON is the second-largest company in the electronic manufacturing services
sector. It specializes in the assembly of printed circuit boards, and provides a
full range of manufacturing services, including materials procurement, systems
integration, testing, and assistance in board design.
- --------------------------------------------------------------------------------
Larger customers include, Apple, AT&T, Bay Networks, Hewlett-Packard, Cisco,
Intel, IBM and Sun. With manufacturing capabilities in the U.S., Europe and the
Far East, Solectron is in good shape to meet the growing, global outsourcing
needs of these original equipment manufacturing.
ELECTRONIC DATA SYSTEMS is the dominant provider of systems integration, which
is the design and installation of new management information systems including
both the computer and telecommunications aspects. Electronic Data Systems also
specializes in facilities management, where they take on overall responsibility
for most of a client's data processing and managment information systems
operations. These are both high-growth, high-value-added businesses.
Q What is your outlook for growth stocks at this point in 1996?
A Growth stocks have tended to underperform relative to value stocks, when
economic growth was expected to increase. With the last two quarters of
economic growth coming in above expectations, growth stocks have traded
about in line with value stocks so far this year. We believe that the market
will begin to anticipate an economic "cooling off" towards year end and that
this will bode well for growth stocks for the second half of 1996 and into 1997.
CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--95.7%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--6.3%
------------------------------------------------------------------------------------
5,800 Barrick Gold Corp. $ 177,625
------------------------------------------------------------------------------------
1,300 Monsanto Co. 196,950
------------------------------------------------------------------------------------
4,700 Potash Corporation of Saskatchewan, Inc. 331,350
------------------------------------------------------------------------------------
4,600 Praxair, Inc. 177,675
------------------------------------------------------------------------------------
6,900 (a)UCAR International, Inc. 282,900
------------------------------------------------------------------------------------ -------------
Total 1,166,500
------------------------------------------------------------------------------------ -------------
CONSUMER DURABLES--4.2%
------------------------------------------------------------------------------------
4,800 Anthony Industries, Inc. 136,800
------------------------------------------------------------------------------------
4,060 General Motors Corp., Class E 228,882
------------------------------------------------------------------------------------
3,500 Harley Davidson, Inc. 154,437
------------------------------------------------------------------------------------
5,600 (a)Oakley, Inc. 257,600
------------------------------------------------------------------------------------ -------------
Total 777,719
------------------------------------------------------------------------------------ -------------
CONSUMER NON-DURABLES--5.8%
------------------------------------------------------------------------------------
3,000 Campbell Soup Co. 187,500
------------------------------------------------------------------------------------
1,100 Coca-Cola Co. 89,650
------------------------------------------------------------------------------------
7,500 (a)Mossimo, Inc. 285,000
------------------------------------------------------------------------------------
3,500 Nike, Inc., Class B 306,250
------------------------------------------------------------------------------------
2,400 Philip Morris Cos., Inc. 216,300
------------------------------------------------------------------------------------ -------------
Total 1,084,700
------------------------------------------------------------------------------------ -------------
ENERGY MINERALS--6.6%
------------------------------------------------------------------------------------
2,000 British Petroleum Co. PLC, ADR 218,500
------------------------------------------------------------------------------------
18,500 (a)Global Marine, Inc. 210,437
------------------------------------------------------------------------------------
6,200 (a)Petroleum Geo-Services, ADR 196,075
------------------------------------------------------------------------------------
10,700 (a)Reading & Bates Corp. 262,150
------------------------------------------------------------------------------------
2,100 (a)Western Atlas, Inc. 126,000
------------------------------------------------------------------------------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
ENERGY MINERALS--CONTINUED
------------------------------------------------------------------------------------
10,000 YPF Sociedad Anonima, ADR $ 218,750
------------------------------------------------------------------------------------ -------------
Total 1,231,912
------------------------------------------------------------------------------------ -------------
FINANCE--10.9%
------------------------------------------------------------------------------------
5,100 Aflac, Inc. 158,100
------------------------------------------------------------------------------------
9,800 (a)Amerin Corp. 221,725
------------------------------------------------------------------------------------
2,600 Citicorp 204,750
------------------------------------------------------------------------------------
9,350 MBNA Corp. 265,306
------------------------------------------------------------------------------------
3,200 Mellon Bank Corp. 172,000
------------------------------------------------------------------------------------
8,400 Schwab (Charles) Corp. 205,800
------------------------------------------------------------------------------------
5,600 Sunamerica, Inc. 305,200
------------------------------------------------------------------------------------
6,200 TCF Financial Corp. 219,325
------------------------------------------------------------------------------------
4,300 Travelers Group, Inc. 264,450
------------------------------------------------------------------------------------ -------------
Total 2,016,656
------------------------------------------------------------------------------------ -------------
HEALTH CARE--15.0%
------------------------------------------------------------------------------------
3,800 (a)Amgen, Inc. 218,500
------------------------------------------------------------------------------------
4,000 Foundation Health Corp. 156,500
------------------------------------------------------------------------------------
2,000 (a)Geltex Pharmaceuticals, Inc. 47,000
------------------------------------------------------------------------------------
3,700 (a)Genzyme Corp. 208,125
------------------------------------------------------------------------------------
1,900 Johnson & Johnson 175,750
------------------------------------------------------------------------------------
2,600 (a)KeraVision, Inc. 41,275
------------------------------------------------------------------------------------
3,900 Lilly (Eli) & Co. 230,100
------------------------------------------------------------------------------------
3,400 Medtronic, Inc. 180,625
------------------------------------------------------------------------------------
3,600 Merck & Co., Inc. 217,800
------------------------------------------------------------------------------------
7,000 Mylan Laboratories, Inc. 136,500
------------------------------------------------------------------------------------
10,400 (a)Ornda Healthcorp 286,000
------------------------------------------------------------------------------------
3,300 Pfizer, Inc. 227,287
------------------------------------------------------------------------------------
1,900 (a)Quintiles Transnational Corp. 139,175
------------------------------------------------------------------------------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
HEALTH CARE--CONTINUED
------------------------------------------------------------------------------------
4,000 Teva Pharmaceutical Industries, Ltd., ADR $ 179,500
------------------------------------------------------------------------------------
6,500 (a)Thermedics, Inc. 196,625
------------------------------------------------------------------------------------
4,700 (a)Veterinary Centers of America 143,350
------------------------------------------------------------------------------------ -------------
Total 2,784,112
------------------------------------------------------------------------------------ -------------
PRODUCER MANUFACTURING--5.2%
------------------------------------------------------------------------------------
5,400 (a)American Standard Cos. 152,550
------------------------------------------------------------------------------------
5,100 (a)Cable Design Technologies, Class A 168,300
------------------------------------------------------------------------------------
5,400 Greenfield Industries, Inc. 205,200
------------------------------------------------------------------------------------
3,200 Magna International, Inc., Class A 148,400
------------------------------------------------------------------------------------
3,900 (a)Thermo Electron Corp. 240,337
------------------------------------------------------------------------------------
2,900 Thermo Sentron, Inc. 45,675
------------------------------------------------------------------------------------ -------------
Total 960,462
------------------------------------------------------------------------------------ -------------
RETAIL TRADE--5.5%
------------------------------------------------------------------------------------
9,000 (a)General Nutrition Cos., Inc. 175,500
------------------------------------------------------------------------------------
4,600 (a)Kohl's Corp. 158,125
------------------------------------------------------------------------------------
6,600 (a)MSC Industrial Direct Co. 240,075
------------------------------------------------------------------------------------
8,900 (a)Safeway, Inc. 300,375
------------------------------------------------------------------------------------
5,100 TJX Cos., Inc. 150,450
------------------------------------------------------------------------------------ -------------
Total 1,024,525
------------------------------------------------------------------------------------ -------------
SERVICES--7.2%
------------------------------------------------------------------------------------
8,000 (a)Calenergy, Inc. 208,000
------------------------------------------------------------------------------------
2,400 (a)Corrections Corp. America 153,000
------------------------------------------------------------------------------------
3,300 (a)HFS, Inc. 169,537
------------------------------------------------------------------------------------
5,850 Olsten Corp. 177,694
------------------------------------------------------------------------------------
4,000 Reynolds & Reynolds Co., Class A 185,000
------------------------------------------------------------------------------------
4,400 Service Corp. International 233,750
------------------------------------------------------------------------------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
SERVICES--CONTINUED
------------------------------------------------------------------------------------
8,400 (a)USA Waste Services, Inc. $ 218,400
------------------------------------------------------------------------------------ -------------
Total 1,345,381
------------------------------------------------------------------------------------ -------------
TECHNOLOGY--19.2%
------------------------------------------------------------------------------------
3,300 (a)Altera Corp. 174,075
------------------------------------------------------------------------------------
2,900 (a)Atmel Corp. 116,000
------------------------------------------------------------------------------------
700 (a)Cascade Communications Corp. 70,175
------------------------------------------------------------------------------------
7,400 (a)Cheyenne Software, Inc. 168,350
------------------------------------------------------------------------------------
4,200 (a)Cisco Systems, Inc. 217,875
------------------------------------------------------------------------------------
2,300 (a)Digital Equipment Corp. 137,425
------------------------------------------------------------------------------------
5,400 (a)DST Systems, Inc. 198,450
------------------------------------------------------------------------------------
8,500 Ericsson LM 173,188
------------------------------------------------------------------------------------
4,800 (a)ESS Technology, Inc. 108,600
------------------------------------------------------------------------------------
1,900 First Data Corp., Class 144,400
------------------------------------------------------------------------------------
2,500 (a)FORE Systems, Inc. 197,500
------------------------------------------------------------------------------------
2,600 (a)HNC Software 96,850
------------------------------------------------------------------------------------
3,000 (a)Informix Corp. 79,125
------------------------------------------------------------------------------------
3,300 Intel Corp. 223,575
------------------------------------------------------------------------------------
6,900 Lucent Technologies, Inc. 242,363
------------------------------------------------------------------------------------
4,050 (a)MEMC Electronic Materials 201,994
------------------------------------------------------------------------------------
1,600 Micron Technology, Inc. 58,200
------------------------------------------------------------------------------------
1,800 (a)Microsoft Corp. 204,075
------------------------------------------------------------------------------------
2,700 (a)Oracle Corp. 91,125
------------------------------------------------------------------------------------
3,500 (a)Solectron Corp. 155,750
------------------------------------------------------------------------------------
4,200 (a)StorMedia, Inc. 178,500
------------------------------------------------------------------------------------
3,500 (a)Sun Microsystems, Inc. 189,875
------------------------------------------------------------------------------------
2,600 Varian Association, Inc. 148,525
------------------------------------------------------------------------------------ -------------
Total 3,575,995
------------------------------------------------------------------------------------ -------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
TRANSPORTATION--1.3%
------------------------------------------------------------------------------------
2,100 (a)Continental Airlines, Inc., Class B $ 119,175
------------------------------------------------------------------------------------
7,000 (a)Trans World Airlines, Inc. 125,125
------------------------------------------------------------------------------------ -------------
Total 244,300
------------------------------------------------------------------------------------ -------------
UTILITIES--8.5%
------------------------------------------------------------------------------------
6,900 CMS Energy Corp. 200,963
------------------------------------------------------------------------------------
2,000 FPL Group, Inc. 86,250
------------------------------------------------------------------------------------
6,100 MCI Communications Corp. 179,569
------------------------------------------------------------------------------------
7,900 (a)Paging Network, Inc. 185,650
------------------------------------------------------------------------------------
9,000 (a)PanAmSat Corp. 299,250
------------------------------------------------------------------------------------
6,100 Sonat, Inc. 266,113
------------------------------------------------------------------------------------
5,500 Vodafone Group PLC, ADR 220,688
------------------------------------------------------------------------------------
2,700 Williams Cos., Inc. (The) 138,038
------------------------------------------------------------------------------------ -------------
Total 1,576,521
------------------------------------------------------------------------------------ -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $14,012,106) 17,788,783
------------------------------------------------------------------------------------ -------------
CONVERTIBLE SECURITIES--2.0%
- -------------------------------------------------------------------------------------------------
CONSUMER SERVICES--0.7%
------------------------------------------------------------------------------------
$ 470,000 Boston Chicken, Inc., Conv. LYON, .08% accrual, 6/1/2015 138,650
------------------------------------------------------------------------------------ -------------
FINANCE--1.3%
------------------------------------------------------------------------------------
4,900 First USA, Inc., Cumulative PRIDES 238,875
------------------------------------------------------------------------------------ -------------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST $274,703 ) 377,525
------------------------------------------------------------------------------------ -------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
(B) REPURCHASE AGREEMENT--2.8%
- -------------------------------------------------------------------------------------------------
$ 510,000 BT Securities Corporation, 5.35%, dated 4/30/1996, due 5/1/1996
(AT AMORTIZED COST) $ 510,000
------------------------------------------------------------------------------------ -------------
TOTAL INVESTMENTS (IDENTIFIED COST $14,796,809) (C) $ 18,676,308
------------------------------------------------------------------------------------ -------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $14,801,761.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,874,547 which is comprised of $4,002,806 appreciation and
$128,259 depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($18,579,388) at April 30, 1996.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
LTD--Limited
LYON--Liquid Yield Option Note
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $14,796,809, and tax cost $14,801,761) $ 18,676,308
- ----------------------------------------------------------------------------------------------------
Cash 4,367
- ----------------------------------------------------------------------------------------------------
Income receivable 10,300
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 14,635
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 18,705,610
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased $ 122,770
- -----------------------------------------------------------------------------------------
Payable for shares redeemed 342
- -----------------------------------------------------------------------------------------
Payable for taxes withheld 254
- -----------------------------------------------------------------------------------------
Accrued expenses 2,856
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 126,222
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 1,231,517 shares outstanding $ 18,579,388
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $ 13,921,511
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,879,499
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 789,938
- ----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (11,560)
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 18,579,388
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($16,616,396 / 1,100,962 shares outstanding) $15.09
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/94.50 of $15.09)* $15.97
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share $15.09
- ---------------------------------------------------------------------------------------------------- ------------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($1,962,992 / 130,555 shares outstanding) $15.04
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share $15.04
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share (99.00/100 of $15.04)** $14.89
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
* See "Investing in Class A Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Dividends $ 80,354
- -------------------------------------------------------------------------------------------------------
Interest 35,147
- ------------------------------------------------------------------------------------------------------- ---------
Total income 115,501
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee $ 52,060
- --------------------------------------------------------------------------------------------
Administrative personnel and services fee 77,077
- --------------------------------------------------------------------------------------------
Custodian fees 18,078
- --------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 25,315
- --------------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,730
- --------------------------------------------------------------------------------------------
Auditing fees 6,697
- --------------------------------------------------------------------------------------------
Legal fees 1,456
- --------------------------------------------------------------------------------------------
Portfolio accounting fees 29,614
- --------------------------------------------------------------------------------------------
Distribution services fee--Class A Shares 18,380
- --------------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 6,008
- --------------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 18,380
- --------------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 2,003
- --------------------------------------------------------------------------------------------
Share registration costs 12,005
- --------------------------------------------------------------------------------------------
Printing and postage 14,985
- --------------------------------------------------------------------------------------------
Insurance premiums 1,237
- --------------------------------------------------------------------------------------------
Taxes 1,456
- --------------------------------------------------------------------------------------------
Miscellaneous 1,404
- -------------------------------------------------------------------------------------------- ---------
Total expenses 288,885
- --------------------------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ (52,060)
- ---------------------------------------------------------------------------------
Waiver of distribution services fee--Class A Shares (13,969)
- ---------------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (4,411)
- ---------------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (561)
- ---------------------------------------------------------------------------------
Reimbursement of other operating expenses (110,161)
- --------------------------------------------------------------------------------- ---------
Total waivers and reimbursements (181,162)
- -------------------------------------------------------------------------------------------- ---------
Net expenses 107,723
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income 7,778
- ------------------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments 785,117
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 2,122,248
- ------------------------------------------------------------------------------------------------------- ---------
Net realized and unrealized gain on investments 2,907,365
- ------------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $2,915,143
- ------------------------------------------------------------------------------------------------------- ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------
Net investment income $ 7,778 $ 116,568
- ------------------------------------------------------------------------
Net realized gain (loss) on investments ($785,117 and $1,735,236 net
gains, respectively, as computed for federal tax purposes) 785,117 1,823,129
- ------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 2,122,248 911,369
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets resulting from operations 2,915,143 2,851,066
- ------------------------------------------------------------------------ -------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------------------
Class A Shares (12,221) (112,008)
- ------------------------------------------------------------------------
Class C Shares -- (4,517)
- ------------------------------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------------------------------
Class A Shares (6,743)(a) (11,509)(a)
- ------------------------------------------------------------------------
Class C Shares -- (1,835)(a)
- ------------------------------------------------------------------------
Distributions from net realized gains on investments
- ------------------------------------------------------------------------
Class A Shares (1,575,750) (1,288)
- ------------------------------------------------------------------------
Class C Shares (159,624) (141)
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets resulting from distributions to shareholders (1,754,338) (131,298)
- ------------------------------------------------------------------------ -------------------- ------------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------------------
Proceeds from sale of shares 4,585,287 4,399,945
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 1,504,719 112,400
- ------------------------------------------------------------------------
Cost of shares redeemed (3,095,086) (3,751,954)
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets resulting from share transactions 2,994,920 760,391
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets 4,155,725 3,480,159
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period 14,423,663 10,943,504
- ------------------------------------------------------------------------ -------------------- ------------------
End of period $ 18,579,388 $ 14,423,663
- ------------------------------------------------------------------------ -------------------- ------------------
</TABLE>
(a) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C>
1995(C) 1994 1993 1992(B) 1991 1990
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.31 $ 13.38 $ 11.84 $ 12.00 $ 9.11 $ 9.97
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.07 0.15 0.13 0.12 0.31 0.32
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (.67) (1.25) 1.71 (0.18) 2.91 (0.86)
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
Total from investment operations (0.60) (1.10) 1.84 (0.06) 3.22 (0.54)
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.07) (0.15) (0.14) (0.10) (0.30) (0.32)
- -----------------------------------------------------
Distributions in excess of net investment income -- -- -- -- (0.01) --
- -----------------------------------------------------
Distributions from net realized gain on investment
transactions -- (0.82) (0.16) -- (0.02) --
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
Total distributions (0.07) (0.97) (0.30) (0.10) (0.33) (0.32)
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.64 $ 11.31 $ 13.38 $ 11.84 $ 12.00 $ 9.11
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
TOTAL RETURN (D) (5.28%) (8.20%) 15.70% (0.53%) 35.68% (5.43%)
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.08%* 1.03% 1.00% 1.00%* 1.00% 1.00%
- -----------------------------------------------------
Net investment income 3.77%* 1.17% 0.98% 1.28%* 2.73% 3.54%
- -----------------------------------------------------
Expense waiver/reimbursement (e) 4.99 (f) 2.37% 2.37% 1.50%* 1.50% 1.50%
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $0 $14 $14,836 $18,161 $13,513 $7,484
- -----------------------------------------------------
Portfolio turnover 160% 86% 74% 29 % 57% 83%
- -----------------------------------------------------
<CAPTION>
<S> <C>
1989(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.03
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.04)
- ----------------------------------------------------- -----------
Total from investment operations (0.01)
- ----------------------------------------------------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.02)
- -----------------------------------------------------
Distributions in excess of net investment income --
- -----------------------------------------------------
Distributions from net realized gain on investment
transactions --
- ----------------------------------------------------- -----------
Total distributions (0.02)
- ----------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.97
- ----------------------------------------------------- -----------
TOTAL RETURN (D) (0.02%)
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.19%*
- -----------------------------------------------------
Net investment income 4.21%*
- -----------------------------------------------------
Expense waiver/reimbursement (e) 0.78%*
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $5,525
- -----------------------------------------------------
Portfolio turnover 0 %
- -----------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 30, 1989 (date of initial
public investment) to December 31, 1989.
(b) During the ten month period, the Fund changed its fiscal year-end from
December 31 to October 31.
(c) As of December 20, 1994, Investment shares of Capital Growth Fund had no
shareholders and were no longer offered for public investments.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(f) The Adviser waived all of the investment advisory fee and reimbursed
$103,023 of certain operating expenses of the Fund, which represents 0.65%
and 0.88% of average net assets, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.27 $ 11.31 $ 13.38 $ 11.84 $ 12.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.01 0.15 0.12 0.09 0.11
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.50 2.96 (1.25) 1.71 (0.18)
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
Total from investment operations 2.51 3.11 (1.13) 1.80 (0.07)
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.01) (0.14) (0.12) (0.10) (0.09)
- ------------------------------------------------------------------
Distributions in excess of net investment income (0.01) (0.01) -- -- --
- ------------------------------------------------------------------
Distributions from net realized gain on investment transactions (1.67) (0.001) (0.82) (0.16) --
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
Total distributions (1.69) (0.15) (0.94) (0.26) (0.09)
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.09 $ 14.27 $ 11.31 $ 13.38 $ 11.84
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
TOTAL RETURN (B) 19.10% 27.79% (8.43%) 15.34% (0.61%)
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
expenses 1.25%* 1.25% 1.25% 1.25% 1.17%*
- ------------------------------------------------------------------
Net investment income 0.17%* 1.06% 1.00% 0.73% 1.19%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 2.24%* 3.29 (d) 2.79% 2.37% 1.33%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $16,616 $13,069 $9,880 $11,609 $6,540
- ------------------------------------------------------------------
Average commission rate paid $0.0549 -- -- -- --
- ------------------------------------------------------------------
Portfolio turnover 58 % 160% 86% 74% 29 %
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 16, 1992 (date of initial
public investment) to October 31, 1992.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) The Adviser waived all of the investment advisory fee and reimbursed
$103,023 of certain operating expenses of the Fund, which represents 0.65%
and 0.88% of average net assets, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C>
1996 1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.25 $ 11.31 $ 13.36 $ 12.39
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income (0.03) 0.05 0.04 (0.01)
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.49 2.96 (1.23) 0.98
- -------------------------------------------------------------------------- ------ --------- --------- -----------
Total from investment operations 2.46 3.01 (1.19) 0.97
- -------------------------------------------------------------------------- ------ --------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Distributions from net investment income -- (0.05) (0.04) --
- --------------------------------------------------------------------------
Distributions in excess of net investment income -- (0.02) -- --
- --------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (1.67) (0.001) (0.82) --
- -------------------------------------------------------------------------- ------ --------- --------- -----------
Total distributions (1.67) (0.07) (0.86) --
- -------------------------------------------------------------------------- ------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.04 $ 14.25 $ 11.31 $ 13.36
- -------------------------------------------------------------------------- ------ --------- --------- -----------
TOTAL RETURN (B) 18.74% 26.78% (8.90%) 7.83%
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 1.95%* 1.94% 2.00% 2.00%*
- --------------------------------------------------------------------------
Net investment income (0.55%)* 0.38% 0.35% (0.18%)*
- --------------------------------------------------------------------------
Expense waiver/reimbursement (c) 2.05%* 3.10 (d) 2.73% 2.37%*
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,963 $ 1,354 $ 1,049 $ 314
- --------------------------------------------------------------------------
Average commission rate paid $0.0549 -- -- --
- --------------------------------------------------------------------------
Portfolio turnover 58 % 160% 86% 74 %
- --------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 13, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) The Adviser waived all of the investment advisory fee and reimbursed
$103,023 of certain operating expenses of the Fund, which represents 0.65%
and 0.88% of average net assets, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Investment Series Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of two portfolios. The
financial statements included herein are only those of Capital Growth Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolio is presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is appreciation of capital.
The Fund offers two classes of shares: Class A Shares and Class C Shares.
Previously , the Fund provided three classes of shares ("Investment Shares",
"Class A Shares" and "Class C Shares"). As of December 20, 1994, "Investment
Shares" had no shareholders and therefore shares were no longer offered.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At April 30, 1996, there were 1,000,000,000 shares ($.0001 par value per share)
of capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C> <C> <C>
INVESTMENT SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold -- -- -- --
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared -- -- -- --
- ------------------------------------------------------------
Shares redeemed -- -- (1,315) (14,628)
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from Investment share transactions -- -- (1,315) $ (14,628)
- ------------------------------------------------------------ --------- ------------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 287,733 $ 4,059,111 308,913 $ 4,074,979
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 103,665 1,382,895 9,233 107,117
- ------------------------------------------------------------
Shares redeemed (206,208) (2,933,521) (275,897) (3,429,575)
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from Class A share transactions 185,190 $ 2,508,485 42,249 $ 752,521
- ------------------------------------------------------------ --------- ------------- --------- -------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 38,121 $ 526,176 26,099 $ 324,966
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 9,146 121,824 482 5,283
- ------------------------------------------------------------
Shares redeemed (11,715) (161,565) (24,336) (307,751)
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from Investment share transactions 35,552 $ 486,435 2,245 $ 22,498
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from share transactions 220,742 $ 2,994,920 43,179 $ 760,391
- ------------------------------------------------------------ --------- ------------- --------- -------------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory
fee equal to (a) a maximum of .55% of the average daily net assets of the
Fund, and (b) 4.50% of the gross income of the Fund, excluding capital
gains or losses. The Adviser may voluntarily choose to waive any portion of
its fee and reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and reimbursement at any time
at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares and Class C Shares. The
Plan provides that the Fund may incur distribution expenses according to
the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A 0.25%
Class C 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Fund for the period. The
fee paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at
any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FServ is based
on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 10,873,263
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 9,094,777
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
6. SUBSEQUENT EVENT
The Fund's Board of Directors has distributed a proxy statement to shareholders
requesting approval of a plan of reorganization between the Fund and Federated
Equity Funds. Under the terms of the proposed plan of reorganization, the Fund's
assets would be acquired in a tax free exchange for shares outstanding of
Federated Growth Strategies Fund (a portfolio of Federated Equity Funds). A
special meeting of the Fund's shareholders to consider this proposal has been
scheduled for June 24, 1996.
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President, Treasurer and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. Douglas L. Hein
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
CAPITAL
GROWTH
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1996
[LOGO] FEDERATED INVESTORS
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 461444200
Cusip 461444408
0072503 (6/96)
Appendix for Federated Bond Fund
A.1 The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual
representation of the narrative text above it.. The lighter shaded
portion represents the value of reinvested income for the fund. The
dark shaded portion reflects the principal value of a $9,000
investment in the fund (889 shares). The `x'' axis reflects
computation periods from 5/20/87 to 4/30/96. The `y'' axis is
measured in increments of $3,500 ranging from $0 to $21,000 and
indicates that the ending value of hypothetical investment of $9,000
in the fund's Class F Shares, assuming the reinvestment of capital
gains and dividends,would have grown to $20,482 (2,147 shares) on
4/30/96.
A.2 The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual
representation of the narrative text above it.. The lighter shaded
portion represents the value of reinvested income for the fund. The
dark shaded portion reflects the principal value of a $1,000 annual
investments in the fund for nine years. The `x'' axis reflects
computation periods from 5/20/87 to 4/30/96. The `y'' axis is
measured in increments of $4,000 ranging from $0 to $16,000 and
indicates that the ending value of hypothetical annual investments of
$1,000 in the fund's Class F Shares, assuming the reinvestment of
capital gains and dividends,would have grown to $14,482 (1,563 shares)
on 4/30/96.
A.3 The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual
representation of the narrative text above it.. The lighter shaded
portion represents the value of reinvested income for the fund. The
dark shaded portion reflects the principal value of a $20,000
investment in the fund. The `x'' axis reflects computation periods
from 5/20/87 to 4/30/96. The `y'' axis is measured in increments of
$6,000 ranging from $0 to $48,000 and indicates that the ending value
of hypothetical annual investment of $20,000 in the fund's Class F Shares
would have growth to $44,516 (4,772 shares) on 4/30/96.
