Federated American Leaders
Fund, Inc.
29th Semi-Annual Report
September 30, 1998
ESTABLISHED 1969
PRESIDENT'S MESSAGE
Dear Fellow Shareholder:
Federated American Leaders Fund, Inc. was created in 1969, and I am pleased to
present its 29th Semi-Annual Report. This high-quality common stock fund has its
$2.9 billion of assets invested in over 80 corporations. These large,
historically successful corporations are easily recognized for their products
and services. Simply stated, the fund offers shareholders ownership in many of
America's leading companies.
This report covers the first half of the fund's fiscal year, which is the
six-month period from April 1, 1998 through September 30, 1998. It begins with a
discussion with the fund's portfolio manager Michael P. Donnelly, Vice President
of Federated Advisers. Following his discussion are three additional items of
shareholder interest. First is a series of graphs showing the fund's excellent
long-term investment performance. Second is a listing of the fund's high-quality
stock holdings, and third is the publication of the fund's financial statements.
Though this report focuses on the past six months, the true measure of the
performance potential of stocks, and of Federated American Leaders Fund, Inc. is
over the long-term. I want to remind you of the fund's outstanding long-term
performance record. As of September 30, 1998, the average annual total returns,*
based on net asset value, for each share class since inception were:
Class A Shares (February 26, 1969), 11.16%; Class B Shares (July 26, 1994),
19.24%; Class C Shares (April 22, 1993), 15.98%; Class F Shares (July 28, 1993),
16.69%.
After many years of extremely positive returns, the U.S. stock market faltered
during the reporting period, as the market reacted to concerns over the
potential impact of the Asian and Russian economic difficulties on the U.S. As a
result, stocks suffered a broad-based decline, and the fund's portfolio of
high-quality common stocks produced a negative six-month total return.
* Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. As of September 30, 1998, the average annual
total returns, based on offering price, for each share class since inception
were: Class A Shares, 10.95%; Class B Shares, 18.86%; Class C Shares, 15.98%;
and Class F Shares, 16.46%.
Individual share class total return performance for the six-month period,
including income dividends and realized gains, follows.
<TABLE>
<CAPTION>
TOTAL INCOME CAPITAL NET ASSET
RETURN DISTRIBUTIONS GAINS VALUE CHANGE
<S> <C> <C> <C> <C>
Class A Shares (10.44%) $0.09 $1.42 $26.64 to $22.49 = (16%)
Class B Shares (10.76%) $0.00 $1.42 $26.61 to $22.47 = (16%)
Class C Shares (10.76%) $0.00 $1.42 $26.61 to $22.47 = (16%)
Class F Shares (10.45%) $0.09 $1.42 $26.61 to $22.46 = (16%)
</TABLE>
The annual and semi-annual reports to shareholders serve the value of reminding
our investors that stocks are priced daily on various stock exchanges and change
daily in price. And, in the last 10-12 years, there have been periods when stock
prices have declined and subsequently risen. For example, in October 1987, the
fund's share value and price declined. Again, in 1990, prices declined and then
rose in 1991. These periods of price declines have proven to be good buying
opportunities, and I recommend that you consider adding to your account.
Thank you for participating in the growth and earnings opportunities of over 75
high-quality U.S. companies through this diversified blue-chip stock fund. As
always, we welcome your comments and suggestions.
Sincerely,
John F. Donahue
President
November 15, 1998
** Total returns for the period, based on offering price, for Class A, B, C,
and F Shares were (15.36%), (15.68%), (11.64%), and (12.22%), respectively.
INVESTMENT REVIEW
[GRAPHIC]
Michael P. Donnelly
Vice President
Federated Advisers
[GRAPHIC]
AFTER A LUKEWARM SECOND QUARTER, THE THIRD QUARTER OF 1998 SAW
AN UNPLEASANT DECLINE IN THE U.S. STOCK MARKET THAT WAS FANNED
BY ECONOMIC DIFFICULTIES ABROAD. WHAT ARE YOUR COMMENTS?
On the surface, the second quarter of 1998 appeared to be a reasonable
continuation of the bull market with the Standard & Poor's ("S&P") 500 Index*
returning 3.30%. However, market participation was quite narrow during the
quarter as concerns over Asia rekindled, and the possibility of a global
recession caused a "flight to quality" in both the equity and fixed-income
markets. This global flight to quality manifested itself in the domestic equity
markets by focusing investor attention on the ultra large capitalization global
growth companies (i.e., Coca-Cola, General Electric, Microsoft) that have led
the market for the past three years and dominated the returns of the S&P 500
Index.
The third quarter of 1998 provided stock investors with a wild ride. In a
promising start, the U.S. market set a new all-time high in mid-July, but then,
driven by signs of economic and political collapse in Russia and continued
turmoil in Asia, the market began to decline. The decline gathered force in
August as these foreign difficulties translated into a major unwinding of hedge
fund leverage, making it the worst August in stock market history. In September,
the market enjoyed a quick rally, but the damage remained significant. The
summer decline was broad-based, and hit value and small-cap stocks especially
hard.
For the six-month period ended September 30, 1998, the S&P 500 Index lost 6.90%
of its value. However, the broader market was hit much harder. The average stock
in the S&P 500 Index was down 14.80%, the S&P 400 Mid Cap Index* was down over
16.00%, and the S&P 600 Small Cap Index* was down 24.40%. Value stocks-due to
cyclical concerns, sagging commodity prices and a flight to quality-also
struggled during the period. The S&P Barra Value Index* was down 12.50%.
* The S&P 500 Index is an unmanaged index of common stocks in industry,
transportation, financial, and public utility companies. The S&P 400 Mid Cap
Index is an unmanaged index of common stocks representing all major industries
in the mid-range of the U.S. stock market. The S&P 600 Small Cap Index is an
unmanaged index that measures performance of selected U.S. stocks with a small
market capitalization. The S&P Barra Value Index is an unmanaged index that is
based on approximately 50% of the Standard & Poor's 500 Index and generally
includes firms with lower price-to-book ratios. Investments cannot be made in an
index.
The performance of the S&P 500 Index has been dominated by a handful of ultra
large-cap, multinational growth stocks. In fact, the largest 45 stocks in the
S&P 500 Index now comprise one-half of the Index's weight, and through the first
nine months of 1998 returned 18.90% on a weighted-average basis. This dominance
by the richly valued, multinational "Nifty-Fifty" stocks made it difficult for
active value managers to outperform the S&P 500 Index.
[GRAPHIC]
HOW DID FEDERATED AMERICAN LEADERS FUND, INC. PERFORM FOR
SHAREHOLDERS DURING THIS DIFFICULT PERIOD FOR STOCKS?
For the six-month reporting period ended September 30, 1998, the fund's Class A,
B, C, and F Shares produced total returns of (10.44%), (10.76%), (10.76%), and
(10.45%), respectively.** These returns compared favorably to the (12.20%)
average total return of the growth and income funds tracked by Lipper Analytical
Services, Inc.+ The S&P 500 Index returned (6.93%) for the six-month reporting
period.
As we discussed above, the returns of actively managed value-style stock funds
were more negative than those of the Index because the Index's performance was
heavily influenced by the performance of its 45 largest stocks.
** Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price, for Class A, B, C, and F Shares were (15.36%), (15.68%),
(11.64%), and (12.22%), respectively.
+ Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. These figures do not reflect sales charges.
[GRAPHIC]
FROM A PORTFOLIO PERSPECTIVE, WHAT SECTORS WERE POSITIVE AND
NEGATIVE INFLUENCES ON THE FUND'S PERFORMANCE OVER THE SIX-MONTH
REPORTING PERIOD ENDED SEPTEMBER 30, 1998?
The fund's performance was aided by an underweighted position in the poor
performing financials sector and an overweighted position in the utilities
sector. Detracting from relative performance was an underweighted position in
the strong performing health care and technology sectors, as well as an
overweighted position in the consumer cyclicals sector.
As of September 30, 1998, the fund's sector weightings were as follows:
PERCENTAGE OF PERCENTAGE OF
SECTOR NET ASSETS S&P 500 INDEX
Basic Industry 7.90% 4.10%
Consumer Durables 2.80% 2.90%
Consumer Non-Durables 13.90% 9.60%
Energy/Minerals 11.30% 7.50%
Finance 9.80% 15.60%
Health Care 6.90% 13.60%
Producer Manufacturing 4.10% 7.00%
Retail Trade 5.50% 5.50%
Services 9.30% 4.90%
Technology 11.80% 16.90%
Transportation 2.60% 1.10%
Utilities 13.60% 11.50%
Other 0.20% 0.00%
[GRAPHIC]
WHAT IS YOUR STRATEGY IN THIS VOLATILE ENVIRONMENT?
Despite the recent underperformance of the value style of investing, we remain
committed to our investment disciplines. We continue to add securities to the
portfolio that appear attractive on our valuation models and eliminate those
that appear overvalued. History has shown that, after periods of narrow market
leadership dominated by a handful of growth stocks, active value management can
provide superior returns.
[GRAPHIC]
WHAT WERE SOME OF YOUR NOTEWORTHY PURCHASES AND SALES DURING THE
REPORTING PERIOD?
Our additions included the following companies:
DEERE & CO. ( 0.99% of net assets): The world's largest
manufacturer of agricultural equipment is trading at near-
historic low relative multiples. The stock price has suffered due to the
decline in farm-oriented commodity prices. Good crops should boost sales
in Brazil and Argentina.
ELECTRONIC DATA SYSTEMS CORP. (2.03% of net assets): This leading player in the
information technology outsourcing industry is trading at an all-time low
relative valuation due to fears of decelerating profitability. However, margins
in the fast-growing non-General Motors business have stabilized, and the overall
business mix is becoming less reliant on the low-margin General Motors
relationships.
KIMBERLY-CLARK CORP. (2.11% of net assets): Valued more like a pure paper
company, the market has been unwilling to pay for the branded personal products
business that is approximately 50% of earnings. Potential tissue price increases
and European restructuring should result in accelerated earnings growth in the
1999-2000 time frame.
SCHLUMBERGER LTD. (2.05% of net assets): This company is the world's
leading oil services firm which appears to be extremely oversold. Near-
term, improving fundamentals for the oil patch combined with a valuation
at historic lows make this an attractive purchase.
TENNECO, INC. (1.51% of net assets): Tenneco was trading at a 55% discount to
the S&P 500 Index and a 40% discount to its historical price/ earnings ratio at
the time of purchase by the fund. A $100 million cost-cutting program combined
with a potential break-up of the company make this an attractive holding.
Some of the companies we recently sold were:
U.S. Surgical Corp.: Value investing is a pleasure when the value-priced
equity is acquired at a premium by a growth company. U.S. Surgical was
purchased by Tyco at 30% above its month-prior stock price. Tyco
structured the transaction as a stock deal, however, and U.S. Surgical
became a proxy for Tyco stock.
Best Foods: This company has outperformed its peers with double-digit earning
per share gains primarily due to its 60% international exposure. Given the
current economic environment, this high relative exposure, combined with a
premium valuation versus its peers, led us to sell the stock.
Biomet, Inc.: Biomet performed admirably, establishing itself as a top- tier
player in the orthopedic industry. With success in today's market comes strong
equity valuation. Biomet simply achieved an earnings multiple that made it
difficult to justify the holding as a value investment.
Perrigo Co.: Despite a reasonable valuation, the stock was sold due to a lack of
confidence in its fundamentals. Although the company is spinning off its
struggling personal care business, the outlook lacks visibility due to a dearth
of product switches from prescription to over-the-counter this year.
U.S. West, Inc.: We sold U.S. West to increase the fund's holding of
GTE. We feel that GTE is a better quality company that was trading at a
significant discount to U.S. West.
[GRAPHIC]
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF SEPTEMBER 30, 1998?
NAME PERCENTAGE OF
NET ASSETS
Peco Energy Co. 2.66%
Ust, Inc. 2.34%
Kimberly-Clark Corp. 2.11%
Boeing Co. 2.07%
Schlumberger Ltd. 2.05%
Electronic Data Systems Corp. 2.03%
Cit Group, Inc., Class A 2.01%
Gte Corp. 1.97%
Archer-Daniels-Midland Co. 1.96%
Philip Morris Cos., Inc. 1.94%
TOTAL 21.14%
[GRAPHIC]
WHAT IS YOUR PERSPECTIVE ON THE U.S. STOCK MARKET AND THE
DOMESTIC AND FOREIGN INFLUENCES ON ITS FUTURE?
Excessive valuations of U.S. stocks have been a source of fragility over the
past few years, but there was no catalyst for a decline until this summer. The
unwinding of enormous hedge- fund leverage in emerging markets triggered a wave
of selling in U.S. stocks, as profitable domestic stock positions were closed to
offset emerging market losses. Unfortunately, the uneven nature of the decline
in the domestic equity market means the bear market has so far only partially
addressed the valuation problem. In the ultra large-cap growth sector, stock
prices remain high relative to earnings, cash flows, and book values. In the
broader market, however, declines of up to 50% have lowered valuations into more
reasonable territory, particularly among small-cap stocks.
In our view, large-cap growth stocks remain especially vulnerable to further
declines, thus we expect large-cap value will provide the best protection to
what is likely to be a choppy market for several quarters. We also believe
small-cap stocks are attractive, although we caution that a full-blown rally
among smaller issues must await signs of a return to more vigorous domestic
economic growth.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED AMERICAN LEADERS FUND,
INC.
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $30,000 IN THE CLASS A SHARES OF
FEDERATED AMERICAN LEADERS FUND, INC. ON 2/26/69, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$649,360 ON 9/30/98. YOU WOULD HAVE EARNED A 10.95%* AVERAGE ANNUAL TOTAL RETURN
FOR THE INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/98, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (2.26%), 15.74%, and 14.17%, respectively. Class B Shares'
average annual 1-year and since inception (7/26/94) total returns were (2.99%)
and 18.86%, respectively. Class C Shares' average annual 1-year, 5-year, and
since inception (4/22/93) total returns were 1.75%, 16.18%, and 15.98%,
respectively. Class F Shares' average annual 1-year, 5-year, and since inception
(7/28/93) total returns were 1.39%, 16.75%, and 16.46%, respectively.**
Please see Appendix A.1.
* Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 5.50% sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than their original cost.
** The total returns stated take into account the 5.50% sales charge for Class
A Shares, the 5.50% contingent deferred sales charge for Class B Shares, the
1.00% contingent deferred sales charge for Class C Shares and the 1.00% sales
charge and 1.00% contingent deferred sales charge for Class F Shares.
FEDERATED AMERICAN LEADERS FUND, INC.
ONE STEP AT A TIME:
$1,000 initial investment and subsequent investments of $1,000 each year for 29
years (reinvesting all dividends and capital gains) grew to $312,566.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
American Leaders Fund, Inc. on 2/26/69, reinvested your dividends and capital
gains, and did not redeem any shares, you would have invested only $30,000, but
your account would have reached a total value of $312,566* by 9/30/98. You would
have earned an average annual
total return of 10.55%.
A practical investment plan helps you pursue long-term performance from
blue-chip stocks. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time,
money, and compounding to work.
Please see Appendix A.2.
* This chart assumes that the subsequent annual investments are made on the
last day of each anniversary month. No method of investing can guarantee a
profit or protect against loss in down markets. However, by investing regularly
over time and buying shares at various prices, investors can purchase more
shares at lower prices. All accumulated shares have the ability to pay income to
the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
FEDERATED AMERICAN LEADERS FUND, INC.
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR COLLEGE EDUCATION
David and Joan Rice are a fictional couple who, like many shareholders, are
searching for a way to make their money grow over time.
David and Joan are planning for the college education of their three children.
On September 30, 1982, they invested $5,000 in Class A Shares of Federated
American Leaders Fund, Inc. Since then, David and Joan have made additional
investments of $250 every month.
As this chart shows, over 16 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $53,000 has grown to
$221,887.* For the Rices, a dedicated program of monthly investments really paid
off.
Please see Appendix A.3.
* This chart assumes that the subsequent investments are made on the last day
of each month. This hypothetical scenario is provided for illustrative purposes
only and does not represent the results obtained by any particular shareholder.
Past performance does not guarantee future results.
FEDERATED AMERICAN LEADERS FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--99.5%
BASIC INDUSTRY--7.9%
3,410,925 Archer-Daniels-Midland Co. $ 57,132,994
2,173,100 Barrick Gold Corp. 43,462,000
1,278,800 Crown Cork & Seal Co., Inc. 34,207,900
272,900 Dow Chemical Co. 23,315,894
1,100,000 Nucor Corporation 44,687,500
1,353,500 Sherwin-Williams Co. 29,269,438
Total 232,075,726
CONSUMER DURABLES--2.8%
1,033,000 Brunswick Corp. 13,364,438
430,000 Eastman Kodak Co. 33,244,375
640,300 General Motors Corp. 35,016,406
Total 81,625,219
CONSUMER NON-DURABLES--13.9%
836,000 Anheuser-Busch Cos., Inc. 45,144,000
2,192,400 Corn Products International, Inc. 55,358,100
1,524,000 Kimberly-Clark Corp. 61,722,000
1,335,600 Liz Claiborne, Inc. 34,976,025
1,232,000 Philip Morris Cos., Inc. 56,749,000
1,848,900 RJR Nabisco Holdings Corp. 46,569,169
998,000 Seagram Co. Ltd. 28,630,125
2,315,000 UST, Inc. 68,437,188
112,100 Unilever N.V., ADR 6,866,125
Total 404,451,732
ENERGY MINERALS--11.3%
1,168,700 Ashland, Inc. 54,052,375
1,168,000 Diamond Offshore Drilling, Inc. 30,368,000
419,300 Exxon Corp. 29,429,619
360,000 Mobil Corp. 27,337,500
1,228,900 Occidental Petroleum Corp. 26,421,350
388,000 Royal Dutch Petroleum Co., ADR 18,478,500
</TABLE>
FEDERATED AMERICAN LEADERS FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
ENERGY MINERALS--CONTINUED
1,190,500 Schlumberger Ltd. $ 59,897,031
892,400 Sun Co., Inc. 28,556,800
365,800 Texaco, Inc. 22,931,088
949,700 USX Corp. 33,654,994
Total 331,127,257
FINANCE--9.8%
497,000 Allstate Corp. 20,718,688
500,055 Bear Stearns Cos., Inc. 15,470,452
652,100 Boston Properties, Inc. 18,584,850
772,500 CIGNA Corp. 51,081,563
2,291,500 CIT Group, Inc., Class A 58,719,688
1,305,004 Conseco, Inc. 39,884,185
360,000 MBIA Insurance Corporation 19,327,500
705,750 Marsh & McLennan Cos., Inc. 35,111,063
452,000 Republic New York Corp. 17,854,000
591,000(a)Security Capital Group, Inc. 10,638,000
Total 287,389,989
HEALTH CARE--6.9%
704,300 Abbott Laboratories 30,593,031
269,500 Bristol-Myers Squibb Co. 27,994,313
224,800 Merck & Co., Inc. 29,125,650
2,370,400(a)Oxford Health Plans, Inc. 24,592,900
1,102,500 Pharmacia & Upjohn, Inc. 55,331,719
936,600 United Healthcare Corp. 32,781,000
Total 200,418,613
PRODUCER MANUFACTURING--4.1%
955,000 Deere & Co. 28,888,750
580,500 Ingersoll-Rand Co. 22,022,719
517,500 Johnson Controls, Inc. 24,063,750
1,340,400 Tenneco, Inc. 44,065,650
Total 119,040,869
</TABLE>
FEDERATED AMERICAN LEADERS FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
RETAIL TRADE--5.5%
1,144,600 American Stores Co. $ 36,841,813
1,137,900 Dillards, Inc., Class A 32,216,794
1,726,500(a)K Mart Corp. 20,610,094
3,168,800(a)Toys 'R' Us, Inc. 51,294,950
360,600 Wal-Mart Stores, Inc. 19,697,775
Total 160,661,426
SERVICES--9.3%
348,000 ABB AB, ADR 30,580,500
853,978 Browning-Ferris Industries, Inc. 25,832,835
2,020,800 News Corp. Ltd., ADR 45,215,400
1,509,200 Readers Digest Association, Inc., Class A 28,863,450
1,423,700(a)Tricon Global Restaurants, Inc. 55,524,300
567,500(a)Viacom, Inc., Class A 32,631,250
361,000(a)Viacom, Inc., Class B 20,938,000
684,500 Waste Management, Inc. 32,898,781
Total 272,484,516
TECHNOLOGY--11.8%
1,028,000 AMP, Inc. 36,751,000
1,761,800 Boeing Co. 60,451,763
1,788,600 Electronic Data Systems Corp. 59,359,163
1,744,000 First Data Corp., Class 40,984,000
209,500 International Business Machines Corp. 26,816,000
1,223,500 Motorola, Inc. 52,228,156
1,282,000(a)Seagate Technology, Inc. 32,130,125
1,881,500(a)Sequent Computer System, Inc. 16,345,531
744,000(a)Storage Technology Corp. 18,925,500
Total 343,991,238
TRANSPORTATION--2.6%
785,800 CNF Transportation, Inc. 22,886,425
552,000 Canadian National Railway 24,633,000
</TABLE>
FEDERATED AMERICAN LEADERS FUND, INC.
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
TRANSPORTATION--CONTINUED
1,112,500 Ryder Systems, Inc. $ 27,673,438
Total 75,192,863
UTILITIES--13.6%
745,800 Coastal Corp. 25,170,750
370,500 Columbia Energy Group 21,720,563
784,800 Consolidated Natural Gas Co. 42,771,600
1,300,000 Entergy Corp. 39,975,000
1,046,500 GTE Corp. 57,557,500
1,030,700 Houston Industries, Inc. 32,080,538
1,205,000 P G & E Corp. 38,484,688
2,121,800 Peco Energy Co. 77,578,312
823,000 Public Service Enterprises Group, Inc. 32,354,188
635,400 SBC Communications, Inc. 28,235,588
Total 395,928,727
TOTAL COMMON STOCKS (IDENTIFIED COST $2,783,536,111) 2,904,388,175
(B)REPURCHASE AGREEMENT--0.2%
$7,685,000 Credit Suisse First Boston, Inc., 5.50%, dated 9/30/1998,
DUE 10/1/1998 (AT AMORTIZED COST) 7,685,000
TOTAL INVESTMENTS (IDENTIFIED COST $2,791,221,111)(C) $2,912,073,175
</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 $2,791,221,111.
The net unrealized appreciation of investments on a federal tax basis amounts to
$120,852,064 which is comprised of $425,879,243 appreciation and $305,027,179
depreciation at September 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($2,919,882,762) at September 30, 1998.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost
$2,791,221,111) $2,912,073,175
Income receivable 5,550,214
Receivable for investments sold 10,657,700
Receivable for shares sold 10,454,440
Total assets 2,938,735,529
LIABILITIES:
PAYABLE FOR INVESTMENTS PURCHASED $15,599,737
PAYABLE FOR SHARES REDEEMED 1,493,452
PAYABLE TO BANK 31,597
PAYABLE FOR TAXES WITHHELD 27,076
ACCRUED EXPENSES 1,700,905
Total liabilities 18,852,767
NET ASSETS for 129,889,685 shares outstanding $2,919,882,762
Net Assets Consist of:
Paid in capital $2,573,433,535
Net unrealized appreciation of investments 120,852,064
Accumulated net realized gain on investments 223,761,007
Undistributed net investment income 1,836,156
Total net assets $2,919,882,762
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Class A Shares:
NET ASSET VALUE PER SHARE ($1,334,995,452 / 59,350,782 SHARES OUTSTANDING) $22.49
OFFERING PRICE PER SHARE (100/94.50 OF $22.49)* $23.80
REDEMPTION PROCEEDS PER SHARE $22.49
CLASS B SHARES:
NET ASSET VALUE PER SHARE ($1,324,493,157 / 58,948,933 SHARES OUTSTANDING) $22.47
OFFERING PRICE PER SHARE $22.47
REDEMPTION PROCEEDS PER SHARE (94.50/100 OF $22.47)** $21.23
CLASS C SHARES:
NET ASSET VALUE PER SHARE ($143,260,665 / 6,375,648 SHARES OUTSTANDING) $22.47
OFFERING PRICE PER SHARE $22.47
REDEMPTION PROCEEDS PER SHARE (99.00/100 OF $22.47)** $22.25
CLASS F SHARES:
NET ASSET VALUE PER SHARE ($117,133,488 / 5,214,322 SHARES OUTSTANDING) $22.46
OFFERING PRICE PER SHARE (100/99.00 OF $22.46)* $22.69
REDEMPTION PROCEEDS PER SHARE (99.00/100 OF $22.46)** $22.24
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Redeeming and Exchanging Shares" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $403,890) $ 29,152,168
Interest 567,670
Total income 29,719,838
EXPENSES:
Investment advisory fee $9,471,387 Administrative personnel and services fee
1,149,540 Custodian fees 83,153 Transfer and dividend disbursing agent fees and
expenses 1,506,947 Directors'/Trustees' fees 13,319 Auditing fees 10,589 Legal
fees 6,500 Portfolio accounting fees 115,974 Distribution services fee--Class B
Shares 4,955,371 Distribution services fee--Class C Shares 544,081 Shareholder
services fee--Class A Shares 1,818,039 Shareholder services fee--Class B Shares
1,651,790 Shareholder services fee--Class C Shares 181,360 Shareholder services
fee--Class F Shares 160,282 Share registration costs 109,336 Printing and
postage 145,166 Insurance premiums 9,148 Taxes 49,343 Miscellaneous 9,549 Total
expenses 21,990,874 Net investment income 7,728,964 REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS: Net realized gain on investments 223,751,873 Net change
in unrealized appreciation of investments (573,818,299) Net realized and
unrealized loss on investments (350,066,426) Change in net assets resulting from
operations $(342,337,462) </TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1998 MARCH 31,
(UNAUDITED 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 7,728,964 $ 11,455,050
Net realized gain on investments ($223,751,873 and $354,467,088,
respectively, as computed for federal tax purposes) 223,751,873 354,458,500
Net change in unrealized appreciation (573,818,299) 484,020,318
Change in net assets resulting from operations (342,337,462) 849,933,868
NET EQUALIZATION CREDITS (DEBITS)-- -- 2,869,258
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (5,471,351) (9,470,939)
Class B Shares (54,079) (1,019,987)
Class C Shares -- (115,071)
Class F Shares (478,224) (911,279)
Distributions from net realized gains
Class A Shares (79,422,744) (136,036,451)
Class B Shares (70,727,575) (106,307,915)
Class C Shares (7,735,188) (12,719,363)
Class F Shares (6,956,093) (13,912,321)
Change in net assets resulting from distributions to shareholders (170,845,254) (280,493,326)
SHARE TRANSACTIONS--
Proceeds from sale of shares 682,193,105 799,421,022
Proceeds from shares issued in connection with the acquisition -- 336,495,867(a)
Net asset value of shares issued to shareholders in payment of
distributions declared 153,730,961 251,515,083
Cost of shares redeemed (326,417,786) (370,401,026)
Change in net assets resulting from share transactions 509,506,280 1,017,030,946
Change in net assets (3,676,436) 1,589,340,746
NET ASSETS:
Beginning of period 2,923,559,198 1,334,218,452
End of period (including undistributed net investment income of
$1,836,156 and $110,846, respectively) $2,919,882,762 $2,923,559,198
</TABLE>
(a) Includes $80,295,577 and 500,251 of unrealized appreciation on Class A
Shares and Class C Shares, respectively.
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
FINANCIAL HIGHLIGHTS-CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C>. <C>. <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $26.64 $21.40 $19.78 $15.66 $14.58 $14.90
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11 0.29 0.23 0.22 0.25 0.23
Net realized and unrealized gain
(loss) on investments (2.75) 8.39 3.11 4.70 1.42 0.18
Total from investment operations (2.64) 8.68 3.34 4.92 1.67 0.41
LESS DISTRIBUTIONS
Distributions from net investment
income (0.09) (0.21) (0.21) (0.17) (0.24) (0.24)
Distributions from net realized
gain on investments (1.42) (3.23) (1.51) (0.63) (0.35) (0.49)
Total distributions (1.51) (3.44) (1.72) (0.80) (0.59) (0.73)
NET ASSET VALUE,
END OF PERIOD $22.49 $26.64 $21.40 $19.78 $15.66 $14.58
TOTAL RETURN(A) (10.44)% 43.95% 17.40% 32.00% 11.87% 2.76%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08%* 1.14% 1.17% 1.16% 1.23% 1.18%
Net investment income 0.86%* 0.84% 0.95% 1.07% 1.71 1.48%
Expense waiver/reimbursement(b) -- -- 0.03% 0.07% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,334,995 $1,457,925 $638,082 $455,867 $268,470 $226,857
Portfolio turnover 29% 63% 88% 46% 34% 27%
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
FINANCIAL HIGHLIGHTS-CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $26.61 $21.40 $19.79 $15.67 $14.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02 0.06 0.05 0.10 0.13
Net realized and unrealized gain (loss) on investments (2.74) 8.41 3.12 4.70 0.92
Total from investment operations (2.72) 8.47 3.17 4.80 1.05
LESS DISTRIBUTIONS
Distributions from net investment income 0.00(d) (0.03) (0.05) (0.05) (0.12)
Distributions from net realized gain on investments (1.42) (3.23) (1.51) (0.63) (0.23)
Total distributions (1.42) (3.26) (1.56) (0.68) (0.35)
NET ASSET VALUE, END OF PERIOD $22.47 $26.61 $21.40 $19.79 $15.67
TOTAL RETURN(B) (10.76%) 42.78% 16.49% 31.10% 7.28 %
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83%* 1.89% 1.95% 1.93% 1.95%*
Net investment income 0.12%* 0.11% 0.18% 0.32% 1.09%*
Expense waiver/reimbursement(c) -- -- -- 0.05% 0.12%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $1,324,493 $1,201,402 $540,995 $261,024 $46,671
Portfolio turnover 29% 63% 88% 46% 34%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 25, 1994 (date of initial
public investment) to March 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Amount represents less than 0.01 per share.
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
FINANCIAL HIGHLIGHTS-CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $26.61 $21.40 $19.80 $15.66 $14.55 $14.70
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.02 0.05 0.04 0.05 0.14 0.12
Net realized and
unrealized gain (loss)
on investments (2.74) 8.42 3.12 4.75 1.45 0.35
Total from investment
operations (2.72) 8.47 3.16 4.80 1.59 0.47
Less distributions
Distributions from net
investment income -- (0.03) (0.05) (0.03) (0.13) (0.13)
Distributions from net
realized gain on investments (1.42) (3.23) (1.51) (0.63) (0.35) (0.49)
Total distributions (1.42) (3.26) (1.56) (0.66) (0.48) (0.62)
NET ASSET VALUE,
END OF PERIOD $22.47 $26.61 $21.40 $19.80 $15.66 $14.55
TOTAL RETURN(B) (10.76%) 42.78% 16.42% 31.14% 11.23% 3.16%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83%* 1.89% 1.95% 1.96% 2.04% 2.11%*
Net investment income 0.12%* 0.11% 0.18% 0.27% 0.91% 0.71%*
Expense waiver/
reimbursement(c) -- -- -- 0.02% -- --
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $143,261 134,773 $69,990 $44,434 $20,055 $11,895
Portfolio turnover 29% 63% 88% 46% 34% 27%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 21, 1993 (date of initial
public investment) to March 31, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
FINANCIAL HIGHLIGHTS-CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $26.61 21.40 $19.78 $15.66 $14.58 $14.95
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11 0.22 0.20 0.19 0.25 0.16
Net realized and unrealized gain (loss) on investments (2.75) 8.43 3.13 4.72 1.42 (0.20)
Total from investment operations (2.64) 8.65 3.33 4.91 1.67 (0.04)
Less distributions
Distributions from net investment income (0.09) (0.21) (0.20) (0.16) (0.24) (0.16)
Distributions from net realized gain on investments (1.42) (3.23) (1.51) (0.63) (0.35) (0.17)
Total distributions (1.51) (3.44) (1.71) (0.79) (0.59) (0.33)
NET ASSET VALUE,
END OF PERIOD $22.46 $26.61 $21.40 $19.78 $15.66 $14.58
TOTAL RETURN(B) (10.45%) 43.80% 17.39% 31.95% 11.80% (0.30%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08%* 1.14% 1.19% 1.21 % 1.27% 1.35%*
Net investment income 0.86%* 0.86% 0.94% 1.02 % 1.69% 1.51%*
Expense waiver/reimbursement(c) -- -- 0.01% 0.02 % -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $117,133 $129,458 $85,151 $55,329 $28,495 $15,282
Portfolio turnover 29% 63% 88% 46% 34% 27%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 27, 1993 (date of initial
public investment) to March 31, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
1. ORGANIZATION
Federated American Leaders Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers four classes of shares:
Class A Shares, Class B Shares, Class C Shares, and Class F Shares. The
investment objective of the Fund is to seek growth of capital and of income by
concentrating the area of investment decision in the securities of high-quality
companies.
On June 2, 1997, the Fund's Class A Shares and Class C Shares acquired all the
net assets of Penn Square Mutual Fund's Class A Shares and Class C Shares (the
"Acquired Class A Shares and Acquired Class C Shares") pursuant to a plan of
reorganization approved by the Acquired Class A Shares' and Acquired Class C
Shares' shareholders. The acquisition was accomplished by a tax-free exchange of
14,929,279 and 92,816 shares, respectively, of the Fund's Class A Shares and
Class C Shares (valued at $334,415,853 and $2,080,014, respectively) for
27,592,067 and 171,902 shares, respectively, of the Acquired Class A Shares and
Acquired Class C Shares outstanding on June 1, 1997. The Acquired Class A
Shares' and Acquired Class C Shares' net assets of $334,415,853 and $2,080,014,
respectively, which consisted of $80,295,577 and $500,251, respectively, of
unrealized appreciation, were combined at that date with those of the Fund's
Class A Shares and Class C Shares. The aggregate net assets of the Fund's Class
A Shares and Class C Shares and the Acquired Class A Shares and Acquired Class C
Shares immediately before the acquisition were $716,179,581 and $79,736,654,
respectively, and $334,415,853 and $2,080,014, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair market
value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute
to shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
EQUALIZATION--Effective April 1, 1998, the Fund discontinued its use of
equalization. Equalization is an accounting practice whereby a portion of the
proceeds of sales and costs of redemptions of Fund shares is credited or charged
to undistributed net investment income on a per share basis, as determined on
the date of transaction. This change in accounting policy does not affect the
Fund's net assets, net asset value per share, or net investment income.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when- issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER--Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At September 30, 1998, par value shares ($0.20 per share) authorized were as
follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 30,000,000
Class B Shares 20,000,000
Class C Shares 25,000,000
Class F Shares 25,000,000
Total 100,000,000
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 9,930,676 $250,557,223 14,199,455 $257,444,031
Shares issued to shareholders in
connection with the Acquisition -- -- 14,929,279 334,415,853
Shares issued to shareholders in
payment of distributions declared 2,941,432 72,866,026 5,489,537 124,963,822
Shares redeemed (8,249,807) (205,913,988) (9,712,914) (234,846,738)
Net change resulting from
Class A Share transactions 4,622,301 $117,509,261 24,905,357 $481,976,968
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 15,025,402 $379,418,842 19,476,886 $468,919,793
Shares issued to shareholders in
payment of distributions declared 2,670,353 66,619,219 4,423,479 100,689,615
Shares redeemed (3,899,822) (96,061,399) (4,032,641) (97,137,007)
Net change resulting from
Class B Share transactions 13,795,933 $349,976,662 19,867,724 $472,472,401
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 1,667,954 $41,919,768 2,272,169 $54,279,888
Shares issued to shareholders in
connection with Acquisition -- -- 92,816 2,080,014
Shares issued to shareholders in
payment of distributions declared 290,618 7,250,919 524,098 11,922,133
Shares redeemed (647,552) (16,069,813) (1,095,674) (26,166,756)
Net change resulting from
Class C Share transactions 1,311,020 $33,100,874 1,793,409 $42,115,279
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 406,384 $10,297,272 787,209 $18,777,310
Shares issued to shareholders in
payment of distributions declared 281,800 6,994,797 612,048 13,939,513
Shares redeemed (339,735) (8,372,586) (513,208) (12,250,525)
Net change resulting from
Class F Share transactions 348,449 $8,919,483 886,049 $20,466,298
Net change resulting from
share transactions 20,077,703 $509,506,280 47,452,539 $1,017,030,946
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser,
receives for its services an annual investment advisory fee equal to (a) a
maximum of 0.55% of the average daily net assets of the Fund, and (b) 4.50% of
the gross income of the Fund, excluding capital gains or losses.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Class B and Class C Shares. The Plan provides that the Fund may
incur distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NET ASSETS OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS can modify or terminate this voluntary waiver at any time at its
sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1998, were as follows:
PURCHASES $1,217,716,200
SALES $ 852,795,494
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the trust's prospectus which contains
facts concerning its objective and policies, management fees, expenses,
and other information.
[GRAPHIC]
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313914103
Cusip 313914202
Cusip 313914301
Cusip 313914400
8110101 (11/98)
[GRAPHIC]
APPENDIX
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 2/26/69
to 9/30/98. The "y" axis is measured in increments of $200,000 ranging from $0
to $800,000 and indicates that the ending value of hypothetical initial
investment of $30,000 (2,835 Shares) in the fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $649,360
(28,873 Shares) on 9/30/98.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 2/26/69
to 9/30/98. The "y" axis is measured in increments of $50,000 ranging from $0 to
$350,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 over 29 years in the fund's Class A Shares, assuming the reinvestment
of capital gains and dividends, would have grown to $312,566 (13,898 Shares) on
9/30/98.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text beneath it. The "x" axis reflects computation periods from
9/30/82 to 9/30/98. The "y" axis is measured in increments of $50,000 ranging
from $0 to $250,000 and indicates that the ending value of a hypothetical
initial investment of $5,000 and subsequent monthly investments of $250 over 16
years in the fund's Class A Shares would have grown to $221,887 on 9/30/98.
