AMERICAN LEADERS FUND INC, 497, 1995-05-30

AMERICAN LEADERS FUND INC
497, 1995-05-30

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AMERICAN LEADERS FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED PROSPECTUS

The shares of American Leaders Fund, Inc. (the "Fund") represent interests in an
open-end, diversified management investment company (a mutual fund) investing in
common stocks and other securities of high quality companies to achieve growth
of capital and income.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares and Class C Shares of the Fund. Keep
this prospectus for future reference.

The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, Class C Shares and Fortress Shares dated May 31, 1995,
with the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or make inquiries about the Fund, contact your financial
institution.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated May 31, 1995

- --------------------------------------------------------------------------------
TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1

Financial Highlights...........................................................4

Synopsis.......................................................................7

Liberty Family of Funds........................................................8
Federated LifeTrackTM Program
(Class A Shares and Class C Shares).......................................9

Investment Information........................................................10
Investment Objective........................................................10
Investment Policies.........................................................10
Investment Limitations......................................................11

Net Asset Value...............................................................12

Investing in the Fund.........................................................12

How To Purchase Shares........................................................13

Investing in Class A Shares.................................................13

Investing in Class B Shares.................................................16

Investing in Class C Shares.................................................16

Special Purchase Features...................................................17

Exchange Privilege............................................................18

How To Redeem Shares..........................................................19
Special Redemption Features.................................................20
Contingent Deferred Sales Charge............................................21
Elimination of Contingent
Deferred Sales Charge....................................................22

Account and Share Information.................................................23

Fund Information..............................................................24
Management of the Fund......................................................24
Distribution of Shares......................................................25
Administration of the Fund..................................................26
Brokerage Transactions......................................................27

Shareholder Information.......................................................28

Voting Rights...............................................................28

Tax Information...............................................................28
Federal Income Tax..........................................................28
Pennsylvania Personal Property Taxes........................................28

Performance Information.......................................................29

Other Classes of Shares.......................................................30

- -------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
AMERICAN LEADERS FUND, INC.

<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................................... 5.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)..................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................................................................................. 0.68%
12b-1 Fee....................................................................................................... None
Total Other Expenses............................................................................................ 0.55%
Shareholder Services Fee (after waiver) (2)..................................................... 0.16%
Total Class A Shares Operating Expenses (3)........................................................... 1.23%

</TABLE>

(1) Class A Shares purchased with the proceeds of a redemption of Shares of an
unaffiliated investment company purchased or sold with a sales load and not
distributed by Federated Securities Corp. may be charged a Contingent
Deferred Sales Charge of .50 of 1.00% for redemptions made within one full
year of purchase. See "Contingent Deferred Sales Charge".

(2) The maximum shareholder services fee is 0.25%.

(3) The total Class A Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending March 31, 1996. The total
Class A Shares operating expenses were 1.23% for the fiscal year ended
March 31, 1995.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class A Shares" and "Fund
Information". Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period........ $72 $92 $119 $196
You would pay the following expenses on the same investment, assuming no
redemption................................................................ $67 $92 $119 $196
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
AMERICAN LEADERS FUND, INC.

<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)...................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................... 0.68%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.52%
Shareholder Services Fee (after waiver) (2)....................................................... 0.13%
Total Class B Shares Operating Expenses (3)(4).......................................................... 1.95%

</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge").

(2) The maximum shareholder services fee is 0.25%.

(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

(4) The total Class B Shares operating expenses would have been 2.07% absent the
voluntary waiver of a portion of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class B Shares" and "Fund
Information". Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period.......................................................... $76 $105
You would pay the following expenses on the same investment, assuming no redemption................ $20 $61
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
AMERICAN LEADERS FUND, INC.

<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)...................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee................................................................................................... 0.68%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.61%
Shareholder Services Fee (after waiver) (2)....................................................... 0.22%
Total Class C Shares Operating Expenses (3)............................................................. 2.04%

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see "Redeeming
Class C Shares".

(2) The maximum shareholder services fee is 0.25%.

(3) The total Class C Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending March 31, 1996. The total
Class C Shares operating expenses were 2.04% for the fiscal year ended March
31, 1995.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class C Shares" and "Fund
Information". Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the
end of each time period...................................................... $31 $64 $110 $237
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $21 $64 $110 $237
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
AMERICAN LEADERS FUND, INC.
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated May 12, 1995, on the Fund's
financial statements for the year ended March 31, 1995, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.58 $ 14.90 $ 13.88 $ 13.18 $ 12.21 $ 13.04 $ 12.55 $ 14.21
- -------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------
Net investment income 0.25 0.23 0.29 0.29 0.37 0.55 0.50 0.45
- -------------------------------------------
Net realized and unrealized gain (loss) on
investments 1.42 0.18 2.05 1.34 1.28 0.36 1.08 (1.21)
- ------------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 1.67 0.41 2.34 1.63 1.65 0.91 1.58 (0.76)
- -------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------
Distributions from net investment income (0.24) (0.24) (0.28) (0.28) (0.38) (0.56) (0.50) (0.43)
- -------------------------------------------
Distributions from net realized gain on
investment transactions (0.35) (0.49) (1.04) (0.65) (0.30) (1.18) (0.59) (0.47)
- ------------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.59) (0.73) (1.32) (0.93) (0.68) (1.74) (1.09) (0.90)
- ------------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 15.66 $ 14.58 $ 14.90 $ 13.88 $ 13.18 $ 12.21 $ 13.04 $ 12.55
- ------------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (A) 11.87% 2.76% 18.31% 12.91% 14.17% 7.13% 13.23% (5.32%)
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------
Expenses 1.23% 1.18% 1.13% 1.02% 1.02% 1.01% 1.01% 1.00%
- -------------------------------------------
Net investment income 1.71% 1.48% 2.07% 2.12% 3.06% 4.23% 3.85% 3.35%
- -------------------------------------------
Expense waiver/reimbursement (b) -- -- 0.06% 0.16% 0.30% 0.35% 0.12% 0.11%
- -------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------
Net assets, end of period (000 omitted) $268,470 $226,857 $202,866 $171,210 $149,360 $147,235 $149,049 $158,818
- -------------------------------------------
Portfolio Turnover 34% 27% 39% 67% 57% 50% 27% 65%
- -------------------------------------------

<CAPTION>
<S> <C> <C>
1987 1986
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.64 $ 11.59
- -------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------
Net investment income 0.46 0.53
- -------------------------------------------
Net realized and unrealized gain (loss) on
investments 1.81 2.88
- ------------------------------------------- --------- ---------
Total from investment operations 2.27 3.41
- -------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------
Distributions from net investment income (0.47) (0.52)
- -------------------------------------------
Distributions from net realized gain on
investment transactions (1.23) (0.84)
- ------------------------------------------- --------- ---------
Total distributions (1.70) (1.36)
- ------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 14.21 $ 13.64
- ------------------------------------------- --------- ---------
TOTAL RETURN (A) 18.38% 31.80%
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------
Expenses 1.00% 1.09%
- -------------------------------------------
Net investment income 3.44% 4.42%
- -------------------------------------------
Expense waiver/reimbursement (b) 0.12% 0.18%
- -------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------
Net assets, end of period (000 omitted) $157,999 $112,472
- -------------------------------------------
Portfolio Turnover 28% 31%
- -------------------------------------------
</TABLE>

(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated March 31, 1995, which can be obtained free of charge.

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
AMERICAN LEADERS FUND, INC.
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated May 12, 1995, on the Fund's
financial statements for the year ended March 31, 1995, and on the following
table for the period presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31,
1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.97
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income 0.13
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.92
- ------------------------------------------------------------------------------------------------------ -------
Total from investment operations 1.05
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.12)
- ------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.23)
- ------------------------------------------------------------------------------------------------------ -------
Total distributions (0.35)
- ------------------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 15.67
- ------------------------------------------------------------------------------------------------------ -------
TOTAL RETURN (B) 7.28%
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------
Expenses 1.95%(c)
- ------------------------------------------------------------------------------------------------------
Net investment income 1.09%(c)
- ------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.12%(c)
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $46,671
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover 34%
- ------------------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from July 25, 1994 (date of initial
public offering) to March 31, 1995.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated March 31, 1995, which can be obtained free of charge.

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
AMERICAN LEADERS FUND, INC.
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.55 $ 14.70
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income 0.14 0.12
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.45 0.35
- ---------------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.59 0.47
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------
Distributions from net investment income (0.13) (0.13)
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.35) (0.49)
- ---------------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.48) (0.62)
- ---------------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.66 $ 14.55
- ---------------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 11.23% 3.16%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------
Expenses 2.04% 2.11%(c)
- ----------------------------------------------------------------------------------------------------
Net investment income 0.91% 0.71%(c)
- ----------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) -- --(c)
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,055 $11,895
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover 34% 27%
- ----------------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from April 21, 1993 (date of initial
public offering) to March 31, 1994.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated March 31, 1995, which can be obtained free of charge.

- --------------------------------------------------------------------------------
SYNOPSIS

The Fund was incorporated under the laws of the State of Maryland on July 22,
1968. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares representing interests in separate
portfolios of securities. As of the date of this prospectus, the Board of
Directors ("Directors") has established four classes of shares for the Fund,
known as Class A Shares, Class B Shares, Class C Shares and Fortress Shares.
This prospectus relates only to the Class A Shares, Class B Shares and Class C
Shares of the Fund (individually and collectively as the context requires,
"Shares").

Shares of the Fund are designed for individuals as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
common stocks and other securities of high quality companies.

For information on how to purchase the Shares offered by this prospectus, please
refer to "How to Purchase Shares." The minimum initial investment for Class A
Shares is $500. The minimum initial investment for Class B Shares and Class C
Shares is $1500. However, the minimum initial investment for a retirement
account in any class is $50. Subsequent investments in any class must be in
amounts of at least $100, except for retirement plans which must be in amounts
of at least $50.

Class A Shares are sold at net asset value plus an applicable sales load and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed under certain circumstances. For a more complete description, see "How
to Redeem Shares."

Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "How to Redeem Shares."

Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."

In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.

Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as principal underwriter ("Federated Funds") can be found under "Exchange
Privilege."

Federated Advisers is the investment adviser (the "Adviser") to the Fund and
receives compensation for its services. The Adviser's address is Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.

Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including investing in equity and illiquid securities, entering into
repurchase agreements and lending portfolio securities. These risks are
described under "Investment Policies."

- --------------------------------------------------------------------------------

LIBERTY FAMILY OF FUNDS

This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:

Capital Growth Fund, providing appreciation of capital primarily through equity
securities;

Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;

International Equity Fund, providing long-term capital growth and income
through international securities;

International Income Fund, providing a high level of current income consistent
with prudent investment risk through high-quality debt securities denominated
primarily in foreign currencies;

Liberty Equity Income Fund, Inc., providing above-average income and capital
appreciation through income producing equity securities;

Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;

Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;

Liberty U.S. Government Money Market Trust, providing current income consistent
with stability of principal through high-quality U.S. government securities;

Liberty Utility Fund, Inc., providing current income and long-term growth of
income, primarily through electric, gas, and communications utilities;

Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value through investment grade securities;

Limited Term Municipal Fund, providing a high level of current income exempt
from federal regular income tax consistent with the preservation of principal,
primarily limited to municipal securities;

Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the state
of Michigan and Michigan municipalities, primarily through Michigan municipal
securities;

Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;

Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;

Tax-Free Instruments Trust, providing current income consistent with stability
of principal and exempt from federal income tax, through high-quality,
short-term municipal securities; and

World Utility Fund, providing total return through securities issued by
domestic and foreign companies in the utilities industries.

Prospectuses for these funds are available by writing to Federated Securities
Corp.

Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.

The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to

meet the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment advisers.

Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.

FEDERATED LIFETRACKTM PROGRAM (CLASS A SHARES AND CLASS C SHARES)

The Fund is also a member of the Federated LifeTrackTM Program sold through
financial representatives. Federated LifeTrackTM Program is an integrated
program of investment options, plan recordkeeping, and consultation services for
401(k) and other participant-directed benefit and savings plans. Under the
Federated LifeTrackTM Program, employers or plan trustees may select a group of
investment options to be offered in a plan which also uses the Federated
LifeTrackTM Program for recordkeeping and administrative services. Additional
fees are charged to participating plans for these services. As part of the
Federated LifeTrackTM Program, exchanges may readily be made between investment
options selected by the employer or a plan trustee.

Other funds participating in the Federated LifeTrackTM Program are: Capital
Growth Fund, Capital Preservation Fund, Fund for U.S. Government Securities,
Inc., International Equity Fund, International Income Fund, Liberty Equity
Income Fund, Inc., Liberty High Income Bond Fund, Inc., Liberty Utility Fund,
Inc., Prime Cash Series, Stock and Bond Fund, Inc. and Strategic Income Fund.

With respect to Class A Shares, no sales load is imposed on purchases made by
qualified retirement plans with over $1 million invested in funds participating
in the Federated LifeTrackTM Program.

- --------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek growth of capital and of income
by concentrating the area of investment decision in the securities of high
quality companies. The Fund's investment approach is based upon the conviction
that over the longer term, the economy will continue to expand and develop and
that this economic growth will be reflected importantly in the growth of major
corporations. The Fund pursues this investment objective by investing at least
65% of its assets in a portfolio of securities issued by the one hundred
companies contained in "The Leaders List." Generally, the Fund's management
makes portfolio selections utilizing fundamental analysis, with emphasis on
earning power, financial condition, and valuation. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus. The investment
objective and the policies and limitations described below cannot be changed
without approval of shareholders.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund invests primarily in securities of companies selected from "The Leaders
List" by the Fund's investment adviser on the basis of traditional fundamental
research techniques and standards. The securities in which the Fund invests
include, but are not limited to:

common stocks;

preferred stocks;

domestic issues of corporate debt obligations rated, at the time of purchase,
BBB or better by Standard & Poor's Ratings Group ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"), or Fitch Investors Service, Inc. or, if
not rated, are determined by the Fund's investment adviser to be of comparable
quality. If a security loses its rating or has its rating reduced after the
Fund has purchased it, the Fund is not required to drop the security from the
portfolio, but will consider doing so. (A description of the rating categories
is contained in the Appendix to the Statement of Additional Information); and
warrants.

Bonds rated "BBB" by Standard & Poor's or "Baa" by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to weakened capacity to make principal and interest payments than
higher rated bonds.

The Fund may also temporarily hold cash and invest in U.S. government securities
in such proportions as the Fund's investment adviser may deem necessary for
defensive purposes.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

THE LEADERS LIST

"The Leaders List" is a trade name which represents a list of 100 blue chip
companies selected by the Fund's investment adviser principally on the basis of
fundamental research techniques and standards. Shareholders can obtain a copy of
"The Leaders List" by contacting the Fund. In the opinion of the investment
adviser, securities of these companies represent diversified and highly
marketable investments. The list is subject to continuous review and
modification. A number of standards and fundamental research factors are used in
determining "The Leaders List." "The Leaders List" includes leading companies in
their industries determined in terms of sales, earnings, and/or market
capitalization.

REPURCHASE AGREEMENTS
The acceptable investments in which the Fund invests may be purchased pursuant
to repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
or other securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price.

ILLIQUID SECURITIES

The Fund may acquire securities which are subject to legal or contractual
delays, restrictions, and costs on resale. Because of time limitations, the Fund
might not be able to dispose of these securities at reasonable prices or at
times advantageous to the Fund. Where the Fund considers these securities to be
illiquid, it intends to limit the purchase of them together with other
securities considered to be illiquid, including repurchase agreements providing
for settlement in more than seven days after notice, to not more than 10% of its
net assets.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend its portfolio
securities on a short-term or a long-term basis up to one-third the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the investment adviser has determined are
creditworthy under guidelines established by the Fund's Board of Directors and
will receive collateral equal to at least 100% of the value of the securities
loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

PORTFOLIO TURNOVER

Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.

INVESTMENT LIMITATIONS

The Fund will not:

borrow money directly or through reverse repurchase agreements (arrangements in
which the Fund sells a portfolio instrument for a percentage of its cash value
with an agreement to buy it back on a set date) except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets;

invest more than 5% of its total assets in securities of one issuer (except
U.S. government securities) or purchase more than 10% of any class of voting
securities of any one issuer;

invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or

purchase restricted securities if immediately thereafter more than 15% of the
net assets of the Fund would be invested in such securities.

- --------------------------------------------------------------------------------
NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

The net asset value of each class of Shares of the Fund is determined at 4:00
p.m. (Eastern time), Monday through Friday, except on: (i) days on which there
are not sufficient changes in the value of the Fund's portfolio securities that
it's net asset value might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.

- --------------------------------------------------------------------------------

INVESTING IN THE FUND

This prospectus offers investors three classes of Shares that carry sales loads
and contingent deferred sales charges in different forms and amounts and which
bear different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales load of 5.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales loads. See "Reducing or
Eliminating the Sales Load." Class A Shares have no conversion feature.

CLASS B SHARES

Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.

CLASS C SHARES

Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within

the first 12 months following purchase. Class C Shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but will have a higher expense ratio and pay lower dividends
than Class A Shares due to the higher 12b-1 fee. Class C Shares have no
conversion feature.

- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES

Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)

In connection with any sale, Federated Securities Corp., may from time to time,
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.

INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales load as follows:

<TABLE>
<CAPTION>
DEALER
SALES LOAD SALES LOAD CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or
greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "DEALER CONCESSION."

No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or to shareholders designated as Liberty Life Members. However,
investors who purchase Shares through a trust department, investment adviser, or
retirement plan may be charged an additional service fee by the institution.
Additionally, no sales load is imposed for Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee or fees for
services.

No sales load is imposed on purchases made by retirement plans with over $1
million invested in funds available through the Federated LifeTrackTM Program.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales load retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales load; however, the distributor will make twelve
monthly payments to the dealer totaling 0.25% of the public offering price over
the first year following the purchase. Such payments are based on the original
purchase price of Shares outstanding at each month end.

The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.

Effective June 1, 1994, and until further notice the entire amount of the
applicable sales load will be reallowed to dealers. In addition, the distributor
will pay dealers additional bonus payments in an amount equal to 0.50 of 1% of
the public offering price of the Shares sold.

REDUCING OR ELIMINATING
THE SALES LOAD

The sales load can be reduced or eliminated on the purchase of Class A Shares
through:

quantity discounts and accumulated purchases;

concurrent purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment company
shares.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales load. In addition, the sales load, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales load on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Class A Shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.

To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $50,000 of shares in the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% of the total amount intended to
be purchased in escrow (in shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Liberty Family of Funds, excluding money market accounts, will be aggregated
to provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.

REINVESTMENT PRIVILEGE

If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales load. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

Investors may purchase Class A Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated investment
company that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase.

INVESTING IN CLASS B SHARES

Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales load, under
certain circumstances described under "Contingent Deferred Sales Charge--Class B
Shares," a contingent deferred sales charge may be applied by the distributor at
the time Class B Shares are redeemed.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of another
fund in the Liberty Family of Funds will convert into Class A Shares based on
the time of the initial purchase. For purposes of conversion to Class A Shares,
Shares purchased through the reinvestment of dividends and distributions paid on
Class B Shares will be considered to be held in a separate sub-account. Each
time any Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares in the sub-account will also convert to Class A Shares. The conversion of
Class B Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if such ruling or
opinion is not available. In such event, Class B Shares would continue to be
subject to higher expenses than Class A Shares for an indefinite period.

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES

Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by

the broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker
to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased
at that day's price. Purchase orders through other financial institutions must
be received by the financial institution and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.
Financial institutions may charge additional fees for their services.

The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
MA; Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number);
Account Number; Trade Date and Order Number; Group Number or Dealer Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.

PURCHASING SHARES BY CHECK

Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600.
Orders by mail are considered received when payment by check is converted into
federal funds (normally the business day after the check is received).

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.

- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE

CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Neither the
Fund nor any of the funds in the Liberty Family of Funds imposes any additional
fees on exchanges. Participants in a retirement plan under the Federated
LifeTrackTM Program may exchange all or some of their Shares for Class A Shares
of other funds offered under the plan at net asset value.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Liberty Family of Funds. (Not all funds in the Liberty
Family of Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Liberty
Family of Funds). Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period.

CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Liberty Family of Funds at net asset value without a
contingent deferred sales charge. (Not all funds in the Liberty Family of Funds
currently offer Class C Shares. Contact your financial institution regarding the
availability of other Class C Shares in the Liberty Family of Funds.)
Participants in a retirement plan under the Federated LifeTrackTM Program may
exchange some or all of their Shares for Class C Shares of other funds offered
under their plan at net asset value without a contingent deferred sales charge.
To the extent that a shareholder exchanges Shares for Class C Shares in other
funds in the Liberty Family of Funds, the time for which the exchanged-for
Shares are to be held will be added to the time for which exchanged-from Shares
were held for purposes of satisfying the applicable holding period. For more
information, see "Contingent Deferred Sales Charge."

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.

Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company, 500
Victory Road--2nd Floor, Quincy, Massachusetts 02171.

Instructions for exchanges for retirement plans participating in the Federated
LifeTrackTM Program should be given to the plan administrator.

TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.

- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below. Redemptions of Shares held through retirement plans
participating in the Federated LifeTrackTM Program will be governed by the
requirements of the respective plans.

REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA 02266-8600.

The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by registered or certified mail with the
written request.

If you are requesting a redemption of any amount to be sent to an address other
than that on record with the Fund, or a redemption payable to a third party,
then all signatures appearing on the written request must be guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a trust
company, a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.

The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.

Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the

Fund. To be eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for participation in
this program through his financial institution. Due to the fact that Class A
Shares are sold with a sales load, it is not advisable for shareholders to
continue to purchase Class A Shares while participating in this program. A
contingent deferred sales charge may be imposed on Class B Shares and Class C
Shares.

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:

CLASS A SHARES

Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or sold
with a sales load and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of .50 of 1.00% for redemptions made
within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:

<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption. No contingent deferred sales charge
will be charged for redemptions of Class C Shares from the Federated LifeTrackTM
Program.

CLASS A SHARES, CLASS B SHARES,
AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount

of the applicable contingent deferred sales charge, redemptions are deemed to
have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for more
than six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares and applicable Class A Shares on a first-in, first-out basis. A
contingent deferred sales charge is not assessed in connection with an exchange
of Fund Shares for Shares of other funds in the Liberty Family of Funds in the
same class (see "Exchange Privilege"). Any contingent deferred sales charge
imposed at the time the exchanged for Shares are redeemed is calculated as if
the shareholder had held the Shares from the date on which he became a
shareholder of the exchanged-from Shares. Moreover, the contingent deferred
sales charge will be eliminated with respect to certain redemptions (see
"Elimination of Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family Funds or
Federated LifeTrackTM Program funds or redemptions from the Federated
LifeTrackTM Program.

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.

- --------------------------------------------------------------------------------
ACCOUNT AND SHARE INFORMATION

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS

Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that quarter's dividend.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.

- --------------------------------------------------------------------------------
FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER

Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .55 of 1% of the
Fund's average daily net assets, plus 4.5% of the Fund's gross income (excluding
any capital gains or losses). Gross income includes, in general, discount earned
on U.S. Treasury bills and agency discount notes, interest earned on all
interest-bearing obligations, and dividend income recorded on the ex-dividend
date but does not include capital gains or losses or reduction for expenses. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse the
Funds for certain operating expenses. The Adviser can terminate this voluntary
reimbursement of expenses at any time at its sole discretion. The Adviser has
also undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.

ADVISER'S BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

Peter R. Anderson has been the Fund's portfolio manager since December, 1989.
Mr. Anderson joined Federated Investors in 1972 as, and is presently, a Senior
Vice President of the Fund's investment adviser. Mr. Anderson is a Chartered
Financial Analyst and received his M.B.A. in Finance from the University of
Wisconsin.

Timothy E. Keefe has been the Fund's portfolio manager since February, 1995.
Mr. Keefe joined Federated Investors in 1987, and has been an Assistant Vice
President of the Fund's investment adviser since 1993. Mr. Keefe served as an
Investment Analyst of the investment adviser from 1991, until 1993, and from
1987 until 1991, he acted as a Marketing Representative in the Broker Dealer
Department. Mr. Keefe is a Chartered Financial Analyst and received his M.B.A.
in Business Administration from the University of Pittsburgh.

Frederick L. Plautz has been the Fund's portfolio manager since February, 1995.
Mr. Plautz joined Federated Investors in 1990 and has been a Vice President of
the Fund's investment adviser since October, 1994. Prior to this, Mr. Plautz
served as an Assistant Vice President of the investment adviser. Mr. Plautz
received his M.S. in Finance from the University of Wisconsin.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase (except for participants in the Federated LifeTrackTM
Program). These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.

The distributor will pay dealers an amount up to 5.5% of the net asset value of
Class B Shares purchased by their clients or customers. These payments will be
made directly by the distributor from its assets, and will not be made from the
assets of the Fund. Dealers may voluntarily waive receipt of all or any portion
of these payments. The distributor may pay a portion of the distribution fee
discussed below to financial institutions that waive all or any portion of the
advance payments.

DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES PLANS

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales support services as agents for
their clients or customers. With respect to Class B Shares, because distribution
fees to be paid by the Fund to the distributor may not exceed an annual rate of
.75% of each class of Shares' average daily net assets, it will take the
distributor a number of years to recoup the expenses it has incurred for its
distribution and distribution-related services pursuant to the Plan.

The Distribution Plan is a compensation type Plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts

expended, or the distributor's overhead expenses. However, the distributor may
be able to recover such amounts or may earn a profit from future payments made
by Shares under the Plan.

In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Class A Shares, Class B Shares, and Class C Shares to obtain
certain personal services for shareholders and for the maintenance of
shareholder accounts ("Shareholder Services"). The Fund has entered into a
Shareholder Services Agreement with Federated Shareholder Services, a subsidiary
of Federated Investors, under which Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.

OTHER PAYMENTS TO
FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or customers under the Federated
LifeTrackTM Program or by certain qualified plans as approved by Federated
Securities Corp. (Such payments are subject to a reclaim from the financial
institution should the assets leave the program within 12 months after
purchase.)

Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

relates to the average aggregate daily net assets of all Federated Funds as
specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Fund.

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT

Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.

INDEPENDENT PUBLIC ACCOUNTANTS

The independent public accountants for the Fund are Arthur Andersen LLP, 2100
One PPG Place, Pittsburgh, Pennsylvania 15222.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.

- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.

As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.

Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.

- --------------------------------------------------------------------------------
TAX INFORMATION
FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.

PENNSYLVANIA PERSONAL
PROPERTY TAXES

Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for each class
of Shares including Fortress Shares as described under "Other Classes of
Shares."

Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares, and therefore, may not correlate
to the dividends or other distributions paid to shareholders.

The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Fortress Shares. Because Class B Shares and Class C
Shares are subject to Rule 12b-1 fees and higher Shareholder Services fees, the
yield for Class A Shares and Fortress Shares, for the same period, may exceed
that of Class B Shares and Class C Shares.

Because Class A Shares are subject to a sales load, the total return for Class B
Shares, Class C Shares, and Fortress Shares for the same period will exceed that
of Class A Shares. Depending on the dollar amount invested, and the time period
for which any particular class of Shares is held, the total return for any
particular class may exceed that of another.

From time to time, advertisements for Class A Shares, Class B Shares, Class C
Shares and Fortress Shares of the Fund may refer to ratings, rankings, and other
information in certain financial publications and/or compare the performance of
Class A Shares, Class B Shares, Class C Shares and Fortress Shares to certain
indices.

- --------------------------------------------------------------------------------
OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Fortress Shares. Fortress
Shares are sold primarily to customers of financial institutions subject to a
front-end sales load, a contingent deferred sales charge and a minimum initial
investment of $1,500, unless the investment is in a retirement account in which
the minimum investment is $50.

Shares and Fortress Shares are subject to certain of the same expenses. Expense
differences, however, between Shares and Fortress Shares may affect the
performance of each class.

To obtain more information and a prospectus for Fortress Shares, investors may
call 1-800-235-4669 or contact their financial institution.

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

AMERICAN LEADERS
FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

COMBINED PROSPECTUS

An Open-End, Diversified
Management Investment Company

May 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
027128107
027128404
027128206
G01085-01 (5/95)

AMERICAN LEADERS FUND, INC.
FORTRESS SHARES
PROSPECTUS

The Fortress Shares of American Leaders Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing in common stocks and other securities of high quality companies
to achieve growth of capital and income.

This prospectus contains the information you should read and know before you
invest in Fortress Shares of the Fund. Keep this prospectus for future
reference.

The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, Class C Shares and Fortress Shares dated May 31, 1995,
with the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information, or make inquiries about the Fund contact your financial
institution.

Prospectus dated May 31, 1995

- --------------------------------------------------------------------------------
TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1

Financial Highlights...........................................................2

General Information............................................................3

Fortress Investment Program....................................................4

Investment Information.........................................................5
Investment Objective.........................................................5
Investment Policies..........................................................5
Investment Limitations.......................................................6

Net Asset Value................................................................7

Investing in Fortress Shares...................................................7
Share Purchases..............................................................7
Minimum Investment Required..................................................8
What Shares Cost.............................................................8

Eliminating the Sales Load...................................................9

Systematic Investment Program...............................................10
Exchange Privileges.........................................................10
Certificates and Confirmations..............................................11
Dividends...................................................................11
Capital Gains...............................................................11

Redeeming Fortress Shares.....................................................11
Through a Financial Institution.............................................11
Directly By Mail............................................................12
Contingent Deferred Sales Charge............................................12
Systematic Withdrawal Program...............................................13
Accounts with Low Balances..................................................14

Fund Information..............................................................14
Management of the Fund......................................................14
Distribution of Fortress Shares.............................................15
Administration of the Fund..................................................16
Brokerage Transactions......................................................17

Shareholder Information.......................................................17

Voting Rights...............................................................17

Tax Information...............................................................18
Federal Income Tax..........................................................18
Pennsylvania Personal Property Taxes........................................18

Performance Information.......................................................18

Other Classes of Shares.......................................................19

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
AMERICAN LEADERS FUND, INC.

<TABLE>
<S> <C> <C>
FORTRESS SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................................................................ 1.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1).................................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None
Exchange Fee................................................................................................. None
ANNUAL FORTRESS SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee............................................................................................... 0.68%
12b-1 Fee.................................................................................................... None
Total Other Expenses......................................................................................... 0.62%
Shareholder Services Fee (after waiver) (2).................................................. 0.23%
Total Fortress Shares Operating Expenses (3)....................................................... 1.30%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within
four years of their purchase dates. For a more complete description, see
"Redeeming Fortress Shares".

(2) The maximum shareholder services fee is 0.25%.

(3) The total Fortress Shares operating expenses in the table above are based
on expenses expected during the fiscal year ending March 31, 1996. The
total Fortress Shares operating expenses were 1.27% for the fiscal year
ended March 31, 1995.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Fortress Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Fortress Shares" and "Fund
Information". Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period........ $33 $62 $81 $165
You would pay the following expenses on the same investment, assuming no
redemption................................................................ $23 $51 $81 $165
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--FORTRESS SHARES
AMERICAN LEADERS FUND, INC.

- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.58 $ 14.95
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.25 0.16
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.42 (0.20)
- ---------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.67 (0.04)
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Distributions from net investment income (0.24) (0.16)
- ----------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.35) (0.17)
- ---------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.59) (0.33)
- ---------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.66 $ 14.58
- ---------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN(B) 11.80% (0.30%)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 1.27% 1.35%(c)
- ----------------------------------------------------------------------------------------
Net investment income 1.69% 1.51%(c)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement(d) -- --(c)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $28,495 $15,282
- ----------------------------------------------------------------------------------------
Portfolio Turnover 34% 27%
- ----------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from July 27, 1993 (date of initial
public offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated March 31, 1995, which can be obtained free of charge.

- --------------------------------------------------------------------------------
GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on July 22,
1968. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors ("Directors") has established four classes of shares,
known as Class A Shares, Class B Shares, Class C Shares and Fortress Shares.
This prospectus relates only to the Fortress Shares ("Shares" or "Fortress
Shares," as the context requires) of the Fund.

Fortress Shares of the Fund are designed for individuals as a convenient means
of accumulating an interest in a professionally managed, diversified portfolio
of common stocks and other securities of high quality companies. A minimum
initial investment of $1,500 is required, unless the investment is in a
retirement account, in which case the minimum initial investment is $50.

Shares are sold at net asset value plus an applicable sales load and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed on shares, other than shares purchased through reinvestment of
dividends, which are redeemed within one to four years of their purchase date.

In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.

- -------------------------------------------------------------------------------
FORTRESS INVESTMENT PROGRAM

This Fortress Shares class is a member of a family of funds ("Fortress Funds"),
collectively known as the Fortress Investment Program. The other funds in the
Program are:

California Municipal Income Fund, providing current income exempt from federal
regular income tax and California personal income taxes;

Fortress Adjustable Rate U.S. Government Fund, Inc., providing current income
consistent with lower volatility of principal through a diversified portfolio
of adjustable and floating rate mortgage securities which are issued or
guaranteed by the U.S. government, its agencies or instrumentalities;

Fortress Bond Fund, providing current income primarily through high-quality
corporate debt;

Fortress Municipal Income Fund, Inc., providing a high level of current income
generally exempt from the federal regular income tax by investing primarily in
a diversified portfolio of municipal bonds;

Fortress Utility Fund, Inc., providing high current income and moderate capital
appreciation primarily through equity and debt securities of utility companies;

Government Income Securities, Inc., providing current income through long-term
U.S. government securities;

Liberty Equity Income Fund, Inc., providing above average income and capital
appreciation through income producing equity securities;

Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value;

Limited Term Municipal Fund, providing a high level of current income which is
exempt from federal regular income tax consistent with the preservation of
capital;

Money Market Management, Inc., providing current income consistent with
stability of principal through high-quality money market instruments;

New York Municipal Income Fund, providing current income exempt from federal
regular income tax, New York personal income taxes, and New York City income
taxes;

Ohio Municipal Income Fund, providing current income exempt from federal
regular income tax and Ohio personal income taxes;

Strategic Income Fund, providing high current income through investing in
domestic corporate debt obligations, U.S. government securities, and foreign
government and corporate debt obligations; and

World Utility Fund, providing total return by investing primarily in securities
issued by domestic and foreign companies in the utilities industry.

Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.

The Fortress Investment Program provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles, and by providing
the investment services of proven, professional investment advisers.

- -------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

common stocks;

preferred stocks; and

domestic issues of corporate debt obligations rated, at the time of purchase
BBB, or better by Standard & Poor's Ratings Group ("Standard & Poor's"),
Moody's Investors Service, Inc. ("Moody's"), or Fitch Investors Service, Inc.
or, if not rated, are determined by the Fund's investment adviser to be of
comparable quality. If a security loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to drop the security
from the portfolio, but will consider doing so. (A description of the rating
categories is contained in the Appendix to the Statement of Additional
Information); and warrants.

The Fund may also temporarily hold cash and invest in U.S. government securities
in such proportions as the Fund's investment adviser may deem necessary for
defensive purposes.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

THE LEADERS LIST

ILLIQUID SECURITIES

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend its portfolio
securities on a short-term or a long-term basis up to one-third the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the investment adviser has determined are
creditworthy under guidelines established by the Fund's Directors and will
receive collateral equal to at least 100% of the value of the securities loaned.

PORTFOLIO TURNOVER

INVESTMENT LIMITATIONS

The Fund will not:

invest more than 5% of its total assets in securities of one issuer (except
U.S. government securities) or purchase more than 10% of any class of voting
securities of any one issuer;

invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or

purchase restricted securities if immediately thereafter more than 15% of the
net assets of the Fund would be invested in such securities.

- -------------------------------------------------------------------------------
NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Fortress Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Fortress Shares in the liabilities of the Fund and those attributable to the
Fortress Shares, and dividing the remainder by the total number of Fortress
Shares outstanding. The net asset value for Fortress Shares may differ from that
of Class A Shares, Class B Shares, and Class C Shares due to the variance in
daily net income realized by each class. Such variance will reflect only accrued
net income to which the shareholders of a particular class are entitled.

- -------------------------------------------------------------------------------
INVESTING IN FORTRESS SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the distributor, Federated Securities Corp.,
either by mail or by wire. The Fund reserves the right to reject any purchase
request.

THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders through a financial
institution are considered received when the Fund is notified of the purchase
order. Purchase orders through a registered broker/dealer must be received by
the broker before 4:00 P.M. (Eastern time) and must be transmitted by the broker
to the Fund before 5:00 P.M. (Eastern time) in order for Shares to be purchased
at that day's price. Purchase orders through other financial institutions must
be received by the financial institution and transmitted to the Fund before 4:00
P.M. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.

The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership

periods (see "Other Payments to Financial Institutions").

DIRECTLY BY MAIL
To purchase Shares by mail directly from Federated Securities Corp.:

complete and sign the new account form available from the Fund;

enclose a check made payable to American Leaders Fund--Fortress Shares; and

mail both to Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600.

Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank, into federal funds. This is
generally the next business day after State Street Bank and Trust Company
("State Street Bank") receives the check.

DIRECTLY BY WIRE

To purchase Shares directly from Federated Securities Corp. by Federal Reserve
wire, call the Fund. All information needed will be taken over the telephone,
and the order is considered received when the transfer agent's bank, State
Street Bank receives payment by wire.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,500, except for an IRA account,
which requires a minimum initial investment of $50. Subsequent investments must
be in amounts of at least $100, except for an IRA account, which must be in
amounts of at least $50.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales load of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales load for purchases of $1 million or
more. In addition, no sales load is imposed for Shares purchased through bank
trust departments or investment advisers registered under the Investment
Advisers Act of 1940, as amended, purchasing on behalf of their clients, or by
sales representatives, Directors, and employees of the Fund, Federated Advisers,
and Federated Securities Corp., or their affiliates, or any investment dealer
who has a sales agreement with Federated Securities Corp., their spouses and
children under age 21, or any trusts or pension or profit-sharing plans for
these persons, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates. Unaffiliated institutions through whom Shares are purchased may
charge fees for services provided which may be related to the ownership of Fund
Shares. This prospectus should, therefore, be read together with any agreement
between the customer and the institution with regard to services provided, the
fees charged for these services, and any restrictions and limitations imposed.

The net asset value is determined at 4:00 P.M. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

Under certain circumstances, described under "Redeeming Fortress Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

DEALER CONCESSION

For sales of Shares, broker/dealers will normally receive 100% of the applicable
sales load. Any portion of the sales load which is not paid to a broker/dealer
will be retained by the distributor. However, from time to time, and at the sole
discretion of the distributor, all or part of that portion may be paid to a
dealer. The sales load for Shares sold other than through registered
broker/dealers will be retained by Federated Securities Corp. Federated
Securities Corp. may pay fees to banks out of the sales load in exchange for
sales and/or administrative services performed on behalf of the bank's customers
in connection with the initiation of customer accounts and purchases of Shares.
ELIMINATING THE SALES LOAD

The sales load can be eliminated on the purchase of Shares through:

quantity discounts and accumulated purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

concurrent purchases.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

There is no sales load for purchases of $1 million or more. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales load.

If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having current value at the public offering price of $900,000 and he
purchases $100,000 more at the current public offering price, there will be no
sales load on the additional purchase. The Fund will also combine purchases for
the purpose of reducing the contingent deferred sales charge imposed on some
Share redemptions. For example, if a shareholder already owns Shares having
current value at the public offering price of $1 million and purchases an
additional $1 million at the current public offering price, the applicable
contingent deferred sales charge would be reduced to .50% of those additional
Shares. For more information on the levels of contingent deferred sales charges
and holding periods, see the section entitled "Contingent Deferred Sales
Charge."

To receive the sales load elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by the shareholder's financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will eliminate the sales load and/or reduce the contingent
deferred sales charge after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $1 million of Shares over the next
13 months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load elimination
depending on the amount actually purchased within the 13-month period and a
provision for the Fund's custodian to hold 1.00% of the total amount intended to
be purchased in escrow (in Shares) until such purchase is completed.

The 1.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent,
which must be $1 million or more of Shares, is not purchased. In this event, an
appropriate number of escrowed Shares may be redeemed in order to realize the
1.00% sales load.

This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."

This letter of intent will not obligate the shareholder to purchase Shares. The
letter may be dated as of a prior date to include any purchases made within the
past 90 days (purchases within the prior 90 days may be used to fulfill the
requirements of the letter of intent; however, the sales load on such purchases
will not be adjusted to reflect a lower sales load).

REINVESTMENT PRIVILEGE

If Shares have been redeemed, the shareholder has a one-time right, within 120
days, to reinvest the redemption proceeds at the next-determined net asset value
without any sales load. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to receive this elimination of the sales load. If the shareholder redeems
his Shares, there may be tax consequences.

CONCURRENT PURCHASES
For purposes of qualifying for a sales load elimination, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Fortress
Investment Program, the purchase prices of which include a sales load. For
example, if a shareholder concurrently invested $400,000 in one of the other
Fortress Funds and $600,000 in Shares, the sales load would be eliminated.

To receive this sales load elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will eliminate the sales load
after it confirms the purchases.

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund, plus
the 1.00% sales load for purchases under $1 million. A shareholder may apply for
participation in this program through Federated Securities Corp. or his
financial institution.

EXCHANGE PRIVILEGES

Shares in other Fortress Funds may be exchanged for Shares at net asset value
without a sales load (if previously paid) or a contingent deferred sales charge.
Also, Shares may be exchanged for shares in other Fortress Funds at net asset
value without a contingent deferred sales charge or sales load. The exchange
privilege is available to shareholders residing in any state in which the shares
being acquired may be legally sold.

Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Shares at net asset
value (plus a sales load, if applicable). Shareholders using this privilege must
exchange Shares having a net asset value equal to the minimum investment
requirements of the fund into which the exchange is being made. Shareholders who
desire to automatically exchange Shares of a predetermined amount on a monthly,
quarterly, or annual basis may take advantage of a systematic exchange
privilege. Further information on these exchange privileges is available by
calling Federated Securities Corp. or the shareholder's financial institution.

Before making an exchange, a shareholder must receive a prospectus of the fund
for which the exchange is being made.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting Federated Services Company.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during that
month.

DIVIDENDS

Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by writing to the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that quarter's dividend.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

- -------------------------------------------------------------------------------
REDEEMING FORTRESS SHARES

The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
through a financial institution or directly from the Fund by written request.

THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem Shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption requests through a
registered broker/dealer must be received by the broker before 4:00 P.M.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
P.M. (Eastern time) in order for Shares to be redeemed at that day's net asset
value. Redemption requests through other financial institutions must be received
by the financial institution and transmitted to the Fund before 4:00 P.M.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to the Fund. The
financial institution may charge customary fees and commissions for this
service. If, at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders will be promptly notified.

Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the

Fund to accept redemption requests by telephone must first be completed. In the
event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Directly by Mail," should be considered.

Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent instructions.

DIRECTLY BY MAIL

Shareholders may also redeem Shares by sending a written request to Federated
Services Company, P.O. Box 8600, Boston, MA 02266-8600. This written request
must include the shareholders' name, the Fund name and class designation, the
account number, and the Share or dollar amount to be redeemed. Shares will be
redeemed at their net asset value less any applicable contingent deferred sales
charge, next determined after the Fund receives the redemption request.

If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders may call the Fund for assistance in redeeming by mail.

SIGNATURES

Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:

a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");

a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange;

a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund, which is administered by the FDIC; or

any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Fund does not accept signatures guaranteed by a notary public.

RECEIVING PAYMENT

A check for the proceeds is mailed within seven days after receipt of proper
written redemption instructions from a broker or from the shareholder.

CONTINGENT DEFERRED SALES CHARGE

Shareholders redeeming Shares from their Fund accounts within certain periods of
the purchase date of those Shares will be charged a contingent deferred sales
charge by the Fund's distributor of the lesser of the original price or the net
asset value of the Shares redeemed as follows:

<TABLE>
<CAPTION>
Contingent
Amount of Deferred
Purchase Shares Held Sales Charge
<S> <C> <C>
4 years or
Up to $1,999,999 less 1%
2 years or
$2,000,000 to $4,999,999 less .50%
$5,000,000 or more 1 year or less .25%
</TABLE>

To the extent that a shareholder exchanges between or among Fortress Shares in
other funds in the Fortress Investment Program, the time for which the
exchanged-for Shares were held will be added, or "tacked", to the time for which
the exchanged-from Shares were held for purposes of satisfying the one-year
holding period.

In instances in which Shares have been acquired in exchange for shares in other
Fortress Funds, (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on shares acquired through the reinvestment of
dividends or distributions of long-term capital gains. In computing the amount
of contingent deferred sales charge for accounts with shares subject to a single
holding period, if any, redemptions are deemed to have occurred in the following
order: 1) first of shares acquired through the reinvestment of dividends and
long-term capital gains, 2) second of purchases of shares occurring prior to the
number of years necessary to satisfy the applicable holding period, and 3)
finally of purchases of shares occurring within the current holding period. For
accounts with shares subject to multiple share holding periods, the redemption
sequence will be determined first, with reinvested dividends and long-term
capital gains, and second, on a first-in, first-out basis.

The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan, or a custodial account does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.
Contingent deferred sales charges are not charged in connection with exchanges
of Shares for shares in other Fortress Funds, or in connection with redemptions
by the Fund of accounts with low balances. Shares of the Fund originally
purchased through a bank trust department, investment adviser registered under
the Investment Advisers Act of 1940, as amended, or retirement plans where the
third party administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, are not subject to the contingent deferred
sales charge, to the extent that no payment was advanced for purchases made by
such entities.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder; the minimum withdrawal amount
is $100. Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and the
fluctuation of the net asset value of Shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Fund. For this reason, payments under this program should not be considered
as yield or income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have invested at least
$10,000 in the Fund (at current offering price).

A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales load and
contingent deferred sales charge,

it is not advisable for shareholders to be purchasing Shares while participating
in this program.

A contingent deferred sales charge is charged for Shares redeemed through this
program within four years of their purchase dates.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000 because
of changes in the Fund's net asset value. Before Shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.

- -------------------------------------------------------------------------------
FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

INVESTMENT ADVISER

Investment decisions for the Fund are made by the Fund's investment adviser,
Federated Advisers (the "Adviser"), subject to direction by the Directors. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase and sale of portfolio instruments, for which
it receives an annual fee from the Fund.

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .55 of 1% of the
Fund's average daily net assets, plus 4.5% of the Fund's gross income (excluding
any capital gains or losses). Gross income includes, in general, discount earned
on U.S. Treasury bills and agency discount notes, interest earned on all
interest-bearing obligations, and dividend income recorded on the ex-dividend
date but does not include capital gains or losses or reduction for expenses. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse the
Funds for certain operating expenses. The
Adviser can terminate this voluntary reimbursement of expenses at any time at
its sole discretion. The Adviser has also undertaken to

reimburse the Fund for operating expenses in excess of limitations established
by certain states.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Peter R. Anderson has been the Fund's portfolio manager since December 1989. Mr.
Anderson joined Federated Investors in 1972 as, and is presently, a Senior Vice
President of the Adviser. Mr. Anderson is a Chartered Financial Analyst and
received his M.B.A. in finance from the University of Wisconsin.

Timothy E. Keefe has been the Fund's portfolio manager since February, 1995. Mr.
Keefe joined Federated Investors in 1987, and has been an Assistant Vice
President of the Adviser since 1993. Mr. Keefe served as an Investment Analyst
of the Adviser from 1991, until 1993, and from 1987, until 1991 he acted as a
Marketing Representative in the Broker Dealer Department. Mr. Keefe is a
Chartered Financial Analyst and received his M.B.A. in Business Administration
from the University of Pittsburgh.

Frederick L. Plautz has been the Fund's portfolio manager since February, 1995.
Mr. Plautz joined Federated Investors in 1990 and has been a Vice President of
the Adviser since October, 1994. Prior to this, Mr. Plautz served as an
Assistant Vice President of the Adviser. Mr. Plautz received his M.S. in Finance
from the University of Wisconsin.

DISTRIBUTION OF FORTRESS SHARES

OTHER PAYMENTS TO
FINANCIAL INSTITUTIONS

The distributor will pay financial institutions, for distribution and/or
administrative services, an amount equal to 1.00% of the offering price of the
Shares acquired by their clients or customers on purchases up to $1,999,999,
.50% of the offering price on purchases of $2,000,000 to $4,999,999, and .25% of
the offering price on purchases of $5,000,000 or more. (This fee is in addition
to the 1.00% sales load on purchases of less that $1 million.) The financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by

the Fund of the otherwise applicable contingent deferred sales charge.

Furthermore, distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include participating in sales, educational and
training seminars at recreational-type facilities, providing sales literature,
and engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Adviser or its affiliates.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Directors will consider appropriate changes in the services.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors
("Federated Funds") as specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of
$750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.

SHAREHOLDER SERVICES PLAN

The Fund has adopted a Shareholder Services Plan (the "Services Plan") under
which it may make payments up to 0.25 of 1% of the average daily net asset value
of the Fortress Class Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT

Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.

INDEPENDENT PUBLIC ACCOUNTANTS

The independent public accountants for the Fund are Arthur Andersen LLP, 2100
One PPG Place, Pittsburgh, Pennsylvania 15222.

BROKERAGE TRANSACTIONS

- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.

As a Maryland Corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.

- -------------------------------------------------------------------------------
TAX INFORMATION

FEDERAL INCOME TAX

PENNSYLVANIA PERSONAL
PROPERTY TAXES

Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for Fortress
Shares.

Total return represents the change, over a specific period of time, in the value
of an investment in Fortress Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Fortress Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
Fortress Shares over a thirty-day period by the maximum offering price per share
of Fortress Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually earned by Fortress Shares, and therefore, may not correlate to the
dividends or other distributions paid to shareholders.

The performance information reflects the effect of the maximum sales load, and
the contingent deferred sales charge, which, if excluded, would increase the
total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Fortress Shares. Because Class B Shares and, Class C
Shares, are subject to Rule 12b-1 fees and Shareholder Services fees, the yield
for Class A Shares and Fortress Shares, for the same period, may exceed that of
Class B Shares and Class C Shares. Because Class A Shares are subject to a
higher maximum sales load, the total return for Class B Shares, Class C Shares
and Fortress Shares, for the same period, will exceed that of Class A Shares.

From time to time, advertisements for the Class A Shares, Class B Shares, Class
C Shares and Fortress Shares of the Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, Class C Shares and Fortress
Shares to certain indices.

- -------------------------------------------------------------------------------
OTHER CLASSES OF SHARES

The Fund also offers other classes of shares called Class A Shares, Class B
Shares and Class C Shares which are all sold primarily to customers of financial
institutions subject to certain differences.

Class A Shares are sold subject to a front-end sales load and a Shareholder
Services Plan. Investments in Class A Shares are subject to a minimum initial
investment of $500, unless the investment is in a retirement account, in which
the minimum investment is $50.

Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50.

Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class C Shares are subject to a minimum investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50.

Class A Shares, Class B Shares, Class C Shares and Fortress Shares are subject
to certain of the same expenses. Expense differences, however, between Class A
Shares, Class B Shares, Class C Shares, and Fortress Shares may affect the
performance of each class.

To obtain more information and a combined prospectus for Class A Shares, Class B
Shares and Class C Shares, investors may call 1-800-235-4669 or contact their
financial institution.

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

AMERICAN LEADERS
FUND, INC.
FORTRESS SHARES

PROSPECTUS

An Open-End, Diversified
Management Investment Company

May 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

027128305
8062808A-FS (5/95)

AMERICAN LEADERS FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Fortress Shares
Combined Statement of Additional Information

This Combined Statement of Additional Information should be read
with the combined prospectus for Class A Shares, Class B Shares,
and Class C Shares, and the prospectus for Fortress Shares of
American Leaders Fund, Inc. (the "Fund") each dated May 31, 1995.
This Statement is not a prospectus itself. To receive a copy of
any of the prospectuses, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1995

Federated Securities Corp.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE
FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Lending of Portfolio Securities 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Portfolio Turnover 1
Investment Limitations 2
AMERICAN LEADERS FUND, INC.
MANAGEMENT 3
Fund Ownership 7
Directors Compensation 8
INVESTMENT ADVISORY SERVICES 8
Adviser to the Fund 8
Advisory Fees 9
ADMINISTRATIVE SERVICES 9
Transfer Agent and Dividend
Disbursing Agent 9
BROKERAGE TRANSACTIONS 9
PURCHASING SHARES 10
Distribution (Class B Shares
and Class C Shares only) and
Shareholder Services Plans 10
Purchases by Sales
Representatives, Fund
Directors, and Employees 10
Exchanging Securities for Fund
Shares 10
DETERMINING NET ASSET VALUE 11
Determining Market Value of
Securities 11
Reduced Sales Load 11
Requirements for Exchange 11
Tax Consequences 12
Making an Exchange 12
REDEEMING SHARES 12
Redemption in Kind 12
TAX STATUS 13
The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 13
YIELD 14
PERFORMANCE COMPARISONS 14
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 15
Institutional 15
Trust Organizations 16
Broker/dealers and bank
broker/dealer subsidiaries 16
FINANCIAL STATEMENTS 16
APPENDIX 17
GENERAL INFORMATION ABOUT THE FUND
The Fund was incorporated under the laws of the State of Maryland on
July 22, 1968. On April 20, 1993, the shareholders of the Fund voted to
permit the Fund to offer separate series and classes of Shares.
Shares of the Fund are offered in four classes known as Class A Shares,
Class B Shares, Class C Shares and Fortress Shares (individually and
collectively referred to as "Shares" as the context may require). This
Combined Statement of Additional Information relates to all classes of
Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek growth of capital and of
income by concentrating the area of investment decision in the
securities of high quality companies. The investment objective cannot be
changed without shareholder approval.
TYPES OF INVESTMENTS
The Fund invests primarily in common stocks, preferred stocks, corporate
bonds, notes, and warrants of companies selected from "The Leaders
List."
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan. The Fund does not have the right to vote securities on
loan, but would terminate the loan and regain the right to vote if that
were considered important with respect to the investment.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institution's sell U.S. government
securities or certificates of deposit to the Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price. The
Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund will only enter into repurchase agreements
with banks or 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").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as an institution, broker, or dealer, in return for
a percentage of the instrument's market value in cash, and agrees that
on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at
a time when a sale may be deemed to be disadvantageous, but the ability
to enter into reverse repurchase agreements does not ensure that the
Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked
to market daily and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not engage in short-term trading but may dispose of
securities held for a short period if, after examination of their value,
management believes such disposition to be advisable. In determining
whether or not to sell portfolio securities, consideration will be given
among other factors to the effect on shareholders of the resultant tax
liability. Nevertheless changes will be made whenever, in the judgment
of management, they will contribute to the attainment of the Fund's
investment objective, even though such changes may result in realization
of capital gains. For the fiscal years ended March 31, 1995 and 1994,
the portfolio turnover rates were 34% and 27%, respectively.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described
below without approval of shareholders.
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any
securities on margin.
Borrowing Money
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not
in excess of 5% of the value of its total assets. In addition, the
Fund may enter into reverse repurchase agreements and otherwise
borrow up to one-third of the value of its total assets, including
the amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This latter practice is
not for investment leverage but solely to facilitate management of
the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio instruments would be
inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for
investment and will reduce net income. The Fund will liquidate any
such borrowings as soon as possible and may not purchase any
portfolio securities while the borrowings are outstanding.
However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion
of the reverse repurchase agreements, the Fund will restrict the
purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse
repurchase agreements.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate its securities.
Diversification of Investments
The Fund will not invest more than 5% of its total assets in the
securities of any one issuer, except U.S. government securities,
and will not purchase more than 10% of any class of voting
securities of any one issuer.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment
companies, except by purchase in the open market involving only
customary brokerage commissions or as part of a merger or
consolidation.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in securities of issuers with a record of less than three
years of continuous operation, including the operation of any
predecessor.
Investing in Issuers Whose Securities Are Owned by Officers of the
Fund
The Fund will not purchase or retain the securities of any issuer
if the officers and Directors of the Fund or its investment
adviser owning individually more than 1/2 of 1% of the issuer's
securities together own more than 5% of the issuer's securities.
Underwriting
The Fund will not underwrite or engage in agency distribution of
securities, except as it may be deemed to be an underwriter, if it
purchases and sells restricted securities as permitted.
Investing in Commodities or Real Estate
The Fund will not invest in commodities, commodity contracts, or
real estate.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio
securities. (This shall not prevent the purchase or holding of
bonds, debentures, notes, certificates of indebtedness or other
debt securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment
objective and policies or Articles of Incorporation.)
Acquiring Securities
The Fund will not purchase securities of a company for the purpose
of exercising control or management. However, the Fund may invest
in up to 10% of the voting securities of any one issuer and may
exercise its voting powers consistent with the best interests of
the Fund. In addition, the Fund, other companies advised by the
Fund's investment adviser, and other affiliated companies may
together buy and hold substantial amounts of voting stock of a
company and may vote together in regard to such company's affairs.
In some such cases, the Fund and its affiliates might collectively
be considered to be in control of such company. In some cases, the
Directors and other persons associated with the Fund and its
affiliates might possibly become directors of companies in which
the Fund holds stock.
Concentration of Investments
The Fund will not invest more than 25% of the value of its total
assets in any one industry.
Issuing Senior Securities
The Fund will not issue senior securities.
Investing in Restricted Securities
The Fund will not purchase restricted securities if immediately
thereafter more than 15% of the net assets of the Fund, taken at
market value, would be invested in such securities. (In order to
comply with certain state requirements, the Fund will not invest
more than 5% of its total assets in restricted securities. If
state requirements change, this policy may be revised without
notice to shareholders.)
In addition, in order to comply with certain state restrictions,
the Fund will not invest in real estate limited partnerships or
oil, gas, or other mineral leases. Also, the Fund will not invest
more than 5% of its net assets in warrants. No more than 2% of the
Fund's net assets may be in warrants which are not listed on the
New York Stock Exchange. If state requirements change, these
restrictions may be revised without notice to shareholders.
Except when borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will
not result in a violation of such restriction.
The Fund did not borrow money, invest in reverse repurchase
agreements, or purchase restricted securities in excess of 5% of
the value of its total or net assets during the last fiscal year
and has no present intent to do so in the coming fiscal year.
Restricted securities are generally not available from companies
comprising "The Leader's List."
American Leaders Fund, Inc. Management
Officers and Directors are listed with their addresses, principal
occupations, and present positions.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
President and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President and Director of the Company.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President and Director
Federa
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, President and Director
of the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.

Lawrence D. Ellis, M.D. *
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.

Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.

* This Director is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Directors handles the responsibilities of the
Board of Directors between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding
Shares.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund,
Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; The Virtus Funds; and World Investment
Series, Inc.
FUND OWNERSHIP
As of May 5, 1995, no shareholder of record owned 5% or more of the
outstanding Class A Shares of the Fund:
As of May 5, 1995, no shareholder of record owned 5% or more of the
outstanding Class B Shares of the Fund:
As of May 5, 1995, the following shareholder of record owned 5% or more
of the outstanding Class C Shares of the Fund: Merrill Lynch, Pierce,
Fenner & Smith, Jacksonville, FL, as record owner holding Fund Shares
for its clients, owned approximately 504,115 Shares (38.02%).
As of May 5, 1995, the following shareholders of record owned 5% or
more of the outstanding Fortress Shares of the Fund: Merrill Lynch,
Pierce, Fenner & Smith, Jacksonville, FL, as record owner holding Fund
Shares for its clients, owned approximately 474,792 Shares (25.44%).
Directors Compensation

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +

John F. Donahue, $ 0 $0 for the Fund and
President and Director 68 other investment companies in the Fund
Complex
Thomas G. Bigley, $ 640 $20,688 for the Fund and
Director 49 other investment companies in the Fund
Complex
John T. Conroy, Jr., $ 1,390 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
William J. Copeland, $ 1,390 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
James E. Dowd, $ 1,390 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ 1,261 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ 1,390 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
Peter E. Madden, $ 1,071 $90,563 for the Fund and
Director 64 other investment companies in the Fund
Complex
Gregor F. Meyer, $ 1,261 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
John E. Murray, Jr., $ 323 $0.00 for the Fund and
Director 64 other investment companies in the Fund
Complex
Wesley W. Posvar, $ 1,261 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ 1,261 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex

*Information is furnished for the fiscal year ended March 31, 1995.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the "Adviser"). It
is a subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the respective prospectuses. During the
fiscal years ended March 31, 1995, 1994, and 1993, the Adviser earned
$2,010,685, $1,549,057, and $1,254,834, respectively, which were reduced
by $0, $0, and $104,310, respectively, because of undertakings to limit
the Fund's expenses.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
Adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the respective prospectuses. Prior to March 1, 1994,
Federated Administrative Services, Inc., also a subsidiary of Federated
Investors, served as the Fund's administrator. For purposes of this
Statement of Additional Information, Federated Administrative Services
and Federated Administrative Services, Inc. may be referred to as the
"Administrators." For the fiscal year ended March 31, 1995, Federated
Administrative Services earned $223,061, none of which were voluntarily
waived. For the fiscal year ended March 31, 1994, the Administrators
collectively earned $441,948, none of which were voluntarily waived. For
the fiscal year ended March 31, 1993, Federated Administrative Services,
Inc., earned $369,702, none of which were voluntarily waived. Dr. Henry
J. Gailliot, an officer of Federated Advisers, the adviser to the Fund,
holds approximately 20%, of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc.,
and Federated Administrative Services.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid to the transfer agent is
based upon the size, type and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Adviser will
generally utilize those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the
Directors.
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund
or to the Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
For the fiscal years ended March 31, 1995, 1994, and 1993, the Fund paid
total brokerage commissions of $277,942, $140,868, and $158,973,
respectively.
PURCHASING SHARES
Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value (plus a sales
load on Class A Shares and Fortress Shares only) on days the New York
Stock Exchange is open for business. The procedure for purchasing Shares
is explained in the respective prospectuses under "How to Purchase
Shares" and "Investing in Fortress Shares."
DISTRIBUTION (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES PLANS
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office
space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan, (Class B Shares and Class C Shares
only) the Directors expect that the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management
and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts.
For the fiscal period from July 25, 1994 to March 31, 1995, the Fund
incurred $109,518 in distribution services fees on behalf of Class B
Shares, all of which were paid to financial institutions. For the fiscal
year ended March 31, 1995, the Fund incurred $118,850 in distribution
services fees on behalf of Class C Shares, all of which were paid to
financial institutions. In addition, for the fiscal year ended March 31,
1995, payments of $511,729 were made pursuant to the Shareholder
Services Plan, of which $17,522 were waived on behalf of Class B Shares.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp., or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities
Corp., and their spouses and children under 21, may buy Shares at net
asset value without a sales load. Shares may also be sold without a
sales load to trusts or pension or profit-sharing plans for these
persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for
Shares, or they may exchange a combination of convertible securities and
cash for Shares. Any securities to be exchanged must meet the investment
objective and policies of the Fund, must have a readily ascertainable
market value, must be liquid, and must not be subject to restrictions on
resale.
The Fund will prepare a list of securities which are eligible for
acceptance and furnish this list to brokers upon request. The Fund
reserves the right to reject any security, even though it appears on the
list, and the right to amend the list of acceptable securities at any
time without notice to brokers or investors.
An investment broker acting for an investor should forward the
securities in negotiable form with an authorized letter of transmittal
to Federated Securities Corp. Federated Securities Corp. will determine
that transmittal papers are in good order and forward to the Fund's
custodian, State Street Bank and Trust Company. The Fund will notify the
broker of its acceptance and valuation of the securities within five
business days of their receipt by State Street Bank.
The Fund values such securities in the same manner as the Fund values
its portfolio securities. The basis of the exchange will depend upon the
net asset value of Shares on the day the securities are valued. One
Share will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription, conversion, or other rights attached to the securities
become the property of the Fund, along with the securities.
Tax Consequences
Exercise of this exchange privilege is treated as a sale for
federal income tax purposes. Depending upon the cost basis of the
securities exchanged for Shares, a gain or loss may be realized by
the investor.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as
follows:
o according to the last sale price on a national securities
exchange, if available;
o in the absence of recorded sales for equity securities, according
to the mean between the last closing bid and asked prices and for
bonds and other fixed income securities, as determined by an
independent pricing service; or
o for short-term obligations according to the prices as furnished by
an independent pricing service or for short-term obligations with
remaining maturities of 60 days or less at the time of purchase,
at amortized cost or at fair value as determined in good faith by
the Directors.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider yield,
quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data.
Exchange Privilege
This section relates only to Fortress Shares of the Fund. For
information regarding the Exchange Privilege for Class A Shares, Class B
Shares, and Class C Shares of the Fund, please see the combined
prospectus for these classes of Shares.
The Securities and Exchange Commission has issued an order exempting the
Fund from certain provisions of the Investment Company Act of 1940. As a
result, Fund shareholders are allowed to exchange all or some of their
Fortress Shares for shares in other Fortress Funds (which are sold with
a sales load different from that of the Fund or with no sales load and
which are advised by subsidiaries or affiliates of Federated Investors)
without the assessment of a contingent deferred sales charge on the
exchanged Shares.
REDUCED SALES LOAD
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales load, the shareholder must notify Federated
Securities Corp.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net
asset value of at least $1,500. Before the exchange, the shareholder
must receive a prospectus of the fund for which the exchange is being
made.
This privilege is available to shareholders resident in any state in
which the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Further information on the exchange privilege and prospectuses for
Fortress Funds or certain Federated Funds are available by calling the
Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a short-term or
long-term capital gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for Fortress Funds or certain Federated Funds
may be given in writing or by telephone. Written instructions may
require a signature guarantee.
Telephone Instructions
Telephone instructions made by the investor may be carried out
only if a telephone authorization form completed by the investor
is on file with the Fund or its agents. If the instructions are
given by a broker, a telephone authorization form completed by the
broker must be on file with the Fund or its agents. Shares may be
exchanged between two funds by telephone only if the two funds
have identical shareholder registrations.
Telephoned exchange instructions may be recorded. They must be
received by the transfer agent before 4:00 p.m. (Eastern time) for
shares to be exchanged that day. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request. Shareholder redemptions may be
subject to a contingent deferred sales charge. Redemption procedures are
explained in the respective prospectuses under "How to Redeem Shares" or
"Redeeming Fortress Shares." Although the transfer agent does not charge
for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase, Class C Shares
redeemed within one year of purchase, and Fortress Shares redeemed
within four years of purchase may be subject to a contingent deferred
sales charge. The amount of the contingent deferred sales charge is
based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the financial institutions for services
rendered, and the length of time the investor remains a shareholder in
the Fund. Should financial institutions elect to receive an amount less
than the administrative fee that is stated in the prospectus for
servicing a particular shareholder, the contingent deferred sales charge
and/or holding period for that particular shareholder will be reduced
accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net
asset value and selecting the securities in a manner the Directors
determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem Shares
for any shareholder in cash up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special
tax treatment afforded to such companies. To qualify for this treatment,
the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. The Fund's dividends, and
any short-term capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-
term capital gains distributed to them regardless of how long they
have held the Fund shares.
TOTAL RETURN
The Fund's average annual total returns for Class A Shares for the one-
year, five-year, and ten-year periods ended March 31, 1995, were 5.71%,
10.57%, and 11.47%, respectively.
The Fund's average annual total returns for Class C Shares for the
fiscal year ended March 31, 1995, and for the period from April 21, 1993
to March 31, 1995, were 10.16% and 7.56%, respectively.
The Fund's average annual total returns for Fortress Shares for the
fiscal year ended March 31, 1995, and for the period from July 27, 1993
to March 31, 1995, were 9.60% and 5.45%, respectively.
The average annual total return for each class of Shares of the Fund is
the average compounded rate of return for a given period that would
equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying
the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at
the end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales load on
Class A Shares or Fortress Shares, adjusted over the period by any
additional Shares, assuming the quarterly reinvestment of all dividends
and distributions. Any applicable contingent deferred sales charge is
deducted from the ending value of the investment based on the lesser of
the original purchase price or the offering price of Shares redeemed.
Occasionally, total return which does not reflect the effect of the
sales load may be quoted in advertising.
The Fund's cumulative total return for Class B Shares, for the period
from July 25, 1994 to March 31, 1995 was 1.67%.
Cumulative total return reflects Class B Shares' total performance over
a specified period of time. This total return assumes and is reduced by
the payment of maximum sales load and contingent deferred sales charge.
The Fund's total return is representative of only 8 months of activity
for the Class B Shares.
YIELD
The Fund's yields for Class A Shares, Class B Shares, Class C Shares,
and Fortress Shares were 1.37%, 0.77%, 0.64%, and 1.36%, respectively,
for the thirty-day period ended March 31, 1995.
The yield for each class of Shares of the Fund is determined by dividing
the net investment income per share (as defined by the SEC) earned by
the class of Shares over a thirty-day period by the maximum offering
price per share of the respective class on the last day of the period.
This value is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments
required by the SEC and, therefore, may not correlate to the dividends
or other distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in a class of Shares, the performance will be reduced for those
shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of each class of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and net asset value per Share fluctuate daily. Both net
earnings and net asset value per Share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance
investors should consider all relevant factors such as the composition
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. --ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any
change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the growth
and income funds category in advertising and sales literature.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") --represents share prices of
selected blue-chip industrial corporations as well as public
utility and transportation companies. The DJIA indicates daily
changes in the average price of stocks in any of its categories.
It also reports total sales for each group of industries. Because
it represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
o STANDARD & POOR'S Ratings Group DAILY STOCK PRICE INDEX OF 500
COMMON STOCKS--a composite index of common stocks in industry,
transportation, and financial and public utility companies,
compares total returns of funds whose portfolios are invested
primarily in common stocks. In addition, the Standard & Poor's
index assumes reinvestment of all dividends paid by stocks listed
on the index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in the
Standard & Poor's figures.
o MORNINGSTAR, INC.--an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Advertisements and sales literature for all four classes of Shares may
quote total returns which are calculated on non-standardized base
periods. These total returns also represent the historic change in the
value of an investment in either class of Shares based on quarterly
reinvestment of dividends over a specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of either class of Shares using charts, graphs, and
descriptions, compared to federally insured bank products including
certificates of deposit and time deposits and to money market funds
using the Lipper Analytical Services money market instruments average.
Advertisements may quote performance information which does not reflect
the effect of various sales loads on Class A Shares, Class B Shares,
Class C Shares, and Fortress Shares.
About Federated Investors
Federated is dedicated to meeting investor needs which is
reflected in its investment decision making structured,
straightforward, and consistent. This has resulted in a
history of competitive performance with a range of
competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is
firmly rooted in sound methodologies backed by fundamental
and technical research. Investment decisions are made and
executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years'
experience. As of December 31, 1994, Federated managed 15
equity funds totaling approximately $4 billion in assets
across growth, value, equity income, international, index
and sector (i.e. utility) styles. Federated's value-
oriented management style combines quantitative and
qualitative analysis and features a structured, computer-
assisted composite modeling system that was developed in
the 1970s.
J. Thomas Madden, Executive Vice President, oversees
Federated's equity and high yield corporate bond management
while William D. Dawson, Executive Vice President, oversees
Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management
of Federated's international portfolios.
Mutual Fund Market
Twenty-seven percent of American households are pursuing
their financial goals through mutual funds. These
investors, as well as businesses and institutions, have
entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes
mutual funds for a variety of investment applications.
Specific markets include:
Institutional
Federated meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate
accounts and mutual funds for a variety of applications,
including defined benefit and defined contribution
programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds,
tax-exempt entities, foundations/endowments, insurance
companies, and investment and financial advisors. The
marketing effort to these institutional clients is headed
by John B. Fisher, President, Institutional Sales Division.

*source: Investment Company Institute

Trust Organizations
Other institutional clients include close relationships
with more than 1,500 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President,
Bank Marketing & Sales.
Broker/dealers and bank broker/dealer subsidiaries
Federated mutual funds are available to consumers through major
brokerage firms nationwide--including 200 New York Stock Exchange firms-
- -supported by more wholesalers than any other mutual fund distributor.
The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Division.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended March 31, 1995, are
incorporated herein by reference to the Annual Report of the Fund dated
March 31, 1995 (File Nos. 2-29786 and 811-1704). A copy of the Report
may be obtained without charge by contacting the Fund.
APPENDIX
STANDARD & POOR'S Ratings Group CORPORATE BOND RATINGS DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
FITCH INVESTOR SERVICE, INC. INVESTMENT GRADE BOND RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
027128107
027128404
027128206
027128305
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