PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Capital
Growth Fund (the "Fund") for the six-month period ended April 30, 1994. The
Report begins with an investment review by the Fund's portfolio manager, and
follows with a complete listing of the Fund's holdings, its Financial
Statements, and Financial Highlights.
To help you pursue long-term growth opportunities offered by U.S. companies, the
Fund's highly diversified portfolio consists of common stocks (65.7%) and
convertible securities (23.2%) across key business sectors. The remainder of the
portfolio was invested in a repurchase agreement fully backed by U.S. government
securities (11.2%). The Fund's portfolio includes such well-known names as
Chrysler, Blockbuster Entertainment, Dr. Pepper/7-Up, Nationsbank, Travelers,
and Greyhound.
At the close of the period, the Fund's net assets stood at $21 million.
Consistent with market fluctuations caused by rising interest rates early in the
year, the Fund's net asset value per share decreased during the Report period.
Please remember that short-term fluctuations in value are a normal consequence
of stock investing. We believe that you should focus on long-term results and
that right now is an economical time to add to your investment in Capital Growth
Fund. And, by reinvesting your dividends, you can increase your share balance on
which future dividends will be paid.
Thank you for selecting the Fund to pursue your long-term financial goals. We
welcome your comments and suggestions.
Sincerely,
J. Christopher Donahue
President
June 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The Fund was established in 1989 to provide the opportunity for investment in a
diversified portfolio of stocks which have prospects for significant capital
appreciation. The stock selection process for the Fund utilizes investment
disciplines which the Federated organization has used successfully for several
years. The investment emphasis is placed on stocks that have favorable price and
earnings momentum characteristics. The Fund's concentration will be in
larger-sized growth companies, generally above $500 million in fully diluted
market capitalization at the time of purchase. Managed to participate in up
markets, the Fund offers the potential for significant capital appreciation over
time.
In the six months since October 31, 1993, the stock market has experienced some
relatively memorable ups and downs. The Blue Chip Cyclical Dow Jones 30
Industrials* witnessed most of the ups with the bellweather briefly touching
4000 on January 31, 1994, before finishing almost unchanged for the period. Most
other broad averages declined during the period, following the lead of domestic
interest rates which rose from under 6% on the long U.S. Treasury Bond to well
over 7%.
The relative underperformance of large capitalization growth stocks continued
and actually went negative on an absolute basis during this period. On a capital
only basis, the Russell 1000 Growth Index* declined 2.94% over this six months,
wiping out all capital gains since January 1, 1992. Lipper Growth Funds* have
significantly outperformed large growth companies--an indication that they are
using value names, smaller companies, foreign stocks and/or a cash position for
market timing purposes. The management of the Fund will continue to maintain its
position in these larger growth stocks to fit the asset allocation needs of our
investors. Federated provides other funds to fit the specific requirements for
large capitalization value, international equities, and stable net asset value,
etc.
Consistent with the Fund's investment objective, recent purchases include
Dreyfus (mutual funds), First USA 6.25% converts (credit cards), Intel
(microprocessors), and Chrysler (autos). A significant percentage of the Fund is
invested in convertible and/or putable bonds which should provide downside
protection if the current correction becomes a bear market. We believe, however,
that given the consistent cash flows from retirement accounts into mutual funds,
that the recent leveraged unwinding of hedge funds positions should, in fact,
create a buying opportunity.
The Fund's disciplined stock selection approach, with its concentration on
reasonably priced stocks exhibiting positive relative earnings and price
momentum, is designed to allow the Fund to take advantage of market
opportunities. We believe that the Fund is well-suited in the current
environment to pursue a goal of strong performance in up markets and over market
cycles.
* These indices are unmanaged.
CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS--65.7%
- -------------------------------------------------------------------------------------------------
AUTOMOTIVE & PARTS--4.4%
----------------------------------------------------------------------------------
35,000 Allen Group, Inc. $ 590,625
----------------------------------------------------------------------------------
7,000 Chrysler Corp. 335,125
---------------------------------------------------------------------------------- --------------
Total 925,750
---------------------------------------------------------------------------------- --------------
BANKING & FINANCE--10.2%
----------------------------------------------------------------------------------
12,500 Dreyfus Corp. 603,125
----------------------------------------------------------------------------------
30,000 MBNA Corp. 750,000
----------------------------------------------------------------------------------
15,000 Nationsbank Corp. 783,750
---------------------------------------------------------------------------------- --------------
Total 2,136,875
---------------------------------------------------------------------------------- --------------
BASIC INDUSTRY--2.0%
----------------------------------------------------------------------------------
10,000 Harsco Corp. 416,250
---------------------------------------------------------------------------------- --------------
CAPITAL GOODS--22.0%
----------------------------------------------------------------------------------
25,000 Alliant Techsystems, Inc. 565,625
----------------------------------------------------------------------------------
10,000 Dover Corp. 550,000
----------------------------------------------------------------------------------
35,000 Foamex International, Inc. 485,625
----------------------------------------------------------------------------------
30,000 Genlyte Group, Inc. 135,000
----------------------------------------------------------------------------------
25,000 Greenfield Ind. 487,500
----------------------------------------------------------------------------------
5,000 Integrated Device Technology 150,625
----------------------------------------------------------------------------------
5,000 Intel Corp. 305,000
----------------------------------------------------------------------------------
30,000 Kenetech Corp. 592,500
----------------------------------------------------------------------------------
25,000 Magnetek, Inc. 362,500
----------------------------------------------------------------------------------
10,000 Stewart & Stevenson Services 437,500
----------------------------------------------------------------------------------
50,000 Valence Technology, Inc. 562,500
---------------------------------------------------------------------------------- --------------
Total 4,634,375
---------------------------------------------------------------------------------- --------------
CONSUMER GOODS-RETAIL--5.5%
----------------------------------------------------------------------------------
20,000 Blockbuster Entertainment Corp. $ 542,500
----------------------------------------------------------------------------------
50,000 Service Merchandise, Inc. 356,250
----------------------------------------------------------------------------------
25,000 Showbiz Pizza Time, Inc. 250,000
---------------------------------------------------------------------------------- --------------
Total 1,148,750
---------------------------------------------------------------------------------- --------------
CONSUMER PRODUCTS--7.6%
----------------------------------------------------------------------------------
50,000 Dr. Pepper/7-Up Holding Co. 1,281,250
----------------------------------------------------------------------------------
10,000 Sensormatic Electric Corp. 327,500
---------------------------------------------------------------------------------- --------------
Total 1,608,750
---------------------------------------------------------------------------------- --------------
HEALTHCARE--5.5%
----------------------------------------------------------------------------------
10,000 Genetech, Inc. 498,750
----------------------------------------------------------------------------------
15,000 Genetics Institute, Inc. 656,250
---------------------------------------------------------------------------------- --------------
Total 1,155,000
---------------------------------------------------------------------------------- --------------
INSURANCE--2.7%
----------------------------------------------------------------------------------
16,084 Travelers, Inc. 558,919
---------------------------------------------------------------------------------- --------------
NATURAL RESOURCES--1.4%
----------------------------------------------------------------------------------
10,000 Sonat, Inc. 303,750
---------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.9%
----------------------------------------------------------------------------------
20,000 American President Cos., Ltd. 407,500
---------------------------------------------------------------------------------- --------------
WASTE DISPOSAL--2.5%
----------------------------------------------------------------------------------
140,000 Chambers Development, Inc. 525,000
---------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $12,047,541) 13,820,919
---------------------------------------------------------------------------------- --------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
CONVERTIBLE SECURITIES--4.6%
- -------------------------------------------------------------------------------------------------
BANKING & FINANCE--2.8%
----------------------------------------------------------------------------------
15,000 First USA, Inc., 6.25% PRIDES $ 586,875
---------------------------------------------------------------------------------- --------------
CONSUMER PRODUCTS--1.8%
----------------------------------------------------------------------------------
10,000 Sun America, Inc., Conv. Pfd., Series D, $2.78 385,000
---------------------------------------------------------------------------------- --------------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST, $840,125) 971,875
---------------------------------------------------------------------------------- --------------
CORPORATE BONDS--18.6%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--7.2%
----------------------------------------------------------------------------------
$ 1,000,000 Laidlaw, Inc., 6.00% (ADT) Conv. Deb. 1,025,000
----------------------------------------------------------------------------------
500,000 Medusa Corp., 6.00%, Conv. Note 487,500
---------------------------------------------------------------------------------- --------------
Total 1,512,500
---------------------------------------------------------------------------------- --------------
CONSUMER PRODUCTS--2.4%
----------------------------------------------------------------------------------
2,000,000 Coleman Worldwide Corp., 7.25% LYON, 5/27/2023 510,000
---------------------------------------------------------------------------------- --------------
HEALTHCARE--5.0%
----------------------------------------------------------------------------------
2,000,000 Roche Holdings, Inc., 4.75% LYON, 9/23/2008 1,055,000
---------------------------------------------------------------------------------- --------------
TRANSPORTATION--4.0%
----------------------------------------------------------------------------------
800,000 Greyhound Lines, Inc., Conv. Sub. Deb., 8.50%, 3/31/2007 832,000
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $4,006,033) 3,909,500
---------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENT--11.2%
- -------------------------------------------------------------------------------------------------
2,360,000 J.P. Morgan Securities, Inc., 3.59%, 5/2/94 2,360,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $19,253,699) $ 21,062,294\
---------------------------------------------------------------------------------- --------------
</TABLE>
*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.
\The cost of investments for federal tax purposes amounts to $19,253,699. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,808,595, which is comprised of $3,347,624 appreciation and $1,539,029
depreciation at April 30, 1994.
The following abbreviations are used in this portfolio:
LYON -- Liquid Yield Option Note
PRIDES -- Preferred Redeemable Increased Dividend Equity Securities
Note: The categories of investments are shown as a percentage of net assets
($21,030,550) as of
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B) (identified and tax cost, $19,253,699) $ 21,062,294
- ---------------------------------------------------------------------------------------------------
Cash 58,549
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 208,668
- ---------------------------------------------------------------------------------------------------
Receivable from Adviser (Note 4) 80,250
- ---------------------------------------------------------------------------------------------------
Receivable for capital stock sold 35,152
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 22,101
- ---------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 228
- --------------------------------------------------------------------------------------------------- -------------
Total assets 21,467,242
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $ 396,703
- ---------------------------------------------------------------------------------------
Payable for capital stock redeemed 21,668
- ---------------------------------------------------------------------------------------
Accrued expenses 18,321
- --------------------------------------------------------------------------------------- ----------
Total liabilities 436,692
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 1,662,747 shares of capital stock outstanding $ 21,030,550
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 17,760,548
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,808,595
- ---------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain (loss) on investments 1,450,318
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 11,089
- --------------------------------------------------------------------------------------------------- -------------
Total $ 21,030,550
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE AND REDEMPTION PROCEEDS Per Share:
Investment Shares (net assets of $9,314,973 / 736,391 shares of capital stock outstanding) $12.65
- --------------------------------------------------------------------------------------------------- -------------
Class A Shares (net assets of $11,048,051 / 873,495 shares of capital stock outstanding) $12.65
- --------------------------------------------------------------------------------------------------- -------------
Class C Shares (net assets of $667,526 / 52,861 shares of capital stock outstanding) $12.63
- --------------------------------------------------------------------------------------------------- -------------
COMPUTATION OF OFFERING PRICE:
Investment Shares (100/94.25 of $12.65) $13.42*
- --------------------------------------------------------------------------------------------------- -------------
Class A Shares (100/95.50 of $12.65) $13.25*
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
* See "What Shares Cost" 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, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 111,539
- ----------------------------------------------------------------------------------------------------
Interest 118,425
- ---------------------------------------------------------------------------------------------------- ------------
Total investment income (Note 2C) 229,964
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 74,323
- ----------------------------------------------------------------------------------------
Directors fees 2,415
- ----------------------------------------------------------------------------------------
Administrative personnel and services (Note 4) 120,962
- ----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees and expenses 32,703
- ----------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses (Note 4) 92,896
- ----------------------------------------------------------------------------------------
Fund share registration costs 25,444
- ----------------------------------------------------------------------------------------
Auditing fees 6,750
- ----------------------------------------------------------------------------------------
Legal fees 6,750
- ----------------------------------------------------------------------------------------
Distribution services fees (Note 4) 16,258
- ----------------------------------------------------------------------------------------
Shareholder services fees (Note 4) 630
- ----------------------------------------------------------------------------------------
Printing and postage 55,000
- ----------------------------------------------------------------------------------------
Insurance premiums 3,500
- ----------------------------------------------------------------------------------------
Taxes 2,661
- ----------------------------------------------------------------------------------------
Miscellaneous 3,458
- ---------------------------------------------------------------------------------------- ----------
Total expenses 443,750
- ----------------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 74,323
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses by Adviser (Note 4) 236,250 310,573
- ---------------------------------------------------------------------------- ---------- ----------
Net expenses 133,177
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 96,787
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis) 1,440,175
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (2,384,303)
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized loss on investments (944,128)
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ (847,341)
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS: 1994* 1993
- ----------------------------------------------------------------------------------- ------------- -------------
OPERATIONS--
- -----------------------------------------------------------------------------------
Net investment income $ 96,787 $ 226,782
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($1,440,175 and $303,564 net
gain, respectively, as computed for federal income tax purposes) 1,440,175 303,564
- -----------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments (2,384,303) 3,026,413
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations (847,341) 3,556,759
- ----------------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Investment Shares (57,145) (174,344)
- -----------------------------------------------------------------------------------
Class A Shares (39,672) (76,306)
- -----------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions:
Investment Shares (164,537) (245,773)
- -----------------------------------------------------------------------------------
Class A Shares (133,974) (95,185)
- -----------------------------------------------------------------------------------
Class C Shares (4,843) --
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (400,171) (591,608)
- ----------------------------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- -----------------------------------------------------------------------------------
Proceeds from sale of shares 3,563,438 11,839,537
- -----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in Fund shares 366,920 531,548
- -----------------------------------------------------------------------------------
Cost of shares redeemed (8,411,179) (13,278,176)
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions (4,480,821) (907,091)
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets (5,728,333) 2,058,060
- -----------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of period 26,758,883 24,700,823
- ----------------------------------------------------------------------------------- ------------- -------------
End of period (including undistributed net investment
income of $11,089 and $11,118, respectively) $ 21,030,550 $ 26,758,883
- ----------------------------------------------------------------------------------- ------------- -------------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
(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 YEAR ENDED
OCTOBER 31, DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C>
1994**** 1993 1992*** 1991 1990 1989**
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.38 $ 11.84 $ 12.00 $ 9.11 $ 9.97 $ 10.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.06 0.13 0.12 0.31 0.32 0.03
- -------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.57) 1.71 (0.18) 2.91 (0.86) (0.04)
- ------------------------------------------------- ----------- --------- ----------- --------- --------- -----------
Total from investment operations (0.51) 1.84 (0.06) 3.22 (0.54) (0.01)
- ------------------------------------------------- ----------- --------- ----------- --------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------
Dividends to shareholders from net
investment income (0.06) (0.14) (0.10) (0.30) (0.32) (0.02)
- -------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions (0.16) (0.16) -- (0.02) -- --
- -------------------------------------------------
Distributions in excess of net investment income -- -- -- (0.01)(a) -- --
- ------------------------------------------------- ----------- --------- ----------- --------- --------- -----------
TOTAL DISTRIBUTIONS (0.22 ) (0.30) (0.10 ) (0.33) (0.32) (0.02 )
- ------------------------------------------------- ----------- --------- ----------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.65 $ 13.38 $ 11.84 $ 12.00 $ 9.11 $ 9.97
- ------------------------------------------------- ----------- --------- ----------- --------- --------- -----------
TOTAL RETURN* (3.88 )% 15.70% (0.53 )% 35.68% (5.43)% (0.02 )%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 1.00 (b) 1.00% 1.00 (b) 1.00% 1.00% 1.19 (b)
- -------------------------------------------------
Net investment income 0.98 (b) 0.98% 1.28 (b) 2.73% 3.54% 4.21 (b)
- -------------------------------------------------
Expense waiver/reimbursement (c) 2.67 (b) 2.37% 1.50 (b) 1.50% 1.50% 0.78 (b)
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $ 9,315 $ 14,836 $ 18,161 $ 13,513 $ 7,484 $ 5,525
- -------------------------------------------------
Portfolio turnover rate 38 % 74% 29 % 57% 83% 0 %
- -------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** For the period from November 30, 1989 (date of initial public investment) to
December 31, 1989.
*** During the ten month period, the Fund changed in fiscal year-end from
December 31 to October 31.
**** Six months ended April 30, 1994 (unaudited).
(a) Distributions in excess of net investment income for the period ended
December 31, 1991 were a result of certain book and tax timing differences.
These distributions did not represent a return of capital for federal
income tax purposes.
(b) Computed on an annualized basis.
(c) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
(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>
YEAR ENDED
OCTOBER 31,
<S> <C> <C> <C>
1994*** 1993 1992**
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.38 $ 11.84 $ 12.00
- ---------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------
Net investment income 0.05 0.09 0.11
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.57) 1.71 (0.18)
- --------------------------------------------------------------------------------- ----------- --------- -----------
Total from investment operations (0.52) 1.80 (0.07)
- --------------------------------------------------------------------------------- ----------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.05) (0.10) (0.09)
- ---------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (0.16) (0.16) --
- --------------------------------------------------------------------------------- ----------- --------- -----------
TOTAL DISTRIBUTIONS (0.21) (0.26) (0.09)
- --------------------------------------------------------------------------------- ----------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.65 $ 13.38 $ 11.84
- --------------------------------------------------------------------------------- ----------- --------- -----------
TOTAL RETURN* (4.00)% 15.34% (0.61)%
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------
Expenses 1.25%(a) 1.25% 1.17%(a)
- ---------------------------------------------------------------------------------
Net investment income 0.73%(a) 0.73% 1.19%(a)
- ---------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 2.92%(a) 2.37% 1.33%(a)
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $11,048 $11,609 $6,540
- ---------------------------------------------------------------------------------
Portfolio turnover rate 38 % 74% 29 %
- ---------------------------------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** For the period from January 16, 1992 (date of initial public investment) to
October 31, 1992.
*** Six months ended April 30, 1994 (unaudited).
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
(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>
YEAR ENDED
OCTOBER 31,
<S> <C> <C>
1994*** 1993**
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.36 $ 12.39
- ------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------
Net investment income -- (0.01)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.57) 0.98
- ------------------------------------------------------------------------------------------ ----------- -----------
Total from investment operations (0.57) 0.97
- ------------------------------------------------------------------------------------------ ----------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (0.16) --
- ------------------------------------------------------------------------------------------ ----------- -----------
TOTAL DISTRIBUTIONS (0.16) --
- ------------------------------------------------------------------------------------------ ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.63 $ 13.36
- ------------------------------------------------------------------------------------------ ----------- -----------
TOTAL RETURN* (4.34)% 7.83%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Expenses 2.00%(a) 2.00%(a)
- ------------------------------------------------------------------------------------------
Net investment income 0.01%(a) (0.18)%(a)
- ------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 3.42%(a) 2.37%(a)
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $668 $314
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 38 % 74 %
- ------------------------------------------------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** For the period from April 13, 1993 (date of initial public investment) to
October 31, 1993.
*** Six months ended April 30, 1994 (unaudited).
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Investment Series Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Corporation consists of two, diversified portfolios. The
financial statements included herein are only those of Capital Growth Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund provides three classes of Shares ("Investment Shares," "Class A Shares"
and "Class C Shares"). Class A Shares and Class C Shares are identical in all
respects to Investment Shares except that Class A Shares and Class C Shares are
sold pursuant to a distribution plan ("Plan") adopted in accordance with the
Investment Company Act Rule 12b-1.
(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. The
policies are in conformity with generally accepted accounting principals (GAAP).
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sales price reported on
national securities exchanges. Unlisted securities and bonds are generally
valued at the price provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days, or less may be stated
at amortized cost, which approximates value.
B. 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 in support of
repurchase and reverse repurchase agreement investments. Additionally,
procedures have been established by the Fund to monitor, on a daily basis,
the market value of each repurchase agreement's underlying collateral to
ensure the value at least equals the principal amount of the repurchase
transactions, including accrued interest.
The Fund is also permitted to enter into reverse repurchase agreements, in
which the Fund sells U.S. government securities to financial institutions
and agrees to repurchase the securities at an agreed upon price and date.
The Fund will only enter into repurchase and reverse 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 guidelines established by the Board of
Directors (the "Directors"). Risks may arise from the potential inability
of counterparties to honor the terms of repurchase agreements. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount
if applicable, are amortized as required by the Internal Revenue Code, as
amended ("Code").
D. 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 taxable income.
Accordingly, no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities 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.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Funds commencement date.
G. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) CAPITAL STOCK
At April 30, 1994, there were 1,000,000,000 shares of ($.0001) par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/94* 10/31/93
SHARES AMOUNT SHARES AMOUNT
INVESTMENT SHARES
<S> <C> <C> <C> <C>
Shares sold 114,061 $ 1,523,318 341,272 $ 4,316,048
- ------------------------------------------------------
Shares issued to shareholders electing to
receive payment of dividends in Fund shares 16,890 221,485 30,603 380,718
- ------------------------------------------------------
Shares redeemed (503,110) (6,674,605) (796,724) (9,811,729)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from Fund share
transactions (372,159) $ (4,929,802) (424,849) $ (5,114,963)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
* Six months ended April 30, 1994.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/94* 10/31/93
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
<S> <C> <C> <C> <C>
Shares sold 121,361 $ 1,611,946 575,342 $ 7,204,386
- --------------------------------------------------------
Shares issued to shareholders electing to
receive payment of dividends in Fund shares 10,832 142,051 12,091 150,830
- --------------------------------------------------------
Shares redeemed (126,297) (1,695,785) (272,085) (3,450,895)
- -------------------------------------------------------- ---------- -------------- ---------- --------------
Net change resulting from Fund share
transactions 5,896 $ 58,212 315,348 $ 3,904,321
- -------------------------------------------------------- ---------- -------------- ---------- --------------
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/94* 10/31/93**
SHARES AMOUNT SHARES AMOUNT
CLASS C SHARES
<S> <C> <C> <C> <C>
Shares sold 32,215 $ 428,174 24,661 $ 319,103
- ---------------------------------------------------------
Shares issued to shareholders electing to
receive payment of dividends in Fund shares 259 3,384 -- --
- ---------------------------------------------------------
Shares redeemed (3,087) (40,789) (1,187) (15,552)
- --------------------------------------------------------- --------------- -------------- ----------- -----------
Net change resulting from Fund share
transactions 29,387 $ 390,769 23,474 $ 303,551
- --------------------------------------------------------- --------------- -------------- ----------- -----------
</TABLE>
* Six months ended April 30, 1994.
** For the period from April 13, 1993 (date of initial public investment) to
October 31, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to (a) 0.55% of the average daily net assets of the Fund, and (b) 4.5% of the
gross income of the Fund. Adviser may voluntarily choose to waive a portion of
its fee and reimburse certain operating expenses of the Fund.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the fee 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 any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. 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 up to .25 of 1%
and .75 of 1% of the average daily net assets of the Class A Shares and Class C
Shares, respectively, annually, to compensate "FSC".
SHAREHOLDER SERVICES PLAN--Under the terms of a shareholder services agreement
with "FSC" the Fund will pay "FSC" up to .25 of 1% of average net assets of the
Class C Shares for the period. This fee is to obtain certain personal services
for shareholders and the maintenance of shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
serves as transfer and dividend disbursing agent for the Fund. The fee is based
on the size, type and number of accounts and transactions made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses $13,190 and start-up
administrative service expenses $92,451 were borne initially by Adviser. The
Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following January
16, 1992 (date the Fund first became effective). For the six months ended April
30, 1994, the Fund paid $609 and $1,219, respectively pursuant to this
agreement.
Certain of the Officers and Directors of the Fund are Officers and Directors of
the above corporations.
(5) INVESTMENT TRANSACTIONS
Purchases, and sales of investments, excluding short-term securities for the six
months ended April 30, 1994, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C>
PURCHASES $ 8,706,802
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 9,610,950
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
DIRECTORS OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland J. Christopher Donahue
J. Christopher Donahue President
James E. Dowd Richard B. Fisher
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
Robert C. Rosselot
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
CAPITAL
GROWTH
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1994
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0072503 (6/94)
