PENN SQUARE MUTUAL FUND
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
Dear Shareholders:
The Board of Trustees and management of Penn Square Mutual Fund (the "Penn
Square Fund") are pleased to submit for your vote a proposal for the tax-free
transfer of all the assets of the Penn Square Fund to Federated American Leaders
Fund, Inc. (the "Federated Fund"), a mutual fund advised by Federated Advisers.
The Federated Fund has an investment objective similar to that of the Penn
Square Fund in that it seeks growth of capital and income by concentrating on
the area of investment decision in the securities of high quality companies. As
part of the transaction, holders of shares in the Penn Square Fund would receive
shares of the Federated Fund equal in value to their shares in the Penn Square
Fund and the Penn Square Fund would be liquidated. Shareholders would not have
to pay a sales charge upon receiving such shares, nor would they be subject to
any contingent deferred sales charges in connection with the exercise of
exchange rights or redemptions of such shares. Further, William Penn fund group
shareholders who were invested as of November 30, 1988, will not be charged a
sales charge for future purchases made in any Federated Fund, provided the
account has remained open since that date.
You may be contacted by Shareholder Communications Corporation, a telephone
solicitation firm, requesting that you cast your vote by telephone. Also, you
may cast your vote by telephone by calling Shareholder Communications
Corporation toll free at (800) 733-8481 ext. 459 (telephone voting only). If you
have any questions regarding the proxy/prospectus you may call the Penn Square
Fund at (800) 523-8440 or the Federated Fund at (800) 245-4770.
The Board of Trustees of the Penn Square Fund, as well as Penn Square
Management Corporation, the Penn Square Fund's manager and distributor, believe
the proposed agreement and plan of reorganization is in the best interests of
Penn Square Fund shareholders for the following reasons:
- The Federated Fund has an investment objective similar to that of the
Penn Square Fund and offers an investment portfolio which seeks growth of
capital and income by concentrating in the area of investment decision in
the securities of high quality companies.
- The Federated Fund offers competitive performance and comparable expense
ratios.
- As an investor in the Federated Fund, shareholders would have access to a
dramatically expanded array of investment alternatives in the Federated
retail family of funds.
- Federated Investors also has an excellent reputation for customer
servicing, having received a #1 rating for the last five surveys in a row
by DALBAR, Inc. The shareholder services for the Federated funds include
advanced technological systems that result in quick shareholder access to
a broad spectrum of information, and efficient routing of telephone calls
to the appropriate person.
The Federated Fund is managed by Federated Advisers, a subsidiary of
Federated Investors. Federated Investors was founded in 1955 and is located in
Pittsburgh, Pennsylvania. Federated Advisers and other subsidiaries of Federated
Investors serve as investment advisers to a number of investment companies and
private accounts. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, Federated Investors
is one of the largest mutual fund investment managers in the United States. With
more than 2,000 employees, Federated continues to be led by the family
management who founded the company in 1955. Federated funds are presently at
work in and through 4,500 financial institutions nationwide.
We believe the transfer of the Penn Square Fund's assets in this
transaction presents an exciting investment opportunity for our shareholders.
Your vote on the transaction is critical to its success. The transfer will be
effected only if approved by a majority of the votes cast at the Special Meeting
of Shareholders. We hope you share our enthusiasm and will participate by
casting your vote in person,
or by proxy if you are unable to attend the meeting. Please read the enclosed
prospectus/proxy statement carefully before you vote.
THE BOARD OF TRUSTEES BELIEVES THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF THE PENN SQUARE FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,
/s/ James E. Jordan
James E. Jordan
President
PENN SQUARE MUTUAL FUND
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF PENN SQUARE MUTUAL FUND:
A Special Meeting of Shareholders of Penn Square Mutual Fund (the "Penn
Square Fund") will be held at 9:00 a.m. on May 29, 1997 at: Sheraton Berkshire
Motor Inn, 1741 Paper Mill Road, Wyomissing, PA 19610, for the following
purposes:
1. To approve or disapprove a proposed Agreement and Plan of Reorganization
between the Penn Square Fund and Federated American Leaders Fund, Inc.
(the "Federated Fund"), whereby the Federated Fund would acquire all of
the assets and assume certain liabilities of the Penn Square Fund in
exchange for the Federated Fund's Class A Shares and Class C Shares to
be distributed pro rata by the Penn Square Fund to the holders of its
Class A Shares and Class C Shares respectively in complete liquidation
of the Penn Square Fund; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
By Order of the Board of Trustees,
/s/ Sandra J. Houck
Sandra J. Houck
Secretary
Dated: April 25, 1997
Shareholders of record at the close of business on April 14, 1997, are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card. Your vote is important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF
FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU
MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF
YOU ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
APRIL 17, 1997
ACQUISITION OF THE ASSETS OF
PENN SQUARE MUTUAL FUND
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
TELEPHONE NUMBER: 1-800-523-8440
BY AND IN EXCHANGE FOR CLASS A SHARES AND CLASS C SHARES OF
FEDERATED AMERICAN LEADERS FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-245-4770
This Prospectus/Proxy Statement describes the proposed Agreement and Plan
of Reorganization (the "Plan") whereby Federated American Leaders Fund, Inc., a
Maryland corporation (the "Federated Fund"), would acquire all of the assets and
assume certain liabilities of Penn Square Mutual Fund (the "Penn Square Fund"),
a Pennsylvania common-law trust, in exchange for the Federated Fund's Class A
Shares and Class C Shares to be distributed pro rata by the Penn Square Fund to
the holders of its Class A Shares and Class C Shares, respectively, in complete
liquidation of the Penn Square Fund. As a result of the Plan, each shareholder
of the Penn Square Fund will become the owner of the corresponding Federated
Fund's Class A Shares and Class C Shares having a total net asset value equal to
the total net asset value of his or her holdings in the Penn Square Fund's Class
A Shares and Class C Shares.
THE BOARD OF TRUSTEES OF THE PENN SQUARE FUND UNANIMOUSLY RECOMMENDS
APPROVAL OF THE PLAN.
The shares of each of the Federated Fund and the Penn Square Fund represent
interests in separate open-end, diversified management investment companies. The
Federated Fund's investment objective is to seek growth of capital and of income
by concentrating in the area of investment decision in the securities of high
quality companies. The Penn Square Fund's primary investment objective is long-
term capital growth from a diversified portfolio of securities, consisting for
the most part of blue chip common stocks. The realization of current income is a
secondary consideration although an important one. For a comparison of the
investment policies of the Federated Fund and the Penn Square Fund, see
"Summary--Investment Objectives, Policies and Limitations."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Federated Fund that a prospective
investor should know before investing. This Prospectus/Proxy Statement is
accompanied by the Prospectus of the Federated Fund dated May 31, 1996, which is
incorporated herein by reference. Statements of Additional Information for the
Federated Fund dated May 31, 1996 (relating to the Federated Fund's Prospectus
of the same date) and April 17, 1997 (relating to this Prospectus/Proxy
Statement), the Annual Report to Shareholders dated March 31, 1996, and
Semi-Annual Report to Shareholders dated September 30, 1996, all containing
additional information, have been filed with the Securities and Exchange
Commission and are incorporated herein by reference. Copies of the Statements of
Additional Information, the Annual Report, and the Semi-Annual Report may be
obtained without charge by writing or calling the Federated Fund at the address
and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses.............................................................. 3
Summary.......................................................................... 7
About the Proposed Reorganization.............................................. 7
Investment Objectives, Policies and Limitations................................ 7
Advisory and Other Fees........................................................ 9
Distribution Arrangements...................................................... 9
Purchase, Exchange and Redemption Procedures................................... 11
Dividends...................................................................... 12
Tax Consequences............................................................... 13
Risk Factors..................................................................... 13
Information About the Reorganization............................................. 13
Background and Reasons for the Proposed Reorganization......................... 13
Agreement Between The William Penn Company and Federated....................... 15
Description of the Plan of Reorganization...................................... 15
Description of Federated Fund Shares........................................... 16
Federal Income Tax Consequences................................................ 16
Comparative Information on Shareholder Rights and Obligations.................. 16
Capitalization................................................................. 18
Information About the Federated Fund and the Penn Square Fund.................... 18
Federated American Leaders Fund, Inc........................................... 18
Penn Square Mutual Fund........................................................ 19
Voting Information............................................................... 19
Outstanding Shares and Voting Requirements..................................... 20
Dissenter's Right of Appraisal................................................. 21
Other Matters and Discretion of Persons Named in the Proxy....................... 21
Agreement and Plan of Reorganization............................................. Exhibit A
</TABLE>
SUMMARY OF EXPENSES
(CLASS A SHARES)
<TABLE>
<CAPTION>
FEDERATED PENN SQUARE PRO FORMA
FUND FUND COMBINED
---------- ------------ ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........... 5.50%(1) 4.75% 5.50%(1)
Maximum Sales Charge Imposed on Reinvested
Dividends
(as a percentage of offering price)........... None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)........... 0.00%(2) None 0.00%(2)
Redemption Fee (as a percentage of amount
redeemed, if applicable)(3)................... None None None
Exchange Fee.................................... None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................. 0.65% 0.65% 0.63%
12b-1 Fee (after waiver)(4)..................... None 0.10% None
Total Other Expenses (after waiver)(5).......... 0.51% 0.18% 0.45%
Total Operating Expenses (after
waiver)(6)............................... 1.16% 0.93% 1.08%
</TABLE>
(1) This sales charge would not be applicable to Class A Shares of the Federated
Fund acquired through the proposed reorganization, or to Penn Square Fund
shareholders invested as of November 30, 1988, for future purchases of any of
the Federated Funds provided the account remains open.
(2) Class A Shares purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by Federated Securities Corp. would not be charged a sales
charge but may be charged a contingent deferred sales charge of 0.50 of 1% for
redemptions made within one full year of purchase. For a more complete
description, see "Summary--Distribution Arrangements." This contingent deferred
sales charge would not be applicable to Class A Shares of the Federated Fund
acquired through the proposed reorganization.
(3) Wire-transferred redemptions of Class A Shares of the Federated Fund of less
than $5,000 may be subject to additional fees. A $10.00 fee is charged for
certain redemptions of Penn Square Fund shares by wire transfer.
(4) With respect to the Penn Square Fund, the 12b-1 fee has been reduced to
reflect the voluntary waiver; the maximum 12b-1 fee for Class A Shares is 0.50%.
The Federated Fund's Class A Shares have no 12b-1 fee.
(5) Total Other Expenses include a shareholder services fee of 0.18% for the
Federated Fund and the Pro Forma Combined Fund and a shareholder service fee of
0.00% for the Penn Square Fund. The shareholder services fee has been reduced to
reflect the voluntary waiver of a portion of the shareholder services fee. The
shareholder service provider can terminate this voluntary waiver at any time in
its sole discretion. The maximum shareholder services fee is 0.25% for the
Federated Fund and the Pro Forma Combined Fund and 0.50% for Penn Square Fund.
(6) The Total Operating Expenses for Class A Shares of the Federated Fund are
based on expenses expected during its fiscal year ending March 31, 1997. The
total operating expenses were 1.16% for the fiscal year ended March 31, 1996,
and would have been 1.23% absent the voluntary waiver of a portion of the
shareholder services fee. The Total Operating Expenses for the Penn Square Fund
are based
upon expenses incurred by the Penn Square Fund during its fiscal year ended
December 31, 1996. The Total Operating Expenses were 0.93% for the fiscal year
ended December 31, 1996.
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 each of the
Federated Fund, the Penn Square Fund and the Pro Forma Combined Fund will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Summary--Advisory and Other Fees" and
"Summary--Distribution Arrangements."
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of operating expenses at the levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Class A
Shares received as a result of the proposed reorganization.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------- ------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor 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. Expenses would be the same if
there were no redemption at the end of each
time period.
Federated Fund.............................. $12 $37 $64 $ 141
Penn Square Fund............................ $ 9 $30 $51 $ 114
Pro Forma Combined.......................... $11 $34 $60 $ 132
</TABLE>
(2) This Example includes sales charges since Class A Shares purchased
subsequent to the reorganization may be subject to sales charges. For a more
complete description of sales charges, contingent deferred sales charges and
exemptions from such charges, reference is hereby made to the Prospectus of the
Federated Fund dated May 31, 1996, and the Prospectus of the Penn Square Fund
dated March 15, 1996, each of which is incorporated herein by reference thereto.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor 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. Expenses would be the same if there were
no redemption at the end of each time period.
Federated Fund............................... $66 $90 $ 115 $ 188
Penn Square Fund............................. $57 $76 $ 97 $ 156
Pro Forma Combined........................... $65 $87 $ 111 $ 179
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY OF EXPENSES
(CLASS C SHARES)
<TABLE>
<CAPTION>
FEDERATED PENN SQUARE PRO FORMA
FUND FUND COMBINED
---------- ------------ ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)................. None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering
price)........................................ None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)(1)........ 1.00% 1.00% 1.00%
Redemption Fee (as a percentage of amount
redeemed, if applicable)(2)................... None None None
Exchange Fee.................................... None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................. 0.65% 0.65% 0.63%
12b-1 Fee....................................... 0.75% 0.75% 0.75%
Total Other Expenses (after waiver)(3).......... 0.56% 0.51% 0.49%
Total Operating Expenses (after
waiver)(4)............................... 1.96% 1.91% 1.87%
</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 one
year of their purchase date. For a more complete description, see
"Summary--Distribution Arrangement."
(2) Wire-transferred redemptions of Class C Shares of the Federated Fund of less
than $5,000 may be subject to additional fees. A $10.00 fee is charged for
certain redemptions of Penn Square Fund shares by wire transfer.
(3) Total Other Expenses include a shareholder services fee of 0.25%.
(4) The total operating expenses for Class C Shares of the Federated Fund are
based on expenses expected during its fiscal year ending March 31, 1997. The
total operating expenses for the Federated Fund were 1.96% for the fiscal year
ended March 31, 1996, and would have been 1.98% absent the voluntary waiver of a
portion of the shareholder services fee. The total operating expenses for the
Penn Square Fund are based upon expenses incurred by the Penn Square Fund during
its fiscal year ended December 31, 1996. The total operating expenses were,
1.91% for fiscal year ended December 31, 1996.
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 each of the
Federated Fund, the Penn Square Fund and the Pro Forma Combined Fund will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Summary--Advisory and Other Fees" and
"Summary--Distribution Arrangements."
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of operating expenses at the levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred sales
charges since such sales charges are not applicable to Federated Fund Class C
Shares received as a result of the proposed reorganization.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor 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. Expenses would be the same if there were
no redemption at the end of each time period.
Federated Fund............................... $20 $62 $ 106 $ 229
Penn Square Fund............................. $19 $60 $ 103 $ 223
Pro Forma Combined........................... $19 $59 $ 101 $ 219
</TABLE>
(2) This Example includes contingent deferred sales charges since Class C Shares
purchased subsequent to the reorganization may be subject to a sales charge. For
a more complete description of contingent deferred sales charges and exemptions
from such charges, reference is hereby made to the Prospectus of the Federated
Fund dated May 31, 1996, and the Prospectus of the Penn Square Fund dated March
15, 1996, each of which is incorporated herein by reference thereto.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor 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.
Federated Fund............................... $50 $62 $ 106 $ 229
Penn Square Fund............................. $30 $60 $ 103 $ 223
Pro Forma Combined........................... $29 $59 $ 101 $ 219
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return
and (2) no redemption at the end of each time
period.
Federated Fund............................... $20 $62 $ 106 $ 229
Penn Square Fund............................. $19 $60 $ 103 $ 223
Pro Forma Combined........................... $29 $59 $ 101 $ 219
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Statement of Additional Information, dated April 17, 1997, related to this
Prospectus/Proxy Statement, the Prospectus of the Federated Fund dated May 31,
1996, the Statement of Additional Information of the Federated Fund dated May
31, 1996, the Prospectus of the Penn Square Fund dated March 15, 1996, the
Statement of Additional Information of the Penn Square Fund dated March 15,
1996, and the Plan, a copy of which is attached to this Prospectus/Proxy
Statement as Exhibit A all of which are incorporated herein by reference
thereto.
About the Proposed Reorganization
The Board of Trustees of the Penn Square Fund has voted unanimously to
recommend to holders of the Class A Shares and Class C Shares of the Penn Square
Fund the approval of the Plan whereby the Federated Fund would acquire all of
the assets and assume certain liabilities of the Penn Square Fund's Class A
Shares and Class C Shares in exchange for the corresponding Federated Fund's
Class A Shares and Class C Shares to be distributed pro rata by the Penn Square
Fund to holders of its Class A Shares and Class C Shares, respectively, in
complete liquidation and dissolution of the Penn Square Fund (the
"Reorganization"). As a result of the Reorganization, each shareholder of the
Penn Square Fund Class A Shares and Class C Shares will become the owner of the
Federated Fund's Class A Shares or Class C Shares, respectively, having a total
net asset value equal to the total net asset value of his or her holdings in the
Penn Square Fund on the date of the Reorganization, i.e., the Closing Date (as
hereinafter defined).
As a condition to the Reorganization transactions, the Federated Fund and
the Penn Square Fund will receive an opinion of counsel that the Reorganization
will be considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), so that no gain or
loss will be recognized by either the Federated Fund or the Penn Square Fund or
the shareholders of the Penn Square Fund. The tax basis of the Federated Fund's
corresponding Class A Shares and Class C Shares received by Penn Square Fund's
Class A Shares and Class C Shares shareholders will be the same as the tax basis
of their shares in the Penn Square Fund. After the acquisition is completed, the
Penn Square Fund will be dissolved.
Investment Objectives, Policies and Limitations
The investment objective of the Federated Fund is to seek growth of capital
and of income by concentrating the area of investment decision in the securities
of high quality companies. This investment objective may not be changed without
the affirmative vote of a majority of the outstanding voting securities of the
Federated Fund, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act").
The primary investment objective of the Penn Square Fund is long-term
capital growth from a diversified portfolio of securities, consisting for the
most part of blue chip common stocks. The realization of current income is a
secondary consideration, although an important one. The investment objectives
may not be changed without the affirmative vote of a majority of the outstanding
voting securities of the Penn Square Fund, as defined in the 1940 Act.
The Federated Fund invests at least 65% of its assets in a portfolio of
securities issued by the 100 companies contained in "The Leaders List." "The
Leaders List" is a trade name which represents a list of 100 blue chip companies
selected by Federated Advisers principally on the basis of traditional research
techniques and standards. Generally, portfolio selections are made utilizing
fundamental analysis, with emphasis on earning power, financial condition, and
valuation. The securities in which the Federated Fund invests include, but are
not limited to: common and preferred stocks; domestic issues of corporate debt
obligations rated, at the time of purchase, Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group
("S&P") or Fitch Investors Services, Inc. ("Fitch") or, if not rated, are
determined by Federated Advisers to be of comparable quality; and warrants. In
the event that a debt security which had an eligible rating when
purchased is downgraded below investment grade, Federated Advisers will reassess
whether the continued holding of the security is consistent with the Federated
Fund's investment objective. The Federated Fund may enter into repurchase
agreements, purchase illiquid securities (subject to a limit on all illiquid
securities of 10% of net assets), and lend portfolio securities. If necessary
for temporary defensive purposes, the Federated Fund may also hold cash and
invest in U.S. Government securities. Unless otherwise designated, the
investment policies of the Federated Fund may be changed by the Board of
Directors without shareholder approval, although shareholders will be notified
before any material change becomes effective.
The investment universe for the Penn Square Fund is generally comprised of
stocks in the Standard & Poor's 500 Stock Index. The Penn Square Fund usually
buys only dividend paying stocks, and usually requires that the dividend yield
of a stock at the time of purchase equal or exceed that of the S&P 500 at that
time. The Penn Square Fund will generally not pay a multiple for earnings that
exceed a company's expected earnings growth rate, and will generally not buy the
stocks of companies whose long-term debt exceeds 35% of total capitalization. At
times, the Penn Square Fund's assets may be invested for defensive purposes in
bonds, preferred stocks, and other debt instruments, or in cash and cash
equivalents. In order to enhance Penn Square Fund income, the Fund may sell
covered-call options. When appropriate, the Penn Square Fund may purchase
foreign securities through dollar-denominated American Depositary Receipts
("ADRs"). ADRs do not involve the same currency risks as securities denominated
in foreign currency and are issued by domestic banks and publicly traded in the
United States. Unless otherwise designated, the investment policies of the Penn
Square Fund may be changed by the Board of Trustees without shareholder
approval.
Both the Federated Fund and the Penn Square Fund are subject to certain
investment limitations. For the Federated Fund, these include investment
limitations which prohibit it from (1) borrowing money directly or through
reverse repurchase agreements except, under certain circumstances (e.g., for
temporary or emergency purposes), the Federated Fund may borrow up to 5% of the
value of its total assets; (2) investing more than 5% of its total assets in
securities of one issuer (except U.S. Government securities) or acquiring more
than 10% of any class of voting securities of any one issuer; (3) investing more
than 5% of its total assets in securities of issuers that have records of less
than three years of continuous operations; or (4) purchasing restricted
securities if immediately thereafter more than 15% of its net assets would be
invested in such securities. The above investment limitations of the Federated
Fund cannot be changed without shareholder approval.
The Penn Square Fund may not: (1) sell short or buy on margin; (2) purchase
or retain any common or preferred stock of an issuer if the Trustees together
own more than 5% of any class of securities of such issuer; (3) purchase
securities of any issuer if such purchase would cause more than 5% of the total
assets at market to be invested in the securities of such issuer (other than
obligations of the United States, its agencies and instrumentalities) of if such
purchase, except temporarily in the event of a merger of a portfolio company,
would cause more than 10% of any class of securities of such issuer to be held
in the Fund's portfolio; (4) invest in companies for the purpose of exercising
control of management; (5) buy or sell real estate except real estate investment
trusts; (6) make loans to other persons (except by the purchase of bonds and
other obligations constituting part of a public issue), or underwrite securities
issued by others; (7) purchase the securities of any other investment company,
except where such purchase is a part of a plan of merger or consolidation; (8)
purchase securities of companies which including predecessors have not had a
record of continuous operation for at least five years; (9) borrow money on
behalf of the Fund or Trustees of the Fund; (10) invest more than 25% of its
assets in any one industry; and (11) no member of the Investment Committee of
the Fund may serve as a director, trustee, or officer of any issuer during such
period that securities of said issuer are held in the Fund's portfolio. The
above investment limitations of the Penn Square Fund cannot be changed without
shareholder approval.
In addition to the policies and limitations set forth above, both the
Federated Fund and the Penn Square Fund are subject to certain additional
investment policies and limitations, described in the Federated Fund's Statement
of Additional Information dated May 31, 1996, and the Penn Square Fund's
Statement of Additional Information dated March 15, 1996. Reference is hereby
made to the Federated
Fund's Prospectus and Statement of Additional Information, each dated May 31,
1996, and to the Penn Square Fund's Prospectus and Statement of Additional
Information, each dated March 15, 1996, which set forth in full the investment
objective, policies and investment limitations of each of the Federated Fund and
the Penn Square Fund, all of which are incorporated herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Federated Fund is 0.55 of 1% of
the Federated Fund's average daily net assets, plus 4.50% of the Federated
Fund's gross income (excluding any capital gains or losses). The investment
adviser to the Federated Fund, Federated Advisers, a subsidiary of Federated
Investors, may voluntarily choose to waive a portion of its advisory fee or
reimburse the Federated Fund for certain operating expenses. This voluntary
reimbursement of expenses may be terminated by Federated Advisers at any time in
its sole discretion. The maximum annual management fee for the Penn Square Fund
is 0.65 of 1% of average daily net assets of the Penn Square Fund. The
investment adviser of the Penn Square Fund is Penn Square Management
Corporation. The adviser is a wholly owned subsidiary of The William Penn
Company, New York, New York.
Federated Services Company, an affiliate of Federated Advisers, provides
certain administrative personnel and services necessary to operate the Federated
Fund at an annual rate based upon the average aggregate daily net assets of all
funds advised by Federated Advisers and its affiliates. The rate charged is
0.15% on the first $250 million of all such funds' average aggregate daily net
assets, 0.125% on the next $250 million, 0.10% on the next $250 million and
0.075% of all such funds' average aggregate daily net assets in excess of $750
million, with a minimum annual fee per portfolio of $125,000 plus $30,000 for
each additional class of shares of any such portfolio. Federated Services
Company may choose voluntarily to waive a portion of its fee. The administrative
fee expense for the Federated Fund's fiscal year ended March 31, 1996, was
$423,163, representing an effective fee rate of 0.08%. Administrative personnel
and services necessary to operate the Penn Square Fund are currently provided by
Penn Square Management Corporation and are included in the annual transfer agent
fee for the Penn Square Fund.
The Federated Fund has entered into a Shareholder Services Agreement under
which it may make payments of up to 0.25% of the average daily net asset value
of each of the Class A Shares and Class C Shares to obtain certain personal
services for shareholders and the maintenance of shareholder accounts. The
Shareholder Services Agreement provides that Federated Shareholder Services
("FSS"), an affiliate of Federated Advisers, either will perform shareholder
services directly or will select financial institutions to perform such
services. Financial institutions will receive fees based upon shares owned by
their clients or customers. The schedule of such fees and the basis upon which
such fees will be paid is determined from time to time by the Federated Fund and
FSS.
The total annual operating expenses for Class A Shares and Class C Shares
of the Federated Fund were 1.16% and 1.96% respectively of average daily net
assets (after waivers) for its most recent fiscal year. The total annual
operating expenses for Class A Shares of the Penn Square Fund were 0.93% and
1.91% respectively of average daily net assets (after expense waivers) for its
most recent fiscal year. Without such waivers, the expense ratios of the
Federated Fund would have been 1.23% (Class A Shares), 1.98% (Class C Shares)
and for the Penn Square Fund, 0.93% (Class A Shares) and 1.91% (Class C Shares).
Distribution Arrangements
Federated Securities Corp. ("FSC"), an affiliate of Federated Advisers, is
the principal distributor for shares of the Federated Fund. The Federated Fund
has adopted a Rule 12b-1 Distribution Plan (the "Distribution Plan") pursuant to
which the Federated Fund will pay a fee to the distributor in an amount computed
at an annual rate of 0.75% of the average daily net assets of the Class C Shares
to finance any activity which is principally intended to result in the sale of
Class C Shares subject to the Distribution Plan. FSC may offer to pay financial
institutions, at the time of purchase, an amount equal to 1.00% of the net asset
value of Class C Shares purchased by their clients. These payments will be
made directly by the distributor from its assets, and will not be made from the
assets of the Fund. The Federated Fund does not have a Distribution Plan in
effect with respect to its Class A Shares. However, FSC will pay financial
institutions, at the time of purchase of Class A Shares, an amount equal to
0.50% of the net asset value of Class A Shares purchased by certain qualified
plans as approved by FSC. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase). In addition, FSC and FSS, from their own assets, may pay financial
institutions supplemental fees as financial assistance for providing substantial
sales services, distribution-related support services or shareholder services
with respect to the Class A Shares and Class C Shares of the Federated 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
FSC may be reimbursed by Federated Advisers or its affiliates. If a financial
institution elects to waive receipt of this payment, the Federated fund will
waive any applicable contingent deferred sales charge (such contingent deferred
sales charges are discussed below).
Penn Square Management Corporation is the principal distributor for shares
of the Penn Square Fund. The Penn Square Fund has adopted a Rule 12b-1
Distribution Plan (the "Rule 12b-1 Plan") pursuant to which the Penn Square Fund
reimburses Penn Square Management Corporation for certain of its expenses
incurred in connection with its services as distributor at an annual rate not to
exceed 0.50% of the average daily net assets of the Penn Square Fund's Class A
Shares. After the reorganization, the Federated Fund will not assume any
liabilities related to the Penn Square Fund's Rule 12b-1 Plan. The fee may be
used by Penn Square Management Corporation for its expenses incurred in
connection with (a) advertising and marketing Class A Shares; (b) printing and
distributing the Prospectus; (c) implementing and operating the Rule 12b-1 Plan;
and (d) payments made by the distributor for servicing fees to broker/dealers,
financial institutions, or other industry professionals ("Service
Organizations") for distribution and/or shareholder administrative services
provided to their customers who own Class A Shares. Pursuant to a Servicing
Agreement with Penn Square Management Corporation, a Service Organization may
receive, on an annual basis, up to 0.50% of the average daily net asset value of
the Class A Shares owned by shareholders with whom the Service Organization has
a servicing relationship. The services provided by a Service Organization
pursuant to a Servicing Agreement may include distribution or shareholder
administrative services, including establishing and maintaining shareholder
accounts, sending confirmations of transactions, forwarding financial reports
and other communications to shareholders, and responding to shareholder
inquiries regarding the Penn Square Fund. The Penn Square Fund has adopted a
Distribution Plan for Class C Shares to compensate the distributor for its
services and costs in distributing Class C Shares. Under the Rule 12b-1 Plan,
the Penn Square Fund pays Penn Square Management Corporation an annual 12b-1
Distribution Fee of 0.75% per year on Class C Shares. Penn Square Management
Corporation also receives a Service Fee of 0.25% per year. Both fees are
computed on the average annual net assets of Class C Shares, determined as of
the close of each regular business day. The distribution fee allows investors to
buy Class C Shares without a front end sales charge while permitting the
distributor to compensate dealers who sell Class C Shares. The distribution and
service fee increase Class C expenses by 1.00% of average net assets per year.
Penn Square Management Corporation pays sales commissions of 1.00% of the
purchase price to dealers from its own resources at the time of sale. Penn
Square Management Corporation retains the distribution fee during the first year
shares are outstanding to recoup the sales commission it pays, the advances of
service fee payments it makes, and its financing costs. Penn Square Management
Corporation plans to pay the distribution fee as an ongoing commission to the
dealer on Class C Shares that have been outstanding for a year or more. Penn
Square Management Corporation receives no other compensation for its services as
distributor, except that the sales charge will be paid to the distributor. Penn
Square Management Corporation may, in turn, pay such sales charge to broker/
dealers as a commission for generating sales of Class C Shares.
Certain costs exist with respect to the purchase and sale of Federated Fund
and Penn Square Fund shares. Shares of the Federated Fund and shares of the Penn
Square Fund are sold at their net asset value next determined after an order is
received, plus any applicable sales charge. The Federated Fund Class A Shares
and Penn Square Fund Class A Shares have a maximum sales charge of 5.50% and
4.75%, respectively. No sales charge will be imposed in connection with the
issuance of Federated Fund Class A Shares to Class A Shareholders of the Penn
Square Fund as a result of the Reorganization. Further, shareholders of the
William Penn fund group who acquired Class A Shares on or before November 30,
1988, will not be charged a sales charge for future purchases made in any
Federated fund, provided the account has remained open. Class A Shares of the
Federated Fund purchased with the proceeds of a redemption of shares of an
unaffiliated investment company purchased or redeemed with a sales charge and
not distributed by FSC may be charged a contingent deferred sales charge of
0.50% for redemptions made within one full year of purchase. Any such charge
will be imposed on the lesser of the net asset value of the redeemed shares at
the time of purchase or redemption. The contingent deferred sales charges are
not imposed in connection with the exercise of exchange rights, nor will they be
imposed on redemptions of Federated Fund Class A Shares received by shareholders
of the Penn Square Fund as a result of the Reorganization. Sales of Class C
Shares are subject to a 1.00% contingent deferred sales charge on assets
redeemed within the first twelve months following purchase. For a complete
description of sales charges, contingent deferred sales charges and exemptions
from such charges, reference is hereby made to the Prospectus of the Federated
Fund dated May 31, 1996, and the Prospectus of the Penn Square Fund dated March
15, 1996, each of which is incorporated herein by reference thereto.
Purchase, Exchange and Redemption Procedures
The transfer agent and dividend disbursing agent for the Federated Fund is
Federated Shareholder Services Company. The transfer agent and dividend
disbursing agent for the Penn Square Fund is Penn Square Management Corporation.
Procedures for the purchase, exchange and redemption of the Federated Fund's
Class A Shares and Class C Shares differ slightly from procedures applicable to
the purchase, exchange and redemption of the Penn Square Fund's Class A Shares
and Class C Shares. Any questions about such procedures may be directed to, and
assistance in effecting purchases, exchanges or redemptions of the Federated
Fund's Class A Shares and Class C Shares or the Penn Square Fund's Class A
Shares and Class C Shares may be obtained from FSC, principal distributor for
the Federated Fund, at 1-800-245-4770, or from Penn Square Management
Corporation, principal distributor for the Penn Square Fund, at 1-800-523-8440.
Reference is made to the Prospectus of the Federated Fund dated May 31,
1996, and the Prospectus of the Penn Square Fund dated March 15, 1996, for a
complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges, and redemptions of Federated Fund and Penn
Square Fund shares, respectively, each of which is incorporated herein by
reference thereto. Set forth below is a brief listing of the significant
purchase, exchange, and redemption procedures applicable to the Federated Fund's
Class A Shares and Class C Shares and the Penn Square Fund's Class A Shares and
Class C Shares.
Purchases of Class A Shares and Class C Shares of the Federated Fund may be
made through a financial institution that has an agreement with FSC or, once an
account has been established, by wire or check. Purchases of shares of the Penn
Square Fund may be made through Penn Square Management Corporation and through
broker-dealers under contract with Penn Square Management Corporation or
directly by wire or check once an account has been established. The minimum
initial investment in the Federated Fund is $500 for Class A Shares and $1,500
for Class C Shares, except for retirement accounts for which the minimum is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts for which the minimum is $50. The minimum initial investment
in the Penn Square Fund is $500 for either Class of Shares, except for
retirement accounts for which the minimum is $250. Subsequent investments must
be in amounts of at least $100. The Federated Fund and the Penn Square Fund each
reserves the right to reject any purchase request.
The purchase price of the Federated Fund's Class A Shares and the Penn
Square Fund's Class A Shares is based on net asset value plus a sales charge.
The net asset value per share for each class of the Federated Fund and the Penn
Square Fund is calculated as of the close of trading (normally 4:00 p.m.,
Eastern time) on the New York Stock Exchange, Inc. (the "NYSE") on each day on
which the Federated Fund and the Penn Square Fund compute their net asset value.
Purchase and redemption
orders for the Federated Fund received from broker/dealers before 5:00 p.m.
(Eastern time) and from financial institutions before 4:00 p.m. (Eastern time)
may be entered at that day's price. Purchase orders for the Penn Square Fund are
executed based on the net asset value calculated at the close of business on the
day such purchase orders are received. Purchase orders received after the close
of the NYSE will be executed based on the net asset value calculated on the next
business day. Redemption orders for shares of the Penn Square Fund presented
prior to the close of the NYSE on any business day are redeemed at the net asset
value calculated at the close of the exchange that day, except that some Class C
Shares may be subject to a 1.00% contingent deferred sales charge. Federated
Fund purchase orders by wire are considered received upon receipt of payment by
wire. Federated Fund purchase orders received by check are considered received
after the check is converted into federal funds, which normally occurs the
business day after receipt. The Penn Square Fund does not have a similar
procedure.
Holders of Class A Shares and Class C Shares of the Federated Fund have
exchange privileges with respect to corresponding Class A Shares and Class C
Shares in certain of the funds for which affiliates of Federated Investors serve
as investment adviser or principal underwriter (collectively, the "Federated
Funds"), each of which has different investment objectives and policies. Class A
Shares and Class C Shares of the Federated Fund may be exchanged for
corresponding Class A Shares and Class C Shares of certain Federated Funds at
net asset value without a contingent deferred sales charge. To the extent a
shareholder exchanges Class A Shares or Class C Shares of the Federated Fund for
Class A Shares or Class C Shares of other Federated Funds, the time for which
the exchanged-for shares are to be held will be added to the time for which
exchanged-from shares were held for purposes of satisfying the applicable
holding period for purposes of determining the contingent deferred sales charge.
Class A Shares to be exchanged must have a net asset value which meets the
minimum investment requirement for the fund into which the exchange is being
made. Holders of shares of the Penn Square Fund have exchange privileges with
respect to shares in certain of the other funds for which Penn Square Management
Corporation serves as investment manager (collectively, the "Penn Square
Group"), each of which has different investment objectives and policies. Any
exchange for shares of other funds in the Penn Square Group will generally be at
the respective net asset values next determined after receipt of the request for
exchange, provided the amount exchanged previously incurred a sales charge.
Exercise of the exchange privilege is treated as a sale for federal income tax
purposes and, accordingly, may have tax consequences for the shareholder.
Information on share exchanges may be obtained from the Federated Fund or the
Penn Square Fund, as appropriate.
Redemptions of Federated Fund Class A Shares and Class C Shares may be made
through a financial institution, by telephone, by mailing a written request or
through the Federated Fund's systematic withdrawal program. Redemptions of Penn
Square Fund shares may be made by presenting share certificates, by letter form,
by telephone, or through the Penn Square Fund's systematic withdrawal plan.
Class C Shares of the Federated Fund are redeemed at their net asset value, less
any applicable contingent deferred sales charge, next determined after the
redemption request is received. The Penn Square Fund imposes no charges for
redemptions of Class A Shares. For Class C Shares, redemptions within the first
year of purchase will bear a contingent deferred sales charge. Penn Square Fund
Class C shareholders will have their current holding period tacked into the
period of time they hold their corresponding Federated Class C Shares for
purposes of determining any applicable redemption charges. Redemptions may also
be made through a broker/dealer, and that broker/dealer may charge a transaction
fee. Checks for redemption proceeds will be mailed within three business days.
However, redemption checks will not be mailed until all checks in payment for
the shares redeemed have cleared (not more than seven days).
Dividends
Both the Federated Fund and the Penn Square Fund pay dividends quarterly
from net investment income and make annual distributions of net realized capital
gains, if any. With respect to the Federated Fund, unless a shareholder
otherwise instructs, dividends and capital gain distributions will be reinvested
automatically in additional shares at net asset value, subject to no sales
charge. The Penn
Square Fund shareholders may instruct the fund to make such reinvestments which
are also not subject to a sales charge.
Tax Consequences
As a condition to the Reorganization, the Federated Fund and the Penn
Square Fund will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the Code
so that no gain or loss will be recognized by either the Federated Fund or the
Penn Square Fund or the shareholders of the Penn Square Fund. The tax basis of
the Federated Fund shares received by Penn Square Fund shareholders will be the
same as the tax basis of their shares in the Penn Square Fund.
RISK FACTORS
As with other mutual funds that invest in common stocks and other
securities of high quality companies, the Federated Fund is subject to market
risks. That is, the possibility exists that common stocks will decline over
short or even extended periods of time, and the United States equity market
tends to be cyclical, experiencing both periods when stock prices generally
increase and periods when stock prices generally decrease. Additionally, the
prices of fixed income securities generally fluctuate inversely to the direction
of interest rates. Since the Penn Square Fund invests primarily in common
stocks, in addition to holding assets in cash and fixed income securities, these
risk factors are generally also present in an investment in the Penn Square
Fund. The Federated Fund may also acquire securities which are subject to legal
or contractual delays, restrictions, and costs of resale. Because of time
limitations, the Federated Fund might not be able to dispose of these securities
at reasonable prices or at times advantageous to the Federated Fund. A full
discussion of the risks inherent in investment in the Federated Fund and the
Penn Square Fund is set forth in the Federated Fund's Prospectus and Statement
of Additional Information, each dated May 31, 1996, and the Penn Square Fund's
Prospectus and Statement of Additional Information, each dated March 15, 1996,
each of which is incorporated herein by reference thereto.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
CONSIDERATIONS OF THE BOARD OF TRUSTEES OF THE PENN SQUARE FUND. During
1996, Penn Square Management Corporation advised the Board of Trustees of the
Penn Square Fund that The William Penn Company was considering redirecting its
corporate strategy away from the management and distribution of retail mutual
funds and that it was seeking a buyer for its core businesses. Moreover, The
William Penn Company engaged an investment banker to locate potential buyers for
the Penn Square Management Corporation. The potential buyer would provide
value-added shareholder services, technological advancements, comprehensive
distribution networks, and diversified mutual fund product choices that many
larger mutual fund complexes offer. After conducting a screening process, Penn
Square Management Corporation determined that in its judgment, the proposed
Reorganization was the most desirable alternative involving the Penn Square Fund
that was reasonably available and presented it to the Penn Square Fund's Board
of Trustees for its consideration at its February 12, 1997, meeting.
The independent Trustees formed a four-person due diligence team. The due
diligence team visited the Federated Investors offices in Pittsburgh,
Pennsylvania, and reviewed with the portfolio manager of the Federated Fund the
investment style and philosophy used to manage the assets of the Federated Fund.
In addition, the due diligence team inspected the Federated customer services
area and the Penn Square Fund's independent counsel inspected the legal records
of the Federated Fund.
A meeting of the entire Board of Trustees was held on March 5, 1997, at
which Federated Investors presented to the Board information relating to the
overall reputation, financial strength and stability of
Federated Investors, the parent company of Federated Advisers (together with its
affiliates, "Federated"). Federated, founded in 1955, is among the seven largest
mutual fund sponsors, with over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, and over 2,000
employees. Federated's management discussed the Federated Fund's investment
performance history and explained to the Board that the majority of this growth
came from within Federated through its multiple distribution channels. The Board
was also informed of the variety of investment products available through
Federated, including international funds and an array of domestic funds broader
than currently offered in the William Penn Fund Group, as well as the exchange
privileges that would be available to former Penn Square Fund shareholders if
the Reorganization is consummated, and the multiple sales charge (or "load")
structures available to prospective shareholders. The Board took into account
that if the Reorganization takes place, shareholders of the Penn Square Fund
would receive shares of the Federated Fund without the imposition of any sales
charge and without incurring any tax consequences.
Federated's management advised the Board of its reputation for customer
servicing, noting that it has received a #1 rating for the last five surveys in
a row by DALBAR, Inc. Federated's management stated that its shareholder
services include advanced technological systems that result in quick shareholder
access to a broad spectrum of information, including: telephonic automated yield
and performance information; consolidated monthly shareholder statements; no-fee
IRAs; quarterly newsletters; year-end tax reporting information; direct deposit;
and telephonic redemption and exchange.
Federated's management also discussed comparative sales charges with the
Board. In particular, it was noted that the maximum front-end sales load of the
Class A Shares of the Federated Fund is higher than that of the Class A Shares
of the Penn Square Fund. Federated's management also reviewed with the Board
relative asset size and expense ratios, including relative advisory fees. The
Board discussed the fact that the Federated Fund is larger in asset size than
the Penn Square Fund.
The Board determined that the investment objectives and policies of the
Penn Square Fund were substantially similar to those of the Federated Fund. The
Board was also presented with and discussed materials comparing the performance,
and relative risks of the Penn Square Fund and the Federated Fund. Federated's
management also presented biographical information about each of the Directors
of the Federated Fund and reviewed with the Board the structure of its
compliance and internal audit departments and the scope of its training
programs.
THE BOARD NOTED THAT THE PENN SQUARE FUND WOULD NOT BEAR ANY OF THE COSTS
INVOLVED IN THE REORGANIZATION, WHICH WOULD BE BORNE ENTIRELY BY THE WILLIAM
PENN COMPANY AND/OR FEDERATED. In addition, the Board discussed the anticipated
tax-free nature of the Reorganization to the Penn Square Fund and its
shareholders.
In connection with their consideration of the Reorganization, the Board
also reviewed their fiduciary obligations under state and federal law. They
considered the requirements of Section 15(f) of the 1940 Act, which provides
that an investment manager to an investment company, and the affiliates of such
manager (such as Penn Square Management Corporation), may receive any amount or
benefit in connection with a sale of any interest in such investment manager
which results in an assignment of an investment management contract if (1) for a
period of three years after such assignment, at least 75% of the Board of
Trustees of the investment company are not "interested persons" (as defined in
the 1940 Act) of the new investment manager or its predecessor; and (2) no
"unfair burden" (as defined in the 1940 Act) is imposed on the investment
company as a result of the assignment or any express or implied terms,
conditions or understandings applicable thereto.
With respect to the first condition of Section 15(f) relating to Board
composition, the Board was advised that the Federated Fund's Board of Directors
presently consists of thirteen (13) Directors, only three (3) of whom are
"interested persons." With respect to the second condition of Section 15(f),
while there is no specific definition of "unfair burden," it includes any
arrangement, for two years after the transaction, pursuant to which the
predecessor or successor adviser is entitled to receive compensation from any
person in connection with the mutual fund's purchase or sale of securities,
other than bona fide ordinary compensation as principal underwriter. The
definition of unfair burden also includes
any payments from the fund for other than bona fide investment advisory or other
services. The Board considered the fact that representations were made by
Federated and Penn Square Management Corporation that the agreement among
Federated, Penn Square Management Corporation and The William Penn Company would
contain representations and covenants that the Reorganization would not impose
an unfair burden on the Penn Square Group.
After reviewing and considering all of the information provided by
Federated and Penn Square Management Corporation, including the terms of the
Reorganization, the Board, including all of the Trustees who are not interested
persons of the Penn Square Fund or Penn Square Management Corporation, voted
unanimously in person at the meeting held on March 5, 1997, to approve the
Reorganization and to recommend it to the shareholders of the Penn Square Fund
for their approval.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
REORGANIZATION.
CONSIDERATIONS OF THE BOARD OF DIRECTORS OF THE FEDERATED FUND. The Board
of Directors of the Federated Fund, including the independent Directors, have
unanimously concluded that consummation of the Reorganization is in the best
interests of the Federated Fund and the shareholders of the Federated Fund and
that the interests of Federated Fund shareholders would not be diluted as a
result of effecting the Reorganization and have unanimously voted to approve the
Plan.
Agreement Between The William Penn Company and Federated
The Reorganization is being proposed as part of an agreement between
Federated, and The William Penn Company pursuant to which the shareholders of
The William Penn Company would be compensated for selling to Federated their
capital stock and cooperating in facilitating the transaction contemplated by
the agreement.
Description of the Plan of Reorganization
The Plan provides that the Federated Fund will acquire all of the assets
and assume certain liabilities of the Penn Square Fund's Class A Shares and
Class C Shares in exchange for the Federated Fund's Class A Shares and Class C
Shares to be distributed pro rata by the Penn Square Fund to its Class A and
Class C shareholders, respectively, in complete liquidation of the Penn Square
Fund on May 30, 1997, or such later date as the parties may mutually agree (the
"Closing Date"). Shareholders of the Penn Square Fund will become shareholders
of the Federated Fund as of the close of business on the Closing Date, and will
be entitled to the Federated Fund's next dividend distribution.
As of or prior to the Closing Date, the Penn Square Fund will declare and
pay a dividend or dividends which, together with all previous such dividends,
shall have the effect of distributing to its shareholders all taxable income for
the period ending on the Closing Date. In addition, the Penn Square Fund's
dividend will include its net capital gains realized in the period ending on the
Closing Date.
Consummation of the Reorganization is subject to the conditions set forth
in the Plan, including receipt of an opinion in form and substance satisfactory
to the Penn Square Fund and the Federated Fund, as described under the caption
"Federal Income Tax Consequences" below. The Plan may be terminated and the
Reorganization may be abandoned at any time before or after approval by
shareholders of the Penn Square Fund prior to the Closing Date by either party
if a majority of the independent board members of either board believes that
continuing the transaction would have a material adverse impact on shareholders
of that fund.
Federated Advisers is responsible for the payment of substantially all of
the expenses of the Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not limited to,
registration fees, transfer taxes (if any), and the costs of preparing,
printing, copying and mailing proxy solicitation materials to the Penn Square
Fund shareholders. Penn Square Management Corporation is responsible for the
payment of the legal fees of the Penn Square Fund. The accountants' fees of the
Penn Square Fund will be borne by Penn Square Management Corporation.
The foregoing description of the Plan entered into between the Federated
Fund and the Penn Square Fund is qualified in its entirety by the terms and
provisions of the Plan, a copy of which is attached hereto as Exhibit A and
incorporated herein by reference thereto.
Description of Federated Fund Shares
Full and fractional Class A Shares and Class C Shares of the Federated Fund
will be issued without the imposition of a sales charge or other fee to the
corresponding shareholders of the Penn Square Fund in accordance with the
procedures described above. Class A Shares and Class C Shares of the Federated
Fund to be issued to shareholders of the Penn Square Fund under the Plan will be
fully paid and nonassessable when issued and transferable without restriction
and will have no preemptive or conversion rights. Reference is hereby made to
the Prospectus of the Federated Fund dated May 31, 1996, provided herewith for
additional information about Class A Shares and Class C Shares of the Federated
Fund.
Federal Income Tax Consequences
As a condition to the Reorganization, the Federated Fund and the Penn
Square Fund will receive an opinion from Dickstein Shapiro Morin & Oshinsky LLP,
counsel to the Federated Fund, to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court decisions, for
federal income tax purposes: (1) the Reorganization as set forth in the Plan
will constitute a tax-free reorganization under Section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by the Federated Fund upon its
receipt of the Penn Square Fund's assets solely in exchange for Federated Fund
Class A Shares and Class C Shares and the assumption of certain stated
liabilities; (3) no gain or loss will be recognized by the Penn Square Fund upon
the transfer of its assets to the Federated Fund in exchange for Federated Fund
Class A Shares and Class C Shares and the assumption of certain stated
liabilities or upon the distribution (whether actual or constructive) of the
Federated Fund Class A Shares and Class C Shares to the Penn Square Fund
shareholders in exchange for their respective shares of the Penn Square Fund;
(4) no gain or loss will be recognized by shareholders of the Penn Square Fund
upon the exchange of their Penn Square Fund shares for Federated Fund Class A
Shares and Class C Shares; (5) the tax basis of the Penn Square Fund's assets
acquired by the Federated Fund will be the same as the tax basis of such assets
to the Penn Square Fund immediately prior to the Reorganization; (6) the tax
basis of Federated Fund Class A Shares and Class C Shares received by each
shareholder of the Penn Square Fund pursuant to the Plan will be the same as the
tax basis of Penn Square Fund shares held by such shareholder immediately prior
to the Reorganization; (7) the holding period of the assets of the Penn Square
Fund in the hands of the Federated Fund will include the period during which
those assets were held by the Penn Square Fund; and (8) the holding period of
Federated Fund Class A Shares and Class C Shares received by each shareholder of
the Penn Square Fund will include the period during which the Penn Square Fund
shares exchanged therefor were held by such shareholder, provided the Penn
Square Fund shares were held as capital assets on the date of the
Reorganization.
Shareholders should recognize that an opinion of counsel is not binding on
the Internal Revenue Service ("IRS") or any court. The Penn Square Fund does not
expect to obtain a ruling from the IRS regarding the consequences of the
Reorganization. Accordingly, if the IRS sought to challenge the tax treatment of
the Reorganization and was successful, neither of which is anticipated, the
Reorganization would be treated as a taxable sale of assets of the Penn Square
Fund, followed by the taxable liquidation of the Penn Square Fund. Shareholders
should also be aware that following the Reorganization the Federated adviser may
decide to sell certain portfolio securities which may result in the realization
of capital gains.
Comparative Information on Shareholder Rights and Obligations
GENERAL. Both the Federated Fund and the Penn Square Fund are open-end,
diversified management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Federated Fund is organized as a corporation under the laws of the
State of Maryland and is governed by its Articles of Incorporation, By-Laws and
Board of Directors, in addition to applicable state and federal law. The Penn
Square Fund is organized as a common law trust under the laws of the
Commonwealth of Pennsylvania and is governed by its Declaration of Trust and
Board of Trustees, in addition to applicable state and federal law. Set forth
below is a brief summary of the significant rights of shareholders of the
Federated Fund and the Penn Square Fund.
SHARES OF THE FEDERATED FUND AND THE PENN SQUARE FUND. The Federated Fund
is authorized to issue 500,000,000 shares of common stock, par value $0.20 per
share. The Board of Directors has established four classes of shares of the
Federated Fund, known as Class A Shares, Class B Shares, Class C Shares, and
Class F Shares. The Penn Square Fund is authorized to issue an unlimited number
of shares of beneficial interest which have no par value. The Penn Square Fund
has Class A Shares and Class C Shares. Issued and outstanding shares of both the
Federated Fund and Penn Square Fund are fully paid, nonassessable, and freely
transferable.
VOTING RIGHTS. The Federated Fund is not required to hold annual meetings
of shareholders, except as required under the 1940 Act. Shareholder approval is
necessary only for certain changes in operations or the election of directors
under certain circumstances. The Penn Square Fund must hold meetings annually to
appoint or reappoint Trustees. The Federated Fund requires that a special
meeting of shareholders be called for any permissible purpose upon the written
request of the holders of at least 10% of the outstanding shares of the series
of the Federated Fund entitled to vote. Each share of the Federated Fund gives
the shareholder one vote in director elections and other matters submitted to
shareholders for vote. All shares of each series or class in the Federated Fund
have equal voting rights except that in matters affecting only a particular
series or class, only shares of that series or class are entitled to vote. All
shares of the Penn Square Fund have equal voting rights with amendments being
made by the written consent of a majority of the outstanding shares or with the
consent of such owners voting in person or by proxy at a meeting called to pass
upon such amendment.
DIRECTORS/TRUSTEES. The By-Laws of International Series, Inc. provide that
the term of office of each Director shall be until his or her resignation or
removal or until the special meeting next held after his or her election or
until election and qualification of his or her successor. A Director of the
Federated Fund may be removed by a vote of a majority of all shares outstanding
and entitled to vote at any special meeting of shareholders, and such
shareholders may elect a Director to replace the Director so removed to serve
for the remainder of the term and until the election and qualification of his or
her successor. A vacancy on the Board may be filled by the action of a majority
of the Directors remaining in office, and such elected Director shall hold
office until the next special meeting of shareholders or until his or her
successor is duly elected and qualifies. Notwithstanding the foregoing, the
shareholders may, at any time during the term of such Director elected to fill a
vacancy, elect some other person to fill said vacancy and thereupon the election
by the Board shall be superseded. The Declaration of Trust of the Penn Square
Fund provides that each Trustee appointed or elected in accordance with the
Declaration of Trust serves for terms of one year subject to annual re-elections
and continue to serve until their successors have been elected and qualified,
unless they resign or are removed. Regarding the Penn Square Fund, a majority of
the Trustees may accept the written resignation of another Trustee or may remove
him or her from office by written notice to him and to the custodian. Pending
the filling of any vacancy or vacancies caused by death, resignation, or
removal, the remaining Trustee or Trustees shall have all the powers and duties
of the whole number of Trustees. If a vacancy occurs in the office of a Trustee
for any reason, including an increase in the number of Trustees, the other
Trustees shall by written notice delivered to the custodian appoint a Trustee to
fill the vacancy and will promptly notify the shareholders that they have done
so, subject to the provisions of Section 16(a) of the 1940 Act. The agreement
entered into with the custodian provides, that, if at any time the custodian
decides that there is no Trustee available or able to serve, it will call a
meeting of the shareholders to elect at least three (3) Trustees. With respect
to the Federated Fund, a meeting of shareholders will be required for the
purpose of electing additional Directors whenever fewer than a majority of the
Directors then in office were elected by shareholders.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS. Under the Articles of
Incorporation of the Federated Fund, a Director or officer will be personally
liable only for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The Articles of Incorporation further provide that
Directors and officers will be indemnified by the Federated Fund against
reasonable costs and expenses incurred in connection with any claim or
litigation unless the person's conduct is determined to constitute willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the person's office. The Declaration of Trust for the
Penn Square Fund contains a provision indemnifying the Trustees by the assets of
the fund from personal liability for their actions as Trustee. Trustees of the
Penn Square Fund are not protected from liability by reason of willful
misconduct, bad faith, recklessness, or gross negligence in the performance of
their duties as Trustees. In addition, due to the provisions of the 1940 Act,
shareholders would still have the right to pursue monetary claims against
directors/trustees or officers for acts involving willful malfeasance, bad
faith, gross negligence or reckless disregard of their duties as
directors/trustees or officers.
TERMINATION OR LIQUIDATION. In the event of the termination or liquidation
of the Federated Fund or any series or class of the Federated Fund or of the
termination or liquidation of the Penn Square Fund, the shareholders of the
respective fund or class are entitled to receive, when and as declared by its
Directors or Trustees, the excess of the assets belonging to the respective fund
or class over the liabilities belonging to the respective fund or class. In
either case, the assets belonging to the fund or class will be distributed among
the shareholders in proportion to the number of shares of the respective fund or
class held by them.
Capitalization
The following table sets forth the unaudited capitalization of the Class A
Shares and Class C Shares of the Federated Fund and the Penn Square Fund as of
February 28, 1997, and on a pro forma combined basis as of that date:
<TABLE>
<CAPTION>
FEDERATED PENN SQUARE PRO FORMA
FUND FUND COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
Class A Shares Net Assets..................... $653,310,993 $340,754,541 $994,065,534
Shares Outstanding............................ $ 29,547,582 $ 26,973,853 $ 44,959,037
Net Asset Value Per Share..................... $ 22.11 $ 12.63 $ 22.11
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN SQUARE PRO FORMA
FUND FUND COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
Class C Shares Net Assets..................... $ 71,365,493 $ 1,959,911 $ 73,325,404
Shares Outstanding............................ $ 3,231,437 $ 155,403 $ 3,320,182
Net Asset Value Per Share..................... $ 22.08 $ 12.61 $ 22.08
</TABLE>
INFORMATION ABOUT THE FEDERATED FUND
AND THE PENN SQUARE FUND
Federated American Leaders Fund, Inc.
Information about the Federated Fund is contained in the Federated Fund's
current Prospectus dated May 31, 1996, a copy of which is included herewith and
incorporated herein by reference. Additional information about the Federated
Fund is included in the Federated Fund's Annual Report to Shareholders dated
March 31, 1996, the Semi-Annual Report to Shareholders dated September 30, 1996,
the Statement of Additional Information dated May 31, 1996, and the Statement of
Additional Information dated April 17, 1997 (relating to this Prospectus/Proxy
Statement), each of which is incorporated herein by reference. Copies of the
Annual Report, the Semi-Annual Report and Statements of Additional Information,
which have been filed with the Securities and Exchange Commission (the "SEC"),
may be obtained upon request and without charge by contacting the Federated Fund
at 1-800-245-4770, option one, or by writing the Federated Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3779. The Federated Fund is subject to the
informational requirements of the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act and in accordance therewith files
reports and other information with the SEC. Reports, proxy and information
statements, charter documents and other information filed by the Federated Fund
can be obtained by calling or writing the Federated Fund and can also be
inspected and copied by the public at the public reference facilities maintained
by the SEC in Washington, DC located at Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549 and at certain of its regional offices located at Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and
13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such
material can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, SEC, 450 Fifth Street, N.W., Washington, DC
20549 at prescribed rates or electronically at Internet Web Site (www.sec.gov).
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Federated Fund with the SEC under the 1933 Act, omits
certain of the information contained in the Registration Statement. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Federated Fund and the shares offered
hereby. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
Penn Square Mutual Fund
Information about the Penn Square Mutual Fund is contained in the Penn
Square Fund's current Prospectus dated March 15, 1996, the Annual Report to
Shareholders dated December 31, 1996, the Statement of Additional Information
dated March 15, 1996, and the Statement of Additional Information dated April
17, 1997 (relating to this Prospectus/Proxy Statement), each of which is
incorporated herein by reference. Copies of such Prospectus, Annual Report, and
Statements of Additional Information, which have been filed with the SEC, may be
obtained upon request and without charge from the Penn Square Fund by calling
1-800-523-8440 or by writing to the Penn Square Fund at 2650 Westview Drive,
Wyomissing, PA 19610. The Penn Square Fund is subject to the informational
requirements of the 1933 Act, the 1934 Act, and the 1940 Act and in accordance
therewith files reports and other information with the SEC. Reports, proxy and
information statements, charter documents, and other information filed by Penn
Square Mutual Fund or its portfolio, the Penn Square Fund, can be obtained by
calling or writing the Penn Square Fund and can also be inspected at the public
reference facilities maintained by the SEC or obtained at prescribed rates at
the addresses listed in the previous section.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the Penn Square Fund of proxies for use
at the Special Meeting of Shareholders (the "Special Meeting") to be held at
9:00 a.m. (local time) on May 29, 1997 at: Sheraton Berkshire Motor Inn, 1741
Paper Mill Road, Wyomissing, PA 19610, and at any adjournments thereof. The
proxy confers discretionary authority on the persons designated therein to vote
on other business not currently contemplated which may properly come before the
Special Meeting. A proxy, if properly executed, duly returned and not revoked,
will be voted in accordance with the specifications thereon; if no instructions
are given, such proxy will be voted in favor of the Plan. A shareholder may
revoke a proxy at any time prior to use by filing with the Secretary of the Penn
Square Fund an instrument revoking the proxy, by submitting a proxy bearing a
later date or by attending and voting at the Special Meeting. Proxies,
instruments revoking a proxy, or proxies bearing a later date may be
communicated by telephone, by electronic means including facsimile, or by mail.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by Federated Advisers. In addition to solicitations
through the mails, proxies may be solicited by officers, employees, and agents,
including third party solicitors, of the Penn Square Fund, Federated Advisers
and their respective affiliates at no additional cost to the Penn Square Fund.
Such solicitations may be
by telephone, telegraph, or personal contact. Any telephonic solicitations will
follow procedures designed to insure accuracy and prevent fraud including
requiring identifying shareholder information, recording the shareholder's
instructions and confirming to the shareholder after the fact that the vote was
in accordance with the shareholder's instructions. Shareholders who communicate
proxies by telephone or by other electronic means have the same power and
authority to issue, revoke, or otherwise change their voting instructions as
currently exists for instructions communicated in written form. Federated
Advisers will reimburse custodians, nominees and fiduciaries for the reasonable
costs incurred by them in connection with forwarding solicitation materials to
the beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees of the Penn Square Fund has fixed the close of
business on April 14, 1997, as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. As of the record date, there were 26,719,203.751 Class A
Shares
and 153,267.212 Class C Shares of the Penn Square Fund outstanding. Each of the
Penn Square Fund's shares is entitled to one vote and fractional shares have
proportionate voting rights. On the record date, the Trustees and officers of
the Penn Square Fund as a group owned less than 1% of the outstanding Class A
Shares and Class C Shares of the Penn Square Fund. To the best knowledge of Penn
Square Management Corporation, as of the record date, no person owned
beneficially or of record 5% or more of the outstanding Class A Shares of Penn
Square Fund, and no person, except as set forth in the table below, owned
beneficially or of record 5% of more of the outstanding Class C Shares of Penn
Square Fund.
CLASS C SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------ ------------- -------------------
<S> <C> <C>
Arlington R. and Catherine B. Schlegel,............... 11,495.544 7.50%
Joint tenants in common
Akron, PA
</TABLE>
As of the record date, there were 29,933,705.941 Class A Shares,
25,566,236.318 Class B Shares, 3,338,529.847 Class C Shares, and 3,994,696.525
Class F Shares of the Federated Fund outstanding. On the record date, the
Directors and officers of the Federated Fund as a group owned less than 1% of
the outstanding Class A Shares, Class B Shares, Class C Shares and Class F
Shares of the Federated Fund. To the best knowledge of Federated Advisers, as of
the record date, no person owned beneficially or of record 5% or more of the
Federated Fund's outstanding Class A or Class B Shares, and no person, except as
set forth in the table below, owned beneficially or of record 5% or more of the
Federated Fund's outstanding Class C or Class F Shares.
CLASS C SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------ ------------- -------------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith................... 1,203,168.209 36.04%
acting in various capacities for numerous
accounts on behalf of its customers
Jacksonville, FL
</TABLE>
CLASS F SHARES
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS SHARES OWNED OUTSTANDING SHARES
- ------------------------------------------------------ ------------ -------------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 972,257.494 24.34%
acting in various capacities for numerous
accounts on behalf of its customers
Jacksonville, FL
</TABLE>
Approval of the Plan requires the affirmative vote of a majority of the
votes cast at the Special Meeting. Shares represented by abstentions and "broker
non-votes" will be counted as present at the Special Meeting, but not as votes
cast, which means they will have the effect of reducing the number of votes cast
required to approve the Plan. The votes of shareholders of the Federated Fund
are not being solicited since their approval is not required in order to effect
the Reorganization.
Dissenter's Right of Appraisal
Shareholders of the Penn Square Fund objecting to the Reorganization have
no appraisal rights under the Penn Square Fund's Declaration of Trust or
Pennsylvania law. Under the Plan, if approved by Penn Square Fund shareholders,
each shareholder will become the owner of Class A Shares and Class C Shares of
the Federated Fund having a total net asset value equal to the total net asset
value of his or her holdings in the Penn Square Fund's Class A Shares or Class C
Shares, respectively, at the Closing Date.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY
Management of the Penn Square Fund knows of no other matters that may
properly be, or which are likely to be, brought before the Special Meeting.
However, if any other business shall properly come before the Special Meeting,
the persons named in the proxy intend to vote thereon in accordance with their
best judgment.
If at the time any session of the Special Meeting is called to order, a
quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Special Meeting to a
later date. In the event that a quorum is present but sufficient votes in favor
of one or more of the proposals have not been received, the persons named as
proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies with respect to any such proposal. All such
adjournments will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxies will vote those proxies which they are
entitled to vote in favor of the proposal, in favor of such an adjournment, and
will vote those proxies required to be voted against the proposal, against any
such adjournment.
Whether or not shareholders expect to attend the Special Meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated March 24, 1997 (the
"Agreement"), between FEDERATED AMERICAN LEADERS FUND, INC., a Maryland
corporation (hereinafter called the "Acquiring Fund"), and PENN SQUARE MUTUAL
FUND, a Pennsylvania Common Law Trust (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all the assets and the
assumption of certain liabilities of the Acquired Fund in exchange solely for
Class A Shares and Class C Shares of the Acquiring Fund (the "Acquiring Fund
Shares") and the distribution, after the Closing Date (as hereinafter defined),
of the Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-end
management investment companies and the Acquired Fund owns securities in
which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue shares of common stock or shares of beneficial interest, as the case
may be;
WHEREAS, the Board of Directors, including a majority of the directors who
are not "interested persons" (as defined under the Investment Company Act
of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined
that the transfer of all of the assets and the assumption of certain
liabilities of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund shareholders and that the interests of the
existing shareholders of the Acquiring Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined under the 1940 Act), of the
Acquired Fund has determined that the transfer of all of the assets and the
assumption of certain liabilities of the Acquired Fund for Acquiring Fund
Shares is in the best interests of the Acquired Fund shareholders;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired Fund
agrees to assign, transfer and convey to the Acquiring Fund all of the net
assets of the Acquired Fund, including all securities and cash, other than cash
in an amount necessary to pay any unpaid dividends and distributions as provided
in paragraph 1.5, beneficially owned by the Acquired Fund, and the Acquiring
Fund agrees in exchange therefor to deliver to the Acquired Fund the number of
Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3. Such transaction shall take place at the closing
(the "Closing") on the closing date (the "Closing Date") provided for in
paragraph 3.1. In lieu of delivering certificates for the Acquiring Fund Shares,
the Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired Fund's
account, for the benefit of its shareholders, on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquiring Fund will assume only those certain liabilities which are
set forth in a certificate to be provided by the Acquired Fund at the Closing
and accepted by the Acquiring Fund.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall be
made on the Closing Date and shall be delivered to State Street Bank and Trust
Company (hereinafter called "State Street"), Boston, Massachusetts, the
Acquiring Fund's custodian (the "Custodian"), for the account of the Acquiring
Fund, together with proper instructions and all necessary documents to transfer
to the account of the Acquiring Fund, free and clear of all liens, encumbrances,
rights, restrictions and claims created by the Acquired Fund. All cash delivered
shall be in the form of immediately available funds payable to the order of the
Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any dividends or interest received on or after the Closing Date with respect to
assets transferred to the Acquiring Fund thereunder. The Acquired Fund will
transfer to the Acquiring Fund any distributions, rights or other assets
received by the Acquired Fund after the Closing Date as distributions on or with
respect to the securities transferred. Such assets shall be deemed included in
assets transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's
shareholders of record, determined as of the close of business on the Closing
Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by
the Acquired Fund pursuant to paragraph 1.1. In addition, each Acquired Fund
Shareholder shall have the right to receive any unpaid dividends or other
distributions which were declared before the Valuation Date (as hereinafter
defined) with respect to the shares of the Acquired Fund that are held by the
shareholder on the Valuation Date. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share record books of the Acquiring Fund in the names of the Acquired
Fund Shareholders, and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders, based on their ownership of shares
of the Acquired Fund on the Closing Date. All issued and outstanding Shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund up to and including the Closing Date and
such later dates, with respect to dissolution and deregistration of the Acquired
Fund, on which the Acquired Fund is dissolved and deregistered.
1.9 The Acquired Fund shall be deregistered as an investment company under
the 1940 Act and dissolved as a Pennsylvania common law trust as promptly as
practicable following the Closing Date and the making of all distributions
pursuant to paragraph 1.5.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the
Closing Date (such time and date being herein called the "Valuation Date"),
using the valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets shall
be determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1, by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund, which have been reviewed by the Acquired Funds
Board of Trustees.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be May 30, 1997 or such later date as the
parties may mutually agree. All acts taking place at the Closing shall be deemed
to take place simultaneously as of the close of business on the Closing Date
unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern time)
at the offices of the Acquiring Fund, Federated Investors Tower, Pittsburgh, PA
15222-3779, or such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 Penn Square Management Corporation, as transfer agent for the Acquired
Fund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring Fund Shares to
be credited on the Closing Date to the Secretary of the Acquired Fund, or
provide evidence satisfactory to the Acquired Fund that such Acquiring Fund
Shares have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, assumption agreements, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a Common Law Trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and has power to own all of its properties and assets and to carry out this
Agreement.
(b) The Acquired Fund is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution, delivery and performance
of this Agreement will not result, in material violation of the Acquired Fund's
Declaration of Trust or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquired Fund is a party or by which it is
bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability to it
after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquired Fund or any of
its properties or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business. The
Acquired Fund knows of no facts which might form the basis for the institution
of such proceedings, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(f) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired Fund at
December 31, 1995 and at December 31, 1996 has been audited by Ernst & Young
LLP, independent auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) fairly reflect the
financial condition of the Acquired Fund as of such dates, and there are no
known contingent liabilities of the Acquired Fund as of such dates not disclosed
therein.
(h) Since December 31, 1996, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund.
(i) At the Closing Date, all federal and other tax returns and reports of
the Acquired Fund required by law to have been filed by such date shall have
been filed or an appropriate extension obtained, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof or contest in good faith, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(j) For each fiscal year of its operation the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the time of the Closing, be held by the persons and in the amounts set
forth in the records of the transfer agent as provided in paragraph 3.3. The
Acquired Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is there
outstanding any security convertible into any of the Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full right, power and
authority to sell, assign, transfer and deliver the assets to be transferred by
it hereunder.
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of the Acquired Fund and, subject to the approval of the Acquired Fund
Shareholders, this Agreement constitutes the valid and legally binding
obligation of the Acquired Fund enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and to general
principles of equity and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration Statement
referred to in paragraph 5.5 (only insofar as it relates to the
Acquired Fund) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland and has the power
to carry on its business as it is now being conducted and to carry out this
Agreement.
(b) The Acquiring Fund is registered under the 1940 Act as an open-end,
diversified, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery and performance
of this Agreement will not result, in material violation of the Acquiring Fund's
Articles of Incorporation or Bylaws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party or
by which it is bound.
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its knowledge
threatened against the Acquiring Fund or any of its properties or assets which,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) The Statement of Assets and Liabilities of the Acquiring Fund at March
31, 1995 and 1996, have been audited by Arthur Andersen LLP, independent
auditors, and have been prepared in accordance with generally accepted
accounting principles, and such statements (copies of which have been furnished
to the Acquired Fund) fairly reflect the financial condition of the Acquiring
Fund as of such dates, and there are no known contingent liabilities of the
Acquiring Fund as of such dates not disclosed therein.
(g) The unaudited Statement of Assets and Liabilities of the Acquiring Fund
at September 30, 1995 and 1996 has been prepared in accordance with generally
accepted accounting principles, consistently applied, although subject to
year-end adjustments, and on a basis consistent with the Statement of Assets and
Liabilities of the Acquired Fund at March 31, 1995 and 1996 which have been
audited by Arthur Andersen LLP, independent auditors, and such statement (copies
of which have been furnished to the Acquired Fund) fairly reflect the financial
condition of the Acquiring Fund as of such date, and there are no known
liabilities of the Acquiring Fund, contingent or otherwise, as of such date not
disclosed therein.
(h) Since March 31, 1996, and September 30, 1996, there has not been any
material adverse change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course of
business.
(i) At the Closing Date, all federal and other tax returns and reports of
the Acquiring Fund required by law to have been filed or an appropriate
extension obtained, by such date shall have been filed, and all federal and
other taxes shall have been paid so far as due, or provision shall have been
made for the payment thereof or contest in good faith, and to the best of the
Acquiring Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns.
(j) For each fiscal year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company.
(k) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares except for Class B Shares which are convertible into Class A Shares
eight (8) years after purchase.
(l) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Acquiring Fund, and this
Agreement constitutes the valid and legally binding obligation of the Acquiring
Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(m) The Prospectus/Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund Shareholders
to consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after the
Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form
as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings
and profits of the Acquired Fund for federal income tax purposes which will be
carried over to the Acquiring Fund as a result of Section 381 of the Code and
which will be certified by the Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of the Prospectus/Proxy Statement,
referred to in paragraph 4.1(o), all to be included in a Registration Statement
on Form N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940
Act in connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act as it may
deem appropriate in order to continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous
dividends, shall have the effect of distributing to its shareholders all of its
investment company taxable income, if any, plus the excess of its interest
income, if any, excludable from gross income under Section 103(a) of the Code
over its deductions disallowed under Sections 265 and 171(a)(2) of the Code for
the taxable periods or years ended on or before December 31, 1996 and for the
period from said date to and including the Closing Date (computed without regard
to any deduction for dividends paid), and all of its net capital gain, if any,
realized in taxable periods or years ended on or before December 31, 1996 and in
the period from said date to and including the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the Acquired
Fund's portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquiring
Fund, to the effect that the representations and warranties of the Acquired Fund
made in this Agreement are true and correct in all material respects at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquiring
Fund shall reasonably request.
6.4 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate specifying the liabilities which are to be assumed by the Acquiring
Fund all of which shall be reflected in the net asset value of the Acquired Fund
on the Closing Date, which liabilities shall be acceptable to the Acquiring Fund
in its sole discretion.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquired
Fund, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct in all material respects at and
as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquired
Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the Acquiring
Fund's financial condition, assets, liabilities or business since the date
hereof other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of any indebtedness, except as otherwise
disclosed to and accepted by the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, either
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of applicable law.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission) deemed necessary by the Acquiring Fund or the Acquired Fund to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Acquired Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion
of Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets and assumption of
certain liabilities in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the Acquired Fund Shareholders in
liquidation of the Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Acquired
Fund solely in exchange for the Acquiring Fund Shares and the assumption of
certain liabilities; (c) No gain or loss will be recognized by the Acquired Fund
upon the transfer of the Acquired Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption of certain liabilities or upon
the distribution (whether actual or constructive) of the Acquiring Fund Shares
to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund;
(d) No gain or loss will be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e)
The tax basis of the Acquired Fund assets acquired by the Acquiring Fund will be
the same as the tax basis of such assets to the Acquired Fund immediately prior
to the Reorganization; (f) The tax basis of the Acquiring Fund Shares received
by each of the Acquired Fund Shareholders pursuant to the Reorganization will be
the same as the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and (h) The holding
period of the Acquiring Fund Shares to be received by each Acquired Fund
Shareholder will include the period during which the Acquired Fund shares
exchanged therefor were held by such shareholder (provided the Acquired Fund
shares were held as capital assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of the Acquired
Fund or the Board of Directors of the Acquiring Fund at any time prior to the
Closing Date (and notwithstanding any vote of the Acquired Fund
Shareholders) if a majority of the independent board members of either board
reasonably believes that continuing the transition would have a material adverse
impact on shareholders of that fund.
9.2 If this Agreement is terminated and the exchange contemplated hereby is
abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the Trustees or Officers of the Acquired Fund or the Acquiring Fund or
the shareholders of the Acquiring Fund or of the Acquired Fund, in respect of
this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions may
be waived by the Board of Directors of the Acquiring Fund or the Board of
Trustees of the Acquired Fund, if, in the judgment of either, such waiver will
not have a material adverse effect on the benefits intended under this Agreement
to the shareholders of the Acquiring Fund or of the Acquired Fund, as the case
may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof, and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them relating to the subject matter hereof. Neither party
shall be bound by any condition, definition, warranty or representation, other
than as set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the
internal laws of the Commonwealth of Pennsylvania, without giving effect to
principles of conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
11.6 An agreement has been entered into under which Federated Advisers will
assume substantially all of the expenses of the Reorganization including
registration fees, transfer taxes (if any), the fees of banks and transfer
agents and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the Acquired Fund Shareholders and the costs of
holding the special meeting of shareholders. Penn Square Management Corporation
will assume the legal fees of the Acquired Fund. The accountants' fees of the
Acquired Fund will be borne equally by Federated Advisers and Penn Square
Management Corporation.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and attested on
its behalf by its duly authorized representatives as of the date first above
written.
<TABLE>
<S> <C>
Acquired Fund:
Attest: PENN SQUARE MUTUAL FUND,
/s/ SANDRA J. HOUCK By: /s/ JAMES E. JORDAN
- ---------------------------------------
--------------------------------------
Name: Sandra J. Houck Name: James E. Jordan
Title: Secretary Title: President
Acquiring Fund:
Attest: FEDERATED AMERICAN LEADERS FUND,
/s/ S. ELLIOTT COHAN By: /s/ J. CHRISTOPHER DONAHUE
- ---------------------------------------
--------------------------------------
Name: S. Elliott Cohan Name: J. Christopher Donahue
Title: Assistant Secretary Title: Executive Vice President
</TABLE>
Cusip 313914103
Cusip 313914301
G02062-09 (4/97)
STATEMENT OF ADDITIONAL INFORMATION
APRIL 17, 1997
Acquisition of the Assets of
PENN SQUARE MUTUAL FUND,
2650 Westview Drive
Wyomissing, Pennsylvania 19610
Telephone Number: 1-800-523-8440
By and in exchange for Class A and Class C Shares respectively of
FEDERATED AMERICAN LEADERS FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-4770
This Statement of Additional Information dated April 17, 1997 is not a
prospectus. A Prospectus/Proxy Statement dated April 17, 1997 related to the
above-referenced matter may be obtained from Federated American Leaders
Fund, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
This Statement of Additional Information should be read in conjunction with
such Prospectus/Proxy Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Federated American Leaders Fund,
Inc., dated May 31, 1996.
2. Statement of Additional Information of Penn Square Mutual Fund, dated
March 15, 1996.
3. Financial Statements of Federated American Leaders Fund, Inc., dated
March 31, 1996.
4. Financial Statements of Penn Square Mutual Fund, dated December 31, 1996.
5. Pro forma Financial Statements (unaudited) of the combined Penn Square
Mutual Fund, dated March 31, 1996, and September 30, 1996, and the Federated
American Leaders Fund, Inc., dated March 31, 1996, and September 30, 1996.
6. Unaudited Financial Statements dated September 30, 1996, of the Federated
American Leaders Fund, Inc.
The Statement of Additional Information of Federated American Leaders Fund,
Inc. (the "Federated Fund"), dated May 31, 1996, is incorporated herein by
reference to Post-Effective Amendment No. 61 to the Federated Fund's
Registration Statement on Form N-1A (File Nos. 2-29786 and 811-1704) which
was filed with the Securities and Exchange Commission on or about May 29,
1996. A copy may be obtained, upon request and without charge, from the
Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779;
telephone number: 1-800-245-4770.
The Statement of Additional Information of Penn Square Mutual Fund (the
"Penn Square Fund"), dated March 15, 1996, is incorporated herein by
reference to Post-Effective Amendment No. 54 to the Penn Square Fund's
Registration Statement on Form N-1A (File Nos. 2-13943 and 811-00788) which
was filed with the Securities and Exchange Commission on or about March 19,
1996. A copy may be obtained, upon request and without charge, from the Penn
Square Fund at 2650 Westview Drive, Wyomissing, Pennsylvania 19610; telephone
number: 1-800-523-8440.
The audited financial statements of the Federated Fund, dated March 31,
1996, are incorporated herein by reference to the Federated Fund's Annual
Report to Shareholders dated March 31, 1996, which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the Federated Fund at Federated Investors Tower,
Pittsburgh, PA 15222-3779; telephone number: 1-800-245-4770.
The audited financial statements of the Penn Square Fund, dated December 31,
1996, are incorporated herein by reference to the Penn Square Fund's Annual
Report to Shareholders dated December 31, 1996, which was filed with the
Securities and Exchange Commission. A copy may be obtained, upon request and
without charge, from the Penn Square Fund at 2650 Westview Drive,
Wyomissing, Pennsylvania 19610; telephone number 1-800-523-8440.
The unaudited financial statements of the Federated American Leaders Fund,
Inc., dated September 30, 1996, are incorporated herein by reference to the
Federated American Leaders Fund, Inc.'s Semi-Annual Report to Shareholders,
dated September 30, 1996, which was filed with the Securities and Exchange
Commission. A copy may be obtained, upon request and without charge, from
the Federated Fund at the address or telephone number listed on the cover
of this Statement of Additional Information.
Pro forma financial statements are included herein as the total net assets
of the Penn Square Fund do exceed 10% of the total assets of the Federated
Fund. At February 28, 1997, the total net assets of the Penn Square Fund
were $342,714,452 and the total net assets of the Federated Fund were
$1,347,859,531.
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
INTRODUCTION TO PROPOSED MERGER
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated
American Leaders Fund, Inc. and Penn Square Mutual Fund, collectively (the
"Funds"), as of March 31, 1996. These statements have been derived from the
books and records utilized in calculating the daily net asset value at March
31, 1996. The accompanying unaudited Pro Forma Combining Statement of
Operations reflects the accounts of Federated American Leaders Fund, Inc.
most recent fiscal year ended March 31, 1996, and the twelve-month period
ended March 31, 1996, for Penn Square Mutual Fund.
In addition, included are the unaudited Pro Forma Combining Portfolio of
Investments and Statement of Assets and Liabilities reflecting the accounts
of the Funds at September 30, 1996. These statements have been derived from
the books and records utilized in calculating the daily net asset value at
September 30, 1996. The accompanying unaudited Pro Forma Combining Statement
of Operations reflects the accounts of Federated American Leaders Fund, Inc.
and Penn Square Mutual Fund for the six months ended September 30, 1996 the
most recent semi-annual report date of Federated American Leaders Fund, Inc.
The Pro Forma statements give effect to the proposed transfer of assets from
Penn Square Mutual Fund Class A and Class C Shares in exchange for Class A
and Class C Shares respectively of Federated American Leaders Fund, Inc.
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- 89.3%
AUTOMOTIVE --
0.9%
-- 100,000 100,000 Fleet Enterprise,
Inc. $ -- $ 2,475,000 $ 2,475,000
-- 120,000 120,000 Ford Motor Corp. -- 4,125,000 4,125,000
-- 50,000 50,000 Johnson Controls,
Inc. -- 3,731,250 3,731,250
Total -- 10,331,250 10,331,250
BASIC INDUSTRY --
2.5%
151,000 -- 151,000 Eastman Chemical
Co. 10,437,875 -- 10,437,875
100,000 -- 100,000 Great Lakes
Chemical Corp. 6,737,500 -- 6,737,500
279,000 -- 279,000 Millipore Corp. 10,671,750 -- 10,671,750
Total 27,847,125 -- 27,847,125
BUILDING,
CONSTRUCTION &
ENGINEERING --
0.5%
-- 50,000 50,000 Fluor Corp. -- 3,412,500 3,412,500
-- 120,000 120,000 Lafarge
Corporation -- 2,265,000 2,265,000
Total -- 5,677,500 5,677,500
CAPITAL GOODS --
0.9%
-- 105,000 105,000 Deere & Company -- 4,383,750 4,383,750
-- 75,000 75,000 Ingersoll-Rand
Company -- 3,056,250 3,056,250
-- 75,000 75,000 Trinity
Industries, Inc. -- 2,615,625 2,615,625
Total -- 10,055,625 10,055,625
CHEMICALS -- 1.4%
-- 75,000 75,000 Air Products &
Chemicals, Inc. -- 4,096,875 4,096,875
-- 75,000 75,000 ARCO Chemical
Company -- 3,890,625 3,890,625
-- 50,000 50,000 (a)Eastern
Chemical Company -- 3,456,250 3,456,250
-- 100,000 100,000 Morton
International,
Inc. -- 3,837,500 3,837,500
Total -- 15,281,250 15,281,250
CONSUMER DURABLES
-- 3.4%
100,000 50,000 150,000 Chrysler Corp. 6,225,000 3,112,500 9,337,500
183,600 -- 183,600 Eastman Kodak Co. 13,035,600 -- 13,035,600
575,000 -- 575,000 Mattel, Inc. 15,596,875 -- 15,596,875
Total 34,857,475 3,112,500 37,969,975
CONSUMER GOODS --
1.7%
-- 50,000 50,000 Colgate-Palmolive -- 3,893,750 3,893,750
-- 70,000 70,000 Duracell
International -- 3,473,750 3,473,750
-- 50,000 50,000 Hasbro, Inc. -- 1,850,000 1,850,000
-- 100,000 100,000 Home Depot -- 4,787,500 4,787,500
-- 50,000 50,000 J.C. Penney -- 2,487,500 2,487,500
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
CONSUMER GOODS --
CONTINUED
-- 50,000 50,000 Whirlpool
Corporation $ -- $ 2,762,500 $ 2,762,500
Total -- 19,255,000 19,255,000
CONSUMER
NON-DURABLES --
6.4%
123,200 65,000 188,200 Avon Products,
Inc. 10,564,400 5,573,750 16,138,150
329,600 -- 329,600 IBP, Inc. 8,446,000 -- 8,446,000
189,540 -- 189,540 Kimberly-Clark
Corp. 14,120,730 -- 14,120,730
204,900 -- 204,900 Nike, Inc.,
Class B 16,648,125 -- 16,648,125
197,000 -- 197,000 Philip Morris
Cos., Inc. 17,286,750 -- 17,286,750
Total 67,066,005 5,573,750 72,639,755
DIVERSIFIED --
0.7%
-- 100,000 100,000 National Service
Industries -- 3,625,000 3,625,000
-- 70,000 70,000 Tenneco, Inc. -- 3,911,250 3,911,250
Total -- 7,536,250 7,536,250
ELECTRONICS --
0.6%
-- 70,000 70,000 Avnet, Inc. -- 3,377,500 3,377,500
-- 100,000 100,000 Philips Electric
N.V. -- 3,637,500 3,637,500
Total -- 7,015,000 7,015,000
ENERGY MINERALS
-- 6.3%
-- 60,000 60,000 Amoco Corp. -- 4,335,000 4,335,000
-- 120,000 120,000 Baker Hughes -- 3,510,000 3,510,000
166,100 50,000 216,100 Chevron Corp. 9,322,362 2,806,250 12,128,612
42,100 70,000 112,100 Exxon Corp. 3,436,412 5,713,750 9,150,162
-- 70,000 70,000 Haliburton Co. -- 3,981,250 3,981,250
160,000 50,000 210,000 Mobil Corp. 18,540,000 5,793,750 24,333,750
-- 40,300 40,300 National Fuel Gas -- 1,395,388 1,395,388
-- 50,000 50,000 Occidental
Petroleum -- 1,337,500 1,337,500
-- 50,000 50,000 Royal Dutch
Petroleum Co.,
ADR -- 7,062,500 7,062,500
-- 50,000 50,000 Texaco, Inc. -- 4,300,000 4,300,000
Total 31,298,774 40,235,388 71,534,162
ENTERTAINMENT --
0.6%
-- 50,000 50,000 (a)Polygram N.V. -- 3,012,500 3,012,500
-- 100,000 100,000 (a)Viacom, Inc.
Class B -- 4,212,500 4,212,500
Total -- 7,225,000 7,225,000
ENVIRONMENTAL
SERVICES -- 0.6%
-- 100,000 100,000 Donaldson Co.,
Inc. -- 2,750,000 2,750,000
-- 125,000 125,000 WMX Technologies,
Inc. -- 3,968,750 3,968,750
Total -- 6,718,750 6,718,750
FINANCE -- 15.1%
225,000 -- 225,000 Aflac, Inc. 7,031,250 -- 7,031,250
203,400 -- 203,400 American Express
Co. 10,042,875 -- 10,042,875
-- 40,000 40,000 Bank America
Corp. -- 3,100,000 3,100,000
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
FINANCE --
CONTINUED
$ -- $ 60,000 $ 60,000 Bank of New York $ -- $ 3,090,000 $ 3,090,000
111,925 -- 111,925 CIGNA Corp. 12,787,431 -- 12,787,431
126,200 -- 126,200 Chemical Banking
Corp. 8,897,100 -- 8,897,100
180,959 -- 180,959 Citicorp 14,476,720 -- 14,476,720
204,300 -- 204,300 Dean Witter,
Discover & Co. 11,696,175 -- 11,696,175
200,000 -- 200,000 Federal Home Loan
Mortgage Corp. 17,050,000 -- 17,050,000
400,000 65,000 465,000 Federal National
Mortgage
Association 12,750,000 2,071,875 14,821,875
22,400 -- 22,400 First Interstate
Bancorp 3,886,400 -- 3,886,400
-- 150,000 150,000 Great Western
Financial -- 3,618,750 3,618,750
258,600 60,000 318,600 Mellon Bank Corp. 14,255,325 3,307,500 17,562,825
50,000 -- 50,000 Merrill Lynch &
Co., Inc. 3,037,500 -- 3,037,500
-- 80,000 80,000 PNC Bank -- 2,460,000 2,460,000
129,600 -- 129,600 Providian Corp. 5,783,400 -- 5,783,400
274,232 -- 274,232 The PMI Group 11,718,223 -- 11,718,223
290,700 -- 290,700 Travelers Group,
Inc. 19,186,200 -- 19,186,200
Total 152,598,599 17,648,125 170,246,724
FOOD & BEVERAGE
-- 1.1%
-- 75,000 75,000 Conagra, Inc. -- 3,046,875 3,046,875
-- 125,000 125,000 H. J. Heinz Corp. -- 4,140,625 4,140,625
-- 75,000 75,000 Pepsico, Inc. -- 4,743,750 4,743,750
Total -- 11,931,250 11,931,250
HEALTH CARE --
10.2%
354,000 -- 354,000 Abbott
Laboratories 14,425,500 -- 14,425,500
112,700 50,000 162,700 American Home
Products Corp. 12,213,862 5,418,750 17,632,612
159,700 -- 159,700 Becton, Dickinson
& Co. 13,075,437 -- 13,075,437
186,500 75,000 261,500 Bristol-Myers
Squibb Co. 15,969,062 6,421,875 22,390,937
140,000 75,000 215,000 Columbia/HCA
Healthcare Corp. 8,085,000 4,331,250 12,416,250
100,000 -- 100,000 Ivax Corp. 2,587,500 -- 2,587,500
-- 50,000 50,000 Johnson & Johnson -- 4,612,500 4,612,500
149,000 -- 149,000 Merck & Co., Inc. 9,275,250 -- 9,275,250
-- 70,000 70,000 Pharmacia &
Upjohn -- 2,791,250 2,791,250
300,000 50,000 350,000 Scherer (R.P.)
Corp. 13,162,500 2,906,250 16,068,750
Total 88,794,111 26,481,875 115,275,986
INFORMATIONAL
SERVICES -- 0.2%
-- 75,000 75,000 Block (H.R.),
Inc. -- 2,709,375 2,709,375
INSURANCE -- 0.9%
-- 100,000 100,000 Liberty Corp. -- 3,300,000 3,300,000
-- 50,000 50,000 Lincoln National
Corp. -- 2,537,500 2,537,500
-- 60,000 60,000 Travelers, Inc.
(The) -- 3,960,000 3,960,000
Total -- 9,797,500 9,797,500
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
METALS -- 0.7%
-- 100,000 100,000 Allegheny Ludlum $ -- $ 1,850,000 $ 1,850,000
-- 75,000 75,000 Cleveland Cliffs,
Inc. -- 3,318,750 3,318,750
-- 100,000 100,000 Freeport-McMoran
Copper &
Gold, Inc. -- 3,075,000 3,075,000
Total -- 8,243,750 8,243,750
PAPER AND FOREST
PRODUCTS -- 1.0%
-- 40,000 40,000 Georgia-Pacific -- 2,775,000 2,775,000
-- 125,000 125,000 Longview Fibre -- 2,109,375 2,109,375
-- 100,000 100,000 Louisiana Pacific
Co. -- 2,437,500 2,437,500
-- 75,000 75,000 Weyerhaeuser Co. -- 3,459,375 3,459,375
Total -- 10,781,250 10,781,250
PRINTING AND
PUBLISHING--0.6%
-- 100,000 100,000 John H. Harland
Company -- 2,200,000 2,200,000
-- 85,000 85,000 Reader's Digest
Association, Inc. -- 4,016,250 4,016,250
Total -- 6,216,250 6,216,250
PRODUCER
MANUFACTURING --
5.1%
121,300 110,000 231,300 General Electric
Co. 9,446,238 8,566,250 18,012,488
120,200 -- 120,200 Loews Corp. 9,090,125 -- 9,090,125
280,000 -- 280,000 Philips
Electronics N.V.,
ADR 10,185,000 -- 10,185,000
180,000 -- 180,000 Textron, Inc. 14,400,000 -- 14,400,000
280,000 -- 280,000 Westinghouse
Electric Corp. 5,390,000 -- 5,390,000
Total 48,511,363 8,566,250 57,077,613
RETAIL TRADE --
1.4%
250,000 -- 250,000 Sears, Roebuck &
Co. 12,187,500 -- 12,187,500
140,700 -- 140,700 (a)Toys R Us,
Inc., 3,798,900 -- 3,798,900
Total 15,986,400 -- 15,986,400
SERVICES -- 2.3%
100,000 100,000 200,000 Disney (Walt) Co. 6,387,500 6,387,500 12,775,000
150,000 -- 150,000 Gannett Co., Inc. 10,087,500 -- 10,087,500
67,300 -- 67,300 Interpublic Group
Cos., Inc. 3,179,925 -- 3,179,925
Total 19,654,925 6,387,500 26,042,425
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
TECHNOLOGY --
15.9%
-- 40,000 40,000 (a)AMP, Inc. $ -- $ 1,655,000 $ 1,655,000
150,000 -- 150,000 (a)BMC Software,
Inc. 8,212,500 -- 8,212,500
500,000 -- 500,000 (a)Ceridian Corp. 21,500,000 -- 21,500,000
-- 60,000 60,000 (a)Cisco Systems -- 2,782,500 2,782,500
425,000 -- 425,000 (a)Data General
Corp. 6,215,625 -- 6,215,625
200,000 -- 200,000 (a)Digital
Equipment Corp. 11,025,000 -- 11,025,000
100,000 -- 100,000 General Dynamics
Corp. 5,850,000 -- 5,850,000
275,000 -- 275,000 General Motors
Corp., Class E 15,675,000 -- 15,675,000
109,800 40,000 149,800 Hewlett-Packard
Co. 10,321,200 3,760,000 14,081,200
172,200 60,000 232,200 Intel Corp. 9,793,875 3,412,500 13,206,375
110,300 -- 110,300 International
Business
Machines Corp. 12,257,088 -- 12,257,088
82,478 -- 82,478 (a)Litton
Industries, Inc. 3,793,988 -- 3,793,988
205,500 -- 205,500 Lockheed Martin
Corp. 15,592,313 -- 15,592,313
143,500 30,000 173,500 (a)Microsoft
Corp. 14,798,438 3,183,750 17,982,188
-- 55,000 55,000 (a)Oracle Systems -- 2,585,000 2,585,000
-- 50,000 50,000 Pitney Bowes -- 2,450,000 2,450,000
121,000 -- 121,000 Raytheon Co. 6,201,250 -- 6,201,250
185,500 -- 185,500 Rockwell
International
Corp. 10,921,313 -- 10,921,313
182,100 -- 182,100 (a)Solectron
Corp. 8,012,400 -- 8,012,400
Total 160,169,990 19,828,750 179,998,740
TRANSPORTATION --
2.8%
-- 200,000 200,000 Canadian Pacific
Ltd. -- 4,000,000 4,000,000
254,100 -- 254,100 Consolidated
Corp. Rail 18,199,912 -- 18,199,912
100,000 -- 100,000 Kansas City
Southern
Industries, Inc. 4,650,000 -- 4,650,000
-- 35,000 35,000 Norfolk Southern
Corp. -- 2,975,000 2,975,000
-- 30,000 30,000 Union Pacific -- 2,058,750 2,058,750
Total 22,849,912 9,033,750 31,883,662
UTILITIES -- 5.5%
-- 100,000 100,000 (a)360 Degree
Communications -- 2,387,500 2,387,500
196,900 75,000 271,900 AT&T Corp. 12,060,125 4,593,750 16,653,875
-- 135,000 135,000 (a)AirTouch
Communications -- 4,201,875 4,201,875
-- 100,000 100,000 BCE, Inc. -- 3,537,500 3,537,500
-- 100,000 100,000 Bell South Corp. -- 3,700,000 3,700,000
200,000 -- 200,000 Columbia Gas
System, Inc. 9,175,000 -- 9,175,000
425,000 -- 425,000 Enron Corp. 15,671,875 -- 15,671,875
213,200 -- 213,200 MCI
Communications
Corp. 6,449,300 -- 6,449,300
Total 43,356,300 18,420,625 61,776,925
TOTAL COMMON
STOCKS
(IDENTIFIED COST
$754,928,484) 712,990,979 294,063,513 1,007,054,492
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES OR SHARES OR SHARES OR
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
PREFERRED STOCKS -- 0.9%
CONSUMER
NON-DURABLES --
0.3%
516,700 -- 516,700 RJR Nabisco
Holdings Corp.,
Conv. Pfd.,
Series C, $.60 3,164,788 -- 3,164,788
FINANCE -- 0.6%
133,200 -- 133,200 Merrill Lynch &
Co., Inc.,
STRYPES,
Series MGIC,
$3.12 7,092,900 -- 7,092,900
TOTAL PREFERRED
STOCKS
(IDENTIFIED COST
$9,844,100) 10,257,688 -- 10,257,688
SHORT-TERM INVESTMENTS -- 1.0%
COMMERCIAL PAPER
-- 0.8%
$ -- $ 4,488,322 $ 4,488,322 Ford Motor Credit $
Corp. -- $ 4,488,323 $ 4,488,323
-- 2,492,300 2,492,300 General Electric
Credit Corp. -- 2,492,300 2,492,300
-- 1,994,750 1,994,750 Sears Roebuck
Acceptance Corp. -- 1,994,750 1,994,750
Total -- 8,975,373 8,975,373
OTHER -- 0.2%
-- 2,463,299 2,463,299 CoreFund Cash
Reserve -- 2,463,299 2,463,299
TOTAL SHORT-TERM
INVESTMENTS
(AT AMORTIZED
COST) -- 11,438,672 11,438,672
(B) REPURCHASE AGREEMENTS -- 7.8%
87,500,000 -- 87,500,000 BT Securities
Corporation,
5.43%,
dated 3/29/1996,
due 4/1/1996
(AT AMORTIZED
COST) 87,500,000 -- 87,500,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$863,711,256)(C) $ 810,748,667 $ 305,502,185 $ 1,116,250,852
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to
$863,711,256. The net unrealized appreciation of investments on a federal
tax basis amounts to $252,539,596 which is comprised of $255,492,619
appreciation and $2,953,023 depreciation at March 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($1,127,318,953) at March 31, 1996.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
STRYPES -- Structured Yield Product Exchangeable for Stock
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED PENN
AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA PRO FORMA
FUND, INC. FUND ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value $ 810,748,667 $ 305,502,185 -- $ 1,116,250,852
Cash 132,590 -- -- 132,590
Receivables for:
Investments sold --- 6,352,987 -- 6,352,987
Shares sold 8,272,660 49,867 -- 8,322,527
Income 1,385,585 573,924 -- 1,959,509
Total assets 820,539,502 312,478,963 -- 1,133,018,465
LIABILITIES:
Payables for:
Shares redeemed 701,830 -- -- 701,830
Options contracts at value -- 355,626 -- 355,626
Investments purchased 2,614,812 1,397,868 -- 4,012,680
Accrued expenses and other liabilities 569,100 60,276 -- 629,376
Total liabilities 3,885,742 1,813,770 -- 5,699,512
TOTAL NET ASSETS $ 816,653,760 $ 310,665,193 -- $ 1,127,318,953
NET ASSETS CONSIST OF:
Paid in capital $ 625,635,086 $ 222,929,747 -- $ 848,564,833
Net unrealized appreciation of investments 175,393,133 77,146,463 -- 252,539,596
Accumulated net realized gain on investments 14,818,186 10,958,335 -- 25,776,521
Undistributed (Distributions in excess of)
net investment income 807,355 (369,352) -- 438,003
TOTAL NET ASSETS $ 816,653,760 $ 310,665,193 $ -- $ 1,127,318,953
Class A Shares $ 455,866,640 $ 310,317,078 $ -- $ 766,183,718
Class B Shares $ 261,024,343 $ -- $ -- $ 261,024,343
Class C Shares $ 44,433,642 $ 348,115 $ -- $ 44,781,757
Class F Shares $ 55,329,135 $ -- $ -- $ 55,329,135
SHARES OUTSTANDING
Class A Shares 23,046,979 24,989,427 (9,300,911)(a) 38,735,495
Class B Shares 13,186,538 -- -- 13,186,538
Class C Shares 2,244,614 28,100 (10,515)(a) 2,262,199
Class F Shares 2,797,212 -- -- 2,797,212
TOTAL SHARES OUTSTANDING 41,275,343 25,017,527 56,981,444
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share $ 19.78 $ 12.42 $ 19.78
Offering Price Per Share $ 20.93* $ 13.04**** $ 20.93
Redemption Proceeds Per Share $ 19.78** $ 12.42 $ 19.78
CLASS B SHARES:
Net Asset Value Per Share $ 19.79 $ N/A $ 19.79
Offering Price Per Share $ 19.79* $ N/A $ 19.79
Redemption Proceeds Per Share $ 18.70** $ N/A $ 18.70
CLASS C SHARES:
Net Asset Value Per Share $ 19.80 $ 12.39 $ 19.80
Offering Price Per Share $ 19.80* $ 12.39 $ 19.80
Redemption Proceeds Per Share $ 19.60** $ 12.27**** $ 19.60
CLASS F SHARES:
Net Asset Value Per Share $ 19.78 $ N/A $ 19.78
Offering Price Per Share $ 19.98*** $ N/A $ 19.98
Redemption Proceeds Per Share $ 19.58** $ N/A $ 19.58
TOTAL INVESTMENTS, AT IDENTIFIED COST $ 635,355,534 $ 228,355,722 $ 863,711,256
</TABLE>
(a) Adjustment to reflect share balance as a result of the combination,
based on the exchange ratio of 0.6278061589. for Class A Shares and
0.6258152947 for Class C Shares.
* See "How to Purchase Shares" in the Federated American Leaders Fund, Inc.
Prospectus, as of May 31, 1996.
** See "Contingent Deferred Sales Charge" in the Federated American Leaders
Fund, Inc. Prospectus, as of May 31, 1996.
*** See " What Shares Cost" in the Federated American Leaders Fund, Inc.
Prospectus, as of May 31, 1996.
**** See " How to Buy Shares" in the Penn Square Mutual Fund Prospectus, as
of March 15, 1996.
(See Notes to Pro Forma Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED PENN
AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA PRO FORMA
FUND, INC. FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 10,436,184 7,125,722 $ -- $ 17,561,906
Interest 2,042,570 1,123,012 -- 3,165,582
Total Investment Income 12,478,754 8,248,734 -- 20,727,488
EXPENSES:
Investment advisory fees 3,637,755 1,830,052 1,123(a) 5,468,930
Administrative personnel and services fees 423,163 -- 212,525(b) 635,688
Custodian fees 64,795 50,774 (1,026)(c) 114,543
Transfer and dividend disbursing agent fees and expenses 727,174 341,168 (163,760)(d) 904,582
Directors'/Trustees' fees 10,077 29,638 (26,715)(e) 13,000
Legal and auditing fees 22,784 19,613 (19,197)(f) 23,200
Portfolio accounting fees 134,801 -- 23,850(g) 158,651
Distribution services fee -- Class A Shares -- 321,580 -- 321,580
Distribution services fee -- Class B Shares 971,408 -- -- 971,408
Distribution services fee -- Class C Shares 226,754 567 -- 227,321
Shareholder services fee -- Class A Shares 898,781 -- 177,203(h) 1,075,984
Shareholder services fee -- Class B Shares 323,803 -- -- 323,803
Shareholder services fee -- Class C Shares 75,585 189 4,805(h) 80,579
Shareholder services fee -- Class F Shares 100,110 -- -- 100,110
Share registration costs 234,996 -- 1,086(i) 236,082
Printing and postage 133,137 71,214 (39,124)(j) 165,227
Taxes 55,198 -- 14,802(k) 70,000
Insurance premiums and miscellaneous expenses 19,518 9,279 (5,948)(l) 22,849
Total expenses 8,059,839 2,674,074 179,624 10,913,537
Deduct --
Waiver of shareholder services fee -- Class A Shares (243,794) -- -- (243,794)
Waiver of shareholder services fee -- Class B Shares (70,191) -- -- (70,191)
Waiver of shareholder services fee -- Class C Shares (4,805) -- -- (4,805)
Waiver of shareholder services fee -- Class F Shares (8,009) -- -- (8,009)
Total Waivers (326,799) -- -- (326,799)
Net expenses 7,733,040 2,674,074 -- 10,586,738
Net investment income 4,745,714 5,574,660 -- 10,140,750
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 29,467,435 9,367,427 -- 38,834,862
Net change in unrealized appreciation of investments 112,788,561 29,129,502 -- 141,918,063
Net realized and unrealized gain on investments 142,255,996 38,496,929 -- 180,752,925
Change in net assets resulting from operations $ 147,001,710 $44,071,589 -- $ 190,893,675
</TABLE>
(See Notes to Pro Forma Combining Statement of Operations)
(See Notes to Pro Forma Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
NOTES TO PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996 (UNAUDITED)
(a) The Federated American Leaders Fund, Inc.'s (the " Federated Fund")
Adviser, Federated Advisers receives for its services an annual investment
advisory fee equal to a maximum of (a) 0.55% of average daily net assets
and (b) 4.50% of the Federated Fund's gross income. The Federated Fund is
averaging an investment advisory fee that is slighter higher than 0.65% of
its average daily net assets. Penn Square Management Corporation the Penn
Square Mutual Fund's Adviser receives for its services a fee equal to 0.65%
on the first $250,000,000 of average daily net assets, 0.60% on the next
$250,000,000 of average daily net assets, and 0.55% on average net assets
exceeding $500,000,000.
(b) Federated Services Company ("FServ") provides the Federated Fund with
certain administrative personnel and services. The fee paid to FServ is
based on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000
per each additional class of shares.
(c) State Street Bank and Trust Company is custodian for the securities and
cash of the Federated Fund. The custodian fee is based upon the level of
the Federated Fund's average daily net assets for the period plus out-of-
pocket expenses
(d) FServ serves as transfer and dividend disbursing agent for the Fund. The
fee is based on the size, type, and number of accounts and transactions
made by shareholders.
(e) Adjustment to reflect the elimination of the Trustees fees paid for the
Penn Square Mutual Fund.
(f) Adjustment to reflect the audit and legal fee reductions due to the
combining of two portfolios into a single portfolio.
(g) FServ maintains the Federated Fund's accounting records. The fee paid to
FServ is based on the level of the Federated Fund's average daily net
assets, plus out-of-pocket expenses.
(h) Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Federated Fund will pay FSS up to 0.25%
of daily average net assets of the Federated Fund's shares for the period.
The fee paid to FSS is used to finance certain services for shareholders
and to maintain shareholder accounts. FSS may voluntarily choose to waive
any portion of its fee. FSS can modify or terminate this voluntary waiver
at any time at its sole discretion. Penn Square Management receives for its
services a fee up to 0.50% of the average daily net assets of the Class A
Shares and a fee up to 0.25% of the average daily net assets of Class C
Shares. Penn Square Management may voluntarily choose to waive any portion
of its fee. Penn Square Management can modify or terminate this voluntary
waiver at any time at its sole discretion.
(i) Adjustment to reflect the increase the cost due to the increase in net
assets and share registration.
(j) Printing and postage expenses are adjusted to reflect estimated savings
to be realized by combining two portfolios into a single portfolio.
(k) Adjustment to taxes to reflect increases in additional income associated
with combination of portfolios' assets.
(l) Adjustment to reflect the decrease in insurance fees due to the
reduction in the coverage requirement for a single portfolio.
(See Notes to Pro Forma Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS--94.7%
AUTOMOTIVE -- 0.3%
-- 50,000 50,000 Johnson Controls,
Inc. $ -- $ 3,750,000 $ 3,750,000
BASIC INDUSTRY --
3.2%
200,000 -- 200,000 Betz Laboratories,
Inc. 10,500,000 -- 10,500,000
185,000 -- 185,000 Consolidated
Papers, Inc. 9,620,000 -- 9,620,000
300,000 -- 300,000 Monsanto Co. 10,950,000 -- 10,950,000
275,000 -- 275,000 Morton
International,
Inc. 10,931,250 -- 10,931,250
34,000 -- 34,000 Sigma-Aldrich
Corp. 1,938,000 -- 1,938,000
Total 43,939,250 -- 43,939,250
BUILDING MATERIALS
-
ENGINEERING --
0.3%
-- 70,000 70,000 Fluor Corp. -- 4,305,000 4,305,000
CHEMICALS -- 0.8%
-- 75,000 75,000 (a)ARCO Chemical
Co. -- 3,750,000 3,750,000
-- 60,000 60,000 Dow Chemical Co. -- 4,815,000 4,815,000
-- 60,000 60,000 Morton
International,
Inc. -- 2,385,000 2,385,000
Total -- 10,950,000 10,950,000
CONSUMER DURABLES
-- 2.4%
200,000 140,000 340,000 Chrysler Corp. 5,725,000 4,007,500 9,732,500
45,300 -- 45,300 Mattel, Inc. 1,172,138 -- 1,172,138
865,000 -- 865,000 Rubbermaid, Inc. 21,192,500 -- 21,192,500
30,500 -- 30,500 Stanley Works 857,813 -- 857,813
Total 28,947,451 4,007,500 32,954,951
CONSUMER GOODS --
1.4%
-- 50,000 50,000 Colgate-Palmolive
Co. -- 4,343,750 4,343,750
-- 85,000 85,000 Corning, Inc. -- 3,315,000 3,315,000
-- 80,000 80,000 Home Depot -- 4,550,000 4,550,000
-- 50,000 50,000 (a)J.C. Penney -- 2,706,250 2,706,250
-- 60,000 60,000 May Department
Stores -- 2,917,500 2,917,500
-- 40,000 40,000 (a)Tupperware
Corp. -- 1,960,000 1,960,000
Total -- 19,792,500 19,792,500
CONSUMER
NON-DURABLES --
11.2%
246,400 110,000 356,400 (a)Avon Products,
Inc. 12,227,600 5,458,750 17,686,350
272,100 -- 272,100 CPC International,
Inc. 20,373,487 -- 20,373,487
480,000 -- 480,000 Heinz (H.J.) Co. 16,200,000 -- 16,200,000
625,000 -- 625,000 IBP, Inc. 14,531,250 -- 14,531,250
248,500 90,000 338,500 Kimberly-Clark
Corp. 21,899,062 7,931,250 29,830,312
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
CONSUMER
NON-DURABLES --
CONTINUED
197,000 -- 197,000 Philip Morris
Cos., Inc. $ 17,680,750 $ -- $ 17,680,750
225,000 -- 225,000 Tambrands, Inc. 9,478,125 -- 9,478,125
169,300 -- 169,300 Unilever N.V., ADR 26,685,913 -- 26,685,913
Total 139,076,187 13,390,000 152,466,187
DIVERSIFIED --
0.6%
-- 100,000 100,000 National Service
Industries -- 3,500,000 3,500,000
-- 90,000 90,000 Tenneco, Inc. -- 4,511,250 4,511,250
Total -- 8,011,250 8,011,250
ELECTRONICS --
0.4%
-- 100,000 100,000 Philips Electric
N.V. -- 3,587,500 3,587,500
-- 120,000 120,000 Westinghouse
Electric -- 2,235,000 2,235,000
Total -- 5,822,500 5,822,500
ENERGY MINERALS --
10.2%
166,100 50,000 216,100 (a)Chevron Corp. 10,402,012 3,131,250 13,533,262
120,000 80,000 200,000 Exxon Corp. 9,990,000 6,660,000 16,650,000
-- 80,000 80,000 (a)Louisiana Land
&
Exploration Co. -- 4,210,000 4,210,000
240,000 50,000 290,000 Mobil Corp. 27,780,000 5,787,500 33,567,500
-- 100,000 100,000 National Fuel Gas -- 3,675,000 3,675,000
-- 150,000 150,000 Occidental
Petroleum -- 3,506,250 3,506,250
89,000 -- 89,000 Royal Dutch
Petroleum Co., ADR 13,895,125 -- 13,895,125
110,000 70,000 180,000 Texaco, Inc. 10,120,000 6,440,000 16,560,000
558,700 -- 558,700 USX Corp. 12,081,888 -- 12,081,888
377,000 -- 377,000 Union Pacific
Resources Group,
Inc. 10,556,000 -- 10,556,000
284,500 -- 284,500 Unocal Corp. 10,242,000 -- 10,242,000
Total 105,067,025 33,410,000 138,477,025
ENTERTAINMENT --
0.5%
-- 50,000 50,000 Polygram N.V. -- 2,787,500 2,787,500
-- 100,000 100,000 (a)Viacom, Inc.,
Class B -- 3,550,000 3,550,000
Total -- 6,337,500 6,337,500
ENVIRONMENTAL
SERVICES -- 0.2%
-- 100,000 100,000 WMX Technologies,
Inc. -- 3,287,500 3,287,500
FINANCE -- 12.1%
290,500 -- 290,500 Aflac, Inc. 10,312,750 -- 10,312,750
211,500 -- 211,500 Allstate Corp. 10,416,375 -- 10,416,375
-- 60,000 60,000 Bank America
Corp., Inc. -- 4,927,500 4,927,500
-- 160,000 160,000 (a)Bank of New
York -- 4,700,000 4,700,000
126,200 80,000 206,200 Chase Manhattan
Corp. 10,111,775 6,410,000 16,521,775
112,500 -- 112,500 CIGNA Corp. 13,485,937 -- 13,485,937
120,000 -- 120,000 Citicorp 10,875,000 -- 10,875,000
200,000 -- 200,000 Dean Witter,
Discover & Co. 11,000,000 -- 11,000,000
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
FINANCE --
CONTINUED
106,700 -- 106,700 Federal Home Loan
Mortgage Corp. $ 10,443,262 $ -- $ 10,443,262
593,200 85,000 678,200 Federal National
Mortgage
Association 20,687,850 2,964,375 23,652,225
-- 150,000 150,000 Great Western
Financial Corp. -- 3,975,000 3,975,000
211,000 -- 211,000 Marsh & McLennan
Cos., Inc. 20,493,375 -- 20,493,375
-- 90,000 90,000 Mellon Bank -- 5,332,500 5,332,500
248,500 -- 248,500 National City
Corp. 10,468,063 -- 10,468,063
166,800 -- 166,800 Travelers Group,
Inc. 8,194,050 -- 8,194,050
Total 136,488,437 28,309,375 164,797,812
FOOD & BEVERAGE --
0.5%
-- 75,000 75,000 ConAgra, Inc. -- 3,693,750 3,693,750
-- 100,000 100,000 Pepsico, Inc. -- 2,825,000 2,825,000
Total -- 6,518,750 6,518,750
HEALTH CARE --
13.0%
354,000 -- 354,000 Abbott
Laboratories 17,434,500 -- 17,434,500
-- 70,000 70,000 (a)Aetna Life &
Casualty
Company -- 4,926,250 4,926,250
225,000 100,000 325,000 American Home
Products Corp. 14,343,750 6,375,000 20,718,750
270,000 -- 270,000 Bausch & Lomb,
Inc. 9,922,500 -- 9,922,500
320,000 -- 320,000 Becton, Dickinson
& Co. 14,160,000 -- 14,160,000
620,000 -- 620,000 (a)Biomet, Inc. 10,152,500 -- 10,152,500
186,500 75,000 261,500 Bristol-Myers
Squibb Co. 17,973,937 7,228,125 25,202,062
274,000 85,000 359,000 Columbia/HCA
Healthcare Corp. 15,583,750 4,834,375 20,418,125
720,400 -- 720,400 (a)Healthsource,
Inc. 10,625,900 -- 10,625,900
-- 100,000 100,000 (a)Johnson &
Johnson -- 5,125,000 5,125,000
149,000 65,000 214,000 Merck & Co., Inc. 10,485,875 4,574,375 15,060,250
-- 70,000 70,000 Pharmacia & Upjohn -- 2,887,500 2,887,500
-- 50,000 50,000 (a)Schering-Plough
Corp. -- 3,075,000 3,075,000
275,000 120,000 395,000 (a)United
Healthcare Corp. 11,446,875 4,995,000 16,441,875
Total 132,129,587 44,020,625 176,150,212
INSURANCE -- 0.8%
-- 65,000 65,000 Conseco, Inc. -- 3,201,250 3,201,250
-- 100,000 100,000 Liberty Corp. -- 3,512,500 3,512,500
-- 90,000 90,000 Travelers, Inc.
(The) -- 4,421,250 4,421,250
Total -- 11,135,000 11,135,000
METALS -- 0.8%
-- 70,000 70,000 (a)Aluminum Co. of
America -- 4,130,000 4,130,000
-- 150,000 150,000 Allegheny
Teledyne, Inc. -- 3,393,750 3,393,750
-- 100,000 100,000 Freeport-McMoRan
Copper
& Gold, Inc. -- 2,950,000 2,950,000
Total -- 10,473,750 10,473,750
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES SHARES SHARES VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
PAPER & FOREST
PRODUCTS -- 0.8%
-- 40,000 40,000 (a)Georgia-Pacific $ -- $ 3,165,000 $ 3,165,000
-- 125,000 125,000 Longview Fibre -- 1,968,750 1,968,750
-- 80,000 80,000 Louisiana-Pacific
Corp. -- 1,820,000 1,820,000
-- 75,000 75,000 Weyerhaeus Co. -- 3,459,375 3,459,375
Total -- 10,413,125 10,413,125
PRINTING &
PUBLISHING -- 0.2%
-- 100,000 100,000 John H. Harland
Co. -- 3,000,000 3,000,000
PRODUCER
MANUFACTURING --
4.8%
12,200 -- 12,200 Dover Corp. 582,550 -- 582,550
142,500 110,000 252,500 General Electric
Co. 12,967,500 10,010,000 22,977,500
223,800 -- 223,800 Ingersoll-Rand Co. 10,630,500 -- 10,630,500
120,000 -- 120,000 Loews Corp. 9,285,000 -- 9,285,000
250,000 -- 250,000 Textron, Inc. 21,250,000 -- 21,250,000
Total 54,715,550 10,010,000 64,725,550
RETAIL TRADE --
4.1%
312,000 -- 312,000 Dayton-Hudson
Corp. 10,296,000 -- 10,296,000
453,000 -- 453,000 Dillard Department
Stores, Inc.,
Class A 14,609,250 -- 14,609,250
250,000 -- 250,000 Sears, Roebuck &
Co. 11,187,500 -- 11,187,500
765,000 -- 765,000 Wal-Mart Stores,
Inc. 20,176,875 -- 20,176,875
Total 56,269,625 -- 56,269,625
SERVICES -- 3.1%
800,000 -- 800,000 Browning-Ferris
Industries, Inc. 20,000,000 -- 20,000,000
100,000 100,000 200,000 Disney (Walt) Co. 6,337,500 6,337,500 12,675,000
150,000 -- 150,000 Gannett Co., Inc. 10,556,250 -- 10,556,250
Total 36,893,750 6,337,500 43,231,250
TECHNOLOGY --
10.7%
92,800 -- 92,800 Automatic Data
Processing, Inc. 4,048,400 -- 4,048,400
201,700 -- 201,700 Computer
Associates
International,
Inc. 12,051,575 -- 12,051,575
296,000 -- 296,000 (a)Electronic Data
Systems Corp. 18,167,000 -- 18,167,000
226,600 100,000 326,600 Hewlett-Packard
Co. 11,046,750 4,875,000 15,921,750
200,200 60,000 260,200 Intel Corp. 19,106,587 5,726,250 24,832,837
71,200 -- 71,200 International
Business
Machines Corp. 8,864,400 -- 8,864,400
112,600 -- 112,600 Lockheed Martin
Corp. 10,148,075 -- 10,148,075
132,200 -- 132,200 Lucent
Technologies, Inc. 6,064,675 -- 6,064,675
-- 30,000 30,000 Microsoft Corp.
ELKS -- 3,292,500 3,292,500
244,300 -- 244,300 (a)Oracle Corp. 10,398,019 -- 10,398,019
-- 62,500 62,500 (a)Oracle Systems -- 2,660,156 2,660,156
-- 40,000 40,000 Pitney Bowes -- 2,110,000 2,110,000
185,500 -- 185,500 Rockwell
International
Corp. 10,457,563 -- 10,457,563
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
SHARES OR SHARES OR SHARES OR
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
TECHNOLOGY --
CONTINUED
334,400 -- 334,400 (a)Solectron Corp. $ 16,385,600 $ -- $ 16,385,600
Total 126,738,644 18,663,906 145,402,550
TEXTILES -- 0.3%
-- 160,000 160,000 Warnaco Group,
Inc. -- 3,800,000 3,800,000
TRANSPORTATION --
2.1%
-- 50,000 50,000 Burlington
Northern Santa Fe -- 4,218,750 4,218,750
-- 200,000 200,000 Canadian Pacific
Ltd. -- 4,625,000 4,625,000
-- 35,000 35,000 (a)Norfolk
Southern Corp. -- 3,198,125 3,198,125
176,600 50,000 226,600 Union Pacific
Corp. 12,935,950 3,662,500 16,598,450
Total 12,935,950 15,704,375 28,640,325
UTILITIES -- 9.7%
-- 110,000 110,000 (a)360 Degree
Communications -- 2,585,000 2,585,000
300,000 -- 300,000 AT&T Corp. 15,675,000 -- 15,675,000
243,700 -- 243,700 Columbia Gas
System, Inc. 13,647,200 -- 13,647,200
425,000 -- 425,000 Enron Corp. 17,318,750 -- 17,318,750
-- 240,000 240,000 Enserch Corp. -- 5,010,000 5,010,000
233,000 -- 233,000 FPL Group, Inc. 10,077,250 -- 10,077,250
266,000 -- 266,000 GTE Corp. 10,241,000 -- 10,241,000
737,500 -- 737,500 MCI Communications
Corp. 18,898,438 -- 18,898,438
-- 185,400 185,400 Merrill Lynch
STRYPES -- 3,708,000 3,708,000
-- 90,000 90,000 (a)Nokia Corp. -- 3,982,500 3,982,500
948,000 -- 948,000 Pacific Gas &
Electric Co. 20,619,000 -- 20,619,000
464,000 -- 464,000 Southern Co. 10,498,000 -- 10,498,000
Total 116,974,638 15,285,500 132,260,138
TOTAL COMMON
STOCKS
(IDENTIFIED COST
$1,037,388,255) 990,176,094 296,735,656 1,286,911,750
SHORT-TERM INVESTMENTS -- 1.5%
COMMERCIAL PAPER
-- 1.5%
$ -- $ 5,477,866 $ 5,477,866 Ford Motor Credit
Corp. $ -- $ 5,477,866 $ 5,477,866
-- 1,990,613 1,990,613 General Electric
Credit Corp. -- 1,990,613 1,990,613
-- 1,990,542 1,990,542 Prudential Funding -- 1,990,542 1,990,542
-- 10,951,706 10,951,706 Sears Roebuck
Acceptance Corp. -- 10,951,706 10,951,706
Total -- 20,410,727 20,410,727
OTHER -- 0.0%
-- 222,613 222,613 CoreFund Cash
Reserves -- 222,613 222,613
TOTAL SHORT-TERM
INVESTMENTS
(AT COST) -- 20,633,340 20,633,340
</TABLE>
<TABLE>
<CAPTION>
FEDERATED PENN FEDERATED PENN
AMERICAN SQUARE AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA LEADERS MUTUAL PRO FORMA
FUND, INC. FUND COMBINED FUND, INC. FUND COMBINED
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
<C> <C> <C> <S> <C> <C> <C>
(B)REPURCHASE AGREEMENT -- 2.8%
$ 38,210,000 $ -- $ -- BT Securities
Corporation,
5.72%,
dated 9/30/1996,
due 10/1/1996
(AT AMORTIZED
COST) $ 38,210,000 $ -- $ 38,210,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,096,532,595)(C) $ 1,028,386,094 $ 317,368,996 $ 1,345,755,090
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint accounts with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to
$1,096,532,595. The net unrealized appreciation of investments on a federal
tax basis amounts to $249,222,495 which is comprised of $260,279,712
appreciation and $11,057,217 depreciation at September 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($1,358,534,078) at September 30, 1996.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
STRYPES -- Structured Yield Product Exchangeable for Stock
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED
AMERICAN PENN
LEADERS SQUARE PRO FORMA PRO FORMA
FUND, INC. MUTUAL FUND ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value $ 1,028,386,094 $ 317,368,996 -- $ 1,345,755,090
Cash 14,967 -- -- 14,967
Receivables for:
Investments sold 6,933,929 5,193,227 -- 12,127,156
Shares sold 4,297,853 14,476 -- 4,312,329
Income 2,439,792 577,564 -- 3,017,356
Total assets 1,042,072,635 323,154,263 -- 1,365,226,898
LIABILITIES:
Payables for:
Shares redeemed 480,725 -- -- 480,725
Options contracts at value -- 552,500 -- 552,500
Investments purchased 4,652,792 486,850 -- 5,139,642
Accrued expenses and other liabilities 387,552 132,401 -- 519,953
Total liabilities 5,521,069 1,171,751 -- 6,692,820
TOTAL NET ASSETS $ 1,036,551,566 $ 321,982,512 -- $ 1,358,534,078
Net Assets consist of:
Paid in capital $ 810,558,567 $ 220,324,473 -- $ 1,030,883,040
Net unrealized appreciation of investments 181,458,331 67,764,164 -- 249,222,495
Accumulated net realized gain on investments 43,211,183 34,208,625 -- 77,419,808
Undistributed (Distributions in excess of)
net investment income 1,323,485 (314,750) -- 1,008,735
TOTAL NET ASSETS $ 1,036,551,566 $ 321,982,512 $ -- $ 1,358,534,078
Class A Shares $ 510,464,473 $ 320,908,864 $ -- $ 831,373,337
Class B Shares $ 396,077,509 $ -- $ -- $ 396,077,509
Class C Shares $ 57,924,578 $ 1,073,648 $ -- $ 58,998,226
Class F Shares $ 72,085,006 $ -- $ -- $ 72,085,006
SHARES OUTSTANDING
Class A Shares 24,921,010 24,730,455 (9,063,600)(a) 40,587,865
Class B Shares 19,340,768 -- -- 19,340,768
Class C Shares 2,827,793 82,907 (30,493)(a) 2,880,207
Class F Shares 3,519,988 -- -- 3,519,988
Total Shares Outstanding 50,609,559 24,813,362 (9,094,093) 66,328,828
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share $ 20.48 $ 12.98 $ 20.48
Offering Price Per Share $ 21.67* $ 13.63**** $ 21.67
Redemption Proceeds Per Share $ 20.48** $ 12.98 $ 20.48
CLASS B SHARES:
Net Asset Value Per Share $ 20.48 $ N/A $ 20.48
Offering Price Per Share $ 20.48* $ N/A $ 20.48
Redemption Proceeds Per Share $ 19.35** $ N/A $ 19.35
CLASS C SHARES:
Net Asset Value Per Share $ 20.48 $ 12.95 $ 20.48
Offering Price Per Share $ 20.48* $ 12.95 $ 20.48
Redemption Proceeds Per Share $ 20.28** $ 12.82**** $ 20.28
CLASS F SHARES:
Net Asset Value Per Share $ 20.48 $ N/A $ 20.48
Offering Price Per Share $ 20.69*** $ N/A $ 20.69
Redemption Proceeds Per Share $ 20.28** $ N/A $ 20.28
TOTAL INVESTMENTS, AT IDENTIFIED COST $ 846,927,763 $ 249,604,832 $ 1,096,532,595
</TABLE>
(a) Adjustment to reflect share balance as a result of the combination,
based on the exchange ratio of 0.6335045291 for Class A Shares and
0.6322014034 for Class C Shares.
* See "How to Purchase Shares" in the Federated American Leaders Fund, Inc.
Prospectus, as of May 31, 1996.
** See "Contingent Deferred Sales Charge" in the Federated American Leaders
Fund, Inc. Prospectus, as of May 31, 1996.
*** See " What Shares Cost" in the Federated American Leaders Fund, Inc.
Prospectus, as of May 31, 1996.
**** See " How to Buy Shares" in the Penn Square Mutual Fund Prospectus, as
of March 15, 1996.
(See Notes to Pro Forma Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FEDERATED PENN
AMERICAN SQUARE
LEADERS MUTUAL PRO FORMA PRO FORMA
FUND, INC. FUND ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 8,184,750 $ 3,486,714 $ -- $ 11,671,464
Interest 1,584,439 550,946 -- 2,135,385
Total Investment Income 9,769,189 4,037,660 -- 13,806,849
EXPENSES:
Investment advisory fees 2,886,909 1,007,745 (40,018)(a) 3,854,636
Administrative personnel and services fees 349,048 -- 117,209(b) 466,257
Custodian fees 56,173 6,374 3,706(c) 66,253
Transfer and dividend disbursing agent fees and expenses 591,567 177,551 (142,551)(d) 626,567
Directors'/Trustees' fees 6,793 11,731 (11,524)(e) 7,000
Legal and auditing fees 12,410 12,252 (12,162)(f) 12,500
Portfolio accounting fees 87,856 -- 495(g) 88,351
Distribution services fee -- Class A Shares -- 136,869 136,869
Distribution services fee -- Class B Shares 1,235,559 -- -- 1,235,559
Distribution services fee -- Class C Shares 191,597 349 -- 191,946
Shareholder services fee -- Class A Shares 598,845 -- 192,290(h) 791,135
Shareholder services fee -- Class B Shares 411,853 -- -- 411,853
Shareholder services fee -- Class C Shares 63,866 116 -- 63,982
Shareholder services fee -- Class F Shares 79,697 -- -- 79,697
Share registration costs 105,542 -- 500(i) 106,042
Printing and postage 79,398 40,531 (24,947)(j) 94,982
Taxes 22,016 -- 3,000(k) 25,016
Insurance premiums and miscellaneous expenses 3,034 11,632 (2,904)(l) 11,762
Total expenses 6,782,163 1,405,150 83,094 8,270,407
Deduct --
Waiver of shareholder services fee -- Class A Shares (87,657) -- -- (87,657)
Waiver of shareholder services fee -- Class F Shares (5,231) -- -- (5,231)
Total Waivers (92,888) -- -- (92,888)
Net expenses 6,689,275 1,405,150 83,094 8,177,519
Net investment income 3,079,914 2,632,510 (83,094) 5,629,330
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 43,236,764 23,250,290 -- 66,487,054
Net change in unrealized appreciation of investments 6,065,198 9,382,299 -- 15,447,497
Net realized and unrealized gain on investments 49,301,962 32,632,589 -- 81,934,551
Change in net assets resulting from operations $ 52,381,876 $ 35,265,099 $ (83,094) $ 87,563,881
</TABLE>
(See Notes to Pro Forma Combining Statement of Operations)
(See Notes to Pro Forma Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
NOTES TO PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(a) The Federated American Leaders Fund, Inc.'s (the " Federated Fund")
Adviser, Federated Advisers receives for its services an annual investment
advisory fee equal to a maximum of (a) 0.55% of average daily net assets
and (b) 4.50% of the Federated Fund's gross income. The Federated Fund is
averaging an investment advisory fee that is slightly higher than 0.65% of
its average daily net assets. Penn Square Management Corporation the Penn
Square Mutual Fund's Adviser receives for its services a fee equal to 0.65%
on the first $250,000,000 of average daily net assets, 0.60% on the next
$250,000,000 of average daily net assets, and 0.55% on average net assets
exceeding $500,000,000.
(b) Federated Services Company ("FServ") provides the Federated Fund with
certain administrative personnel and services. The fee paid to FServ is
based on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000
per each additional class of shares.
(c) State Street Bank and Trust Company is custodian for the securities and
cash of the Federated Fund. The custodian fee is based upon the level of
the Federated Fund's average daily net assets for the period plus out-of-
pocket expenses
(d) FServ serves as transfer and dividend disbursing agent for the Fund. The
fee is based on the size, type, and number of accounts and transactions
made by shareholders.
(e) Adjustment to reflect the elimination of the Trustees fees paid for the
Penn Square Mutual Fund.
(f) Adjustment to reflect the audit and legal fee reductions due to the
combining of two portfolios into a single portfolio.
(g) FServ maintains the Federated Fund's accounting records. The fee paid to
FServ is based on the level of the Federated Fund's average daily net
assets, plus out-of-pocket expenses.
(h) Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services ("FSS"), the Federated Fund will pay FSS up to 0.25%
of daily average net assets of the Federated Fund's shares for the period.
The fee paid to FSS is used to finance certain services for shareholders
and to maintain shareholder accounts. FSS may voluntarily choose to waive
any portion of its fee. FSS can modify or terminate this voluntary waiver
at any time at its sole discretion. Penn Square Management receives for its
services a fee up to 0.50% of the average daily net assets of the Class A
Shares and a fee up to 0.25% of the average daily net assets of Class C
Shares. Penn Square Management may voluntarily choose to waive any portion
of its fee. Penn Square Management can modify or terminate this voluntary
waiver at any time at its sole discretion.
(i) Adjustment to reflect the increase in cost due to the increase in net
assets and share registration.
(j) Printing and postage expenses are adjusted to reflect estimated savings
to be realized by combining two portfolios into a single portfolio.
(k) Adjustment to taxes to reflect increases in additional income associated
with combination of portfolios' assets.
(l) Adjustment to reflect the decrease in insurance fees due to the
reduction in the coverage requirement for a single portfolio.
(See Notes to Pro Forma Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
PENN SQUARE MUTUAL FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
FOR THE TWELVE-MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED) AND
THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED)
1. BASIS OF COMBINATION
The accompanying unaudited Pro Forma Combining Portfolio of Investments and
Statement of Assets and Liabilities reflect the accounts of Federated
American Leaders Fund, Inc. and Penn Square Mutual Fund, collectively (the
"Funds") as of March 31, 1996 and September 30, 1996. These statements have
been derived from the books and records utilized in calculating daily net
asset values at March 31, 1996 and September 30, 1996. The accompanying
unaudited Pro Forma Combining Statement of Operations reflects the accounts
of Federated American Leaders Fund, Inc. and Penn Square Mutual Fund, for
the period ended March 31, 1996, and September 30, 1996.
The Pro Forma Financial Statements should be read in conjunction with the
historical financial statements of the Funds which are incorporated by
reference in the Statement of Additional Information. The Funds follow
generally accepted accounting principles applicable to management investment
companies which are disclosed in the historical financial statements of each
fund.
The Pro Forma Financial Statements give effect to the proposed transfer of
assets of Penn Square Mutual Fund's Class A Shares and Class C Shares in
exchange for Class A Shares and Class C Shares, respectively of Federated
American Leaders Fund, Inc. Under generally accepted accounting principles,
Federated American Leaders Fund, Inc., will be the surviving entity for
accounting purposes with its historical cost of investments and results of
operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the
anticipated advisory and administrative fee arrangements for the surviving
entity. Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change as
a result of the reorganization are currently undeterminable.
For the period ended March 31, 1996, Federated American Leaders Fund, Inc.
and Penn Square Mutual Fund paid investment advisory fees computed as
follows:
<TABLE>
<CAPTION>
FUND PERCENT OF EACH FUND'S AVERAGE NET ASSETS
<S> <C>
Federated American Leaders Fund, Inc. maximum of 0.55% and 4.50% of gross income
Penn Square Mutual Fund 0.65% on the first $250 million
0.60% on the next $250 million
0.55% in excess of $500 million
</TABLE>
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 15,803,562
Class A Shares and 84,930 Class C Shares of Federated American Leaders Fund,
Inc. in exchange for 27,102,784 Class A Shares and 145,694 Class C Shares,
respectively, of Penn Square Mutual Fund in conjunction with the proposed
reorganization.
Cusip 313914103
Cusip 313914301
G02062-10
THE WILLIAM PENN FUNDS
Penn Square Management Corporation
PROXY SERVICES
P.O. BOX 9156
FARMINGDALE, NY 11735
PENN SQUARE MUTUAL FUND
PENN SQUARE MUTUAL FUND
The undersigned shareholder(s) of PENN SQUARE MUTUAL FUND
hereby appoint(s) James E. Jordan, Sandra Houck, and Dennis Westley or any
of them true and lawful proxies, with power of substitution of each, to
vote all shares of the Penn Square Mutual Fund which the undersigned is
entitled to vote, at the Special Meeting of Shareholders to be held on May
29, 1997, at Sheraton Berkshire Motor Inn, 1741 Paper Mill Road,
Wyomissing, PA 19610, at 9:00 a.m.(local time) and at any adjournment
thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The proxies
named will vote the shares represented by this proxy in accordance with the
choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED AFFIRMATIVELY ON THAT MATTER.
The Board of Trustees unanimously recommends a vote FOR the proposal below.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
You may also cast your vote by telephone by calling Shareholder
Communications corporation toll free at (800) 733-8481 extension 459.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PENN SQUARE MUTUAL FUND
RECORD DATE SHARES:
-----------------
Vote on Proposal
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
PENN SQUARE MUTUAL FUND AND FEDERATED AMERICAN LEADERS FUND, INC.
FOR AGAINST ABSTAIN
Signature [PLEASE SIGN WIHIN BOX]
Signature (Joint Owners)
Date:
