-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RMIHrXVMXTstbZHCjWjHs7k3sw4KFiBQuPNmpOfOs1F/M3wGWfrLB6u87LmGA1R1 H5xKC1xQS44z2b672uNHDg== 0000005352-96-000010.txt : 19961002 0000005352-96-000010.hdr.sgml : 19961002 ACCESSION NUMBER: 0000005352-96-000010 CONFORMED SUBMISSION TYPE: N14EL24 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19961001 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED AMERICAN LEADERS FUND INC CENTRAL INDEX KEY: 0000005352 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 256109007 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N14EL24 SEC ACT: 1933 Act SEC FILE NUMBER: 333-13163 FILM NUMBER: 96637704 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122888127 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURG STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN LEADERS FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PENSION CAPITAL GROWTH INC DATE OF NAME CHANGE: 19701130 FORMER COMPANY: FORMER CONFORMED NAME: PENSION CAPITAL GROWTH FUND INC DATE OF NAME CHANGE: 19701120 N14EL24 1 Reg. No.333- ----- 811-1704 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FEDERATED AMERICAN LEADERS FUND, INC. (Exact Name of Registrant as Specified in Charter) (412) 288-1900 (Area Code and Telephone Number) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (Address of Principal Executive Offices) JOHN W. MCGONIGLE, ESQUIRE Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) Copies to: Byron F. Bowman, Esquire Matthew G. Maloney, Esquire Senior Corporate Counsel Dickstein Shapiro Morin & Oshinsky LLP Federated Investors 2101 L Street, N.W. Federated Investors Tower Washington, D.C. 20037 Pittsburgh, PA 15222 Registrant has filed with the Securities and Exchange Commission a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940 that it elects to register an indefinite amount of securities under the Securities Act of 1933 and filed the Notice required by that Rule for Registrant's fiscal year ended March 31, 1996 on May 15, 1996. Accordingly, no filing fee is submitted herewith. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. CROSS REFERENCE SHEET PURSUANT TO ITEM 1(A) OF FORM N-14 SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY FORM N-14 Item of Part A of Form N-14 and Caption or Location in Caption Prospectus 1.Beginning of Registration Statement and Outside Front Cross Reference Sheet; Cover Page of Prospectus Cover Page 2.Beginning and Outside Back Cover Page of Prospectus Table of Contents 3.Fee Table, Synopsis Information Summary of Expenses; Summary; and Risk Factors Risk Factors 4.Information About the Information About the Transaction Reorganization 5.Information About the Information About the Federated Registrant Fund and the State Bond Fund 6.Information About the Information About the Federated Fund Company Being Acquired and the State Bond Fund 7.Voting Information Voting Information 8.Interest of Certain Persons and Experts Not Applicable 9.Additional Information Required for Reoffering by Persons Deemed to be Underwriters Not Applicable STATE BOND DIVERSIFIED FUND 100 NORTH MINNESOTA STREET P.O. BOX 69 NEW ULM, MINNESOTA 56073-0069 Dear Shareholder: The Board of Directors and management of State Bond Diversified Fund (the ``tate Bond Fund'') are pleased to submit for your vote a proposal to transfer all of the assets of the State Bond 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 State Bond Fund in that it seeks growth of capital and of income by concentrating the area of investment decision in the securities of high quality companies. As part of the transaction, holders of shares in the State Bond Fund would receive Class A Shares of the Federated Fund equal in value to their shares in the State Bond Fund and the State Bond Fund would be liquidated. Shareholders receiving Class A Shares of the Federated Fund as a result of the proposed reorganization would not have to pay a sales load 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. The Board of Directors of the State Bond Fund, as well as ARM Capital Advisors, Inc., the State Bond Fund's manager, and ARM Financial Services, Inc., the State Bond Fund's distributor, believe the proposed agreement and plan of reorganization is in the best interests of State Bond Fund shareholders for the following reasons: -- The reorganization of the State Bond Fund into the Federated Fund may provide operating efficiencies as a result of the size of the Federated Fund which were not available to State Bond Fund shareholders due to the smaller size of the State Bond Fund. -- The Federated Fund has an investment objective similar to that of the State Bond Fund and offers an investment portfolio which invests in common stocks and other securities of high quality companies to achieve growth of capital and income. 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 $90 billion invested across more than 250 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 management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Federated Investors also has an excellent reputation for customer servicing, having received a #1 rating for five years 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. We believe the transfer of the State Bond 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 all of the State Bond Fund's outstanding shares on the record date voted in person or represented by proxy. 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 DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST INTEREST OF THE STATE BOND FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL. Thank you for your prompt attention and participation. Sincerely, Dale C. Bauman President STATE BOND DIVERSIFIED FUND 100 NORTH MINNESOTA STREET P.O. BOX 69 NEW ULM, MINNESOTA 56073-0069 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF STATE BOND DIVERSIFIED FUND: A Special Meeting of Shareholders of State Bond Diversified Fund, a portfolio of State Bond Investment Funds, Inc. (the `State Bond Fund'') will be held at 3:20 p.m. on December , 1996 at: 100 North Minnesota ----- Street, New Ulm, Minnesota 56073-0069, for the following purposes: 1. To approve or disapprove a proposed Agreement and Plan of Reorganization between State Bond Fund and Federated American Leaders Fund, Inc. (the "Federated Fund"), whereby the Federated Fund would acquire all of the net assets of the State Bond Fund in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to the holders of its shares in complete liquidation of the State Bond 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 Directors, Dated: November , 1996 Kevin L. Howard -- Secretary Shareholders of record at the close of business on October 11, 1996, 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 NOVEMBER , 1996 ---- Acquisition of the Assets of STATE BOND DIVERSIFIED FUND, a portfolio of STATE BOND INVESTMENT FUNDS, INC. 100 North Minnesota Street P.O. Box 69 New Ulm, Minnesota 56073-0069 Telephone Number: 1-800-328-4735 By and in exchange for Class A Shares of FEDERATED AMERICAN LEADERS FUND, INC. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Telephone Number: 1-800-341-7400 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 net assets of State Bond Diversified Fund, a portfolio of State Bond Investment Funds, Inc., a Maryland corporation (the ``tate Bond Fund'), in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to the holders of its shares, in complete liquidation of the State Bond Fund. As a result of the Plan, each shareholder of the State Bond Fund will become the owner of the Federated Fund's Class A Shares having a total net asset value equal to the total net asset value of his or her holdings in the State Bond Fund. THE BOARD OF DIRECTORS OF THE STATE BOND FUND UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN. The Shares of each of the Federated Fund and the State Bond Fund represent interests of separate open-end, diversified management investment companies. The Federated Fund's investment objective is growth of capital and of income, which it pursues by concentrating the area of investment decision in the securities of high quality companies. The State Bond Fund's investment objective is to produce reasonable current income and long-term capital value growth without exposing capital to undue risk by investing primarily in common stocks, or holding assets in cash and fixed- income securities. For a comparison of the investment policies of the Federated Fund and the State Bond 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 November , 1996 (relating to this Prospectus/Proxy Statement) ---- and the Annual Report to Shareholders dated March 31, 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 and the 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS Page No. Summary of Expenses Summary About the Proposed Reorganization Investment Objectives, Policies and Limitations Advisory and Other Fees Distribution Arrangements Purchase, Exchange and Redemption Procedures Dividends Tax Consequences Risk Factors Information About the Reorganization Background and Reasons for the Proposed Reorganization Agreement Among ARM, ARM Capital and Federated Description of the Plan of Reorganization Description of Federated Fund Shares Federal Income Tax Consequences Comparative Information on Shareholder Rights and Obligations Capitalization Information About the Federated Fund and the State Bond Fund Federated American Leaders Fund, Inc. State Bond Diversified Fund Voting Information Outstanding Shares and Voting Requirements Dissenter's Right of Appraisal Other Matters and Discretion of Persons Named in the Proxy Agreement and Plan of Reorganization -- Exhibit A SUMMARY OF EXPENSES Federated State Pro Forma Fund Bond Combined (Class A Fund Shares) SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases 5.50%(1) 4.75% 5.50%(1) (as a percentage of offering price)........................... Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of None None None offering price)................ Contingent Deferred Sales Charge (as a percentage of original purchase 0.00%(2) 0.00% 0.00%(2) price or redemption proceeds, as applicable)...................... Redemption Fee (as a percentage of amount redeemed, if None None None applicable)(3)................... Exchange Fee..................... None None None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee................... 0.65% 0.65% 0.65% 12b-1 Fee........................ None 0.25% None Total Other Expenses............. 0.51%(4) 0.27% 0.51%(4) Total Operating 1.16% 1.17% 1.16% Expenses(5)...................... (1) This sales charge would not be applicable to shares of the Federated Fund acquired under the proposed reorganization. (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. 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 ``ummary - - Distribution Arrangements.'' This contingent deferred sales charge would not be applicable to shares of the Federated Fund acquired under 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 will be charged for certain redemptions of State Bond Fund shares by wire transfer. (4) Total other expenses for the Federated Fund and the Pro Forma Combined Fund include a shareholder services fee of 0.18%. 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 at its sole discretion. The maximum shareholder services fee is 0.25%. (5) The total operating expenses for Class A Shares of the Federated Fund are based on expenses expected during the 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 State Bond Fund are based upon expenses incurred by the State Bond Fund during its fiscal year ended December 31, 1995. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of shares of each of the Federated Fund, the State Bond 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 of the State Bond Fund may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. EXAMPLE The Example below is intended to assist an investor in understanding the various costs that an investor will bear directly or indirectly. The Example assumes payment of operating expenses at the levels set forth in the table above. The Example does not include sales charges or contingent deferred sales charges since such sales charges are not applicable to Federated Fund Shares received as a result of the proposed reorganization. Shares purchased subsequent to the reorganization may be subject to sales charges. 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 State Bond Fund dated May 1, 1996, each of which is incorporated herein by reference thereto. 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. 1 year 3 years 5 years 10 years Federated Fund $12 $37 $64 $141 State Bond Fund $12 $37 $64 $142 Pro Forma Combined $12 $37 $64 $141 THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. SUMMARY This summary is qualified in its entirety by reference to the additional information contained elsewhere in 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 State Bond Fund dated May 1, 1996, the Statement of Additional Information of the State Bond Fund dated May 1, 1996, and the Plan, a copy of which is attached to this Prospectus/Proxy Statement as Exhibit A. About the Proposed Reorganization The Board of Directors of the State Bond Fund has voted to recommend to holders of the shares of the State Bond Fund the approval of the Plan whereby the Federated Fund would acquire all of the assets of the State Bond Fund in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to its shareholders in complete liquidation and dissolution of the State Bond Fund (the "Reorganization"). As a result of the Reorganization, each shareholder of the State Bond Fund will become the owner of the Federated Fund's Class A Shares having a total net asset value equal to the total net asset value of his or her holdings in the State Bond 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 State Bond 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 State Bond Fund or the shareholders of the State Bond Fund. The tax basis of the Federated Fund's Class A Shares received by State Bond Fund shareholders will be the same as the tax basis of their shares in the State Bond Fund. After the acquisition is completed, the State Bond 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 ``940 Act''). The investment objective of the State Bond Fund is to seek to produce reasonable current income and long-term capital value growth without exposing capital to undue risk. Income is considered both in terms of the dollar amount of income received and in terms of retention of purchasing power. This investment objective may not be changed without the affirmative vote of a majority of the outstanding voting securities of the State Bond 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 ``he Leaders List.'' ``The Leaders List'' is a trade name which represents a list of 100 blue chip companies selected by Federated Advisers (as hereinafter defined) 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, ``aa'' 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. (``itch'') 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 State Bond Fund's assets may be held in cash or invested in all forms of securities. The State Bond Fund emphasizes careful selection of individual securities suited to its investment objectives, broad diversification of investment risk, and continuing supervision of securities owned. For many years, common stocks have made up the bulk of securities owned. However, substantial proportions of assets have been held, and may be held, in cash and fixed-income securities. The State Bond Fund limits its investments in non-government fixed income securities to those which at the time of purchase are within the four highest grades as rated by S&P or Moody's or to those which, while not rated at the time of purchase, are, in the judgment of ARM Capital (as hereinafter defined), of comparable quality. The State Bond Fund may also invest in convertible preferred stocks. The State Bond Fund may lend portfolio securities, enter into repurchase agreements and invest in high-yield securities. Unless otherwise designated, the investment policies of the State Bond Fund may be changed by the Board of Directors without shareholder approval. Both the Federated Fund and the State Bond 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, the Federated Fund may borrow up to one-third of the value of its net 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 investment limitations listed above cannot be changed without shareholder approval. The State Bond Fund has investment limitations which prohibit it from (1) investing more than 5% of the market value of its total assets in the securities of any one issuer, other than the U.S. Government or its agencies, or purchasing any security if, as a result, it would hold more than 10% of the outstanding voting securities of any issuer; (2) borrowing money except from banks as a temporary emergency measure and then not in excess of 10% of the State Bond Fund's total assets at cost; (3) purchasing the securities of an issuer in continuous operation for less than three years if more than 5% of the State Bond Fund's assets would be so invested; or (4) investing more than 25% of its net asset value in any one industry. The above investment limitations of the State Bond Fund cannot be changed without shareholder approval. In addition to the policies and limitations set forth above, both the Federated Fund and the State Bond 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 State Bond Fund's Statement of Additional Information dated May 1, 1996. Reference is hereby made to the Federated Fund's Prospectus and Statement of Additional Information, each dated May 31, 1996, and to the State Bond Fund's Prospectus and Statement of Additional Information, each dated May 1, 1996, which set forth in full the investment objective, policies and investment limitations of each of the Federated Fund and the State Bond 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 ("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. Federated Advisers has also undertaken to reimburse the Federated Fund for operating expenses in excess of limitations established by certain states. The maximum annual management fee for the State Bond Fund is 0.65 of 1% on the first $100 million of average daily net assets of the State Bond Fund, 0.60 of 1% on the next $100 million of average daily net assets of the State Bond Fund and 0.55 of 1% of average daily net assets of the State Bond Fund over $200 million. The State Bond Fund's investment manager, ARM Capital Advisors, Inc.(`ARM Capital''), a wholly-owned subsidiary of ARM Financial Group, Inc. (``RM''), has voluntarily agreed to reimburse the State Bond Fund for expenses (including the management fee but excluding interest, taxes, brokerage commissions, extraordinary expenses and fees paid pursuant to a Rule 12b-1 plan) in excess of 1.5% of the first $30 million of the average daily net assets of the State Bond Fund and 1% of any additional average daily net assets of the State Bond Fund. ARM Capital has also undertaken to reimburse the State Bond Fund for operating expenses in excess of limitations established by certain states. 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 of 1% on the first $250 million of all such funds' average aggregate daily net assets, 0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% 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 most recent fiscal year was $423,163. Administrative personnel and other services necessary to operate the State Bond Fund are currently provided by ARM Capital and are included in the annual management fee for the State Bond Fund, as discussed above. The Federated Fund has entered into a Shareholder Services Agreement under which it may make payments of up to 0.25 of 1% of the average daily net asset value of the Class A 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, will either 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. Other than in connection with payments under a Rule 12b-1 plan as described below, the State Bond Fund does not make payments to obtain similar shareholder services. The total annual operating expenses for Class A Shares of the Federated Fund were 1.16% of average daily net assets (after waivers) for its most recent fiscal year. The total annual operating expenses for shares of the State Bond Fund were 1.17% of average daily net assets for its most recent fiscal year. Without such waivers or reimbursements, the expense ratio of the Federated Fund and the State Bond Fund would be higher by 0.07% and 0.0%, respectively, of average daily net assets. Distribution Arrangements Federated Securities Corp. ("FSC"), an affiliate of Federated Advisers, is the principal distributor for shares of the Federated Fund. The Federated Fund does not have a Rule 12b-1 plan in effect with respect to its Class A Shares and, accordingly, does not, nor does FSC, compensate brokers and dealers for sales and administrative services performed in connection with sales of Class A Shares of the Federated Fund pursuant to a plan of distribution adopted pursuant to Rule 12b-1. FSC will pay financial institutions, at the time of purchase, from its assets, an amount equal to 0.50 of 1% of the net asset value of Class A Shares purchased by their clients or customers under 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, from its 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 Federated Fund. Such assistance will be predicated upon the amount of Class A 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). ARM Financial Services, Inc. (``RMFS''), an affiliate of ARM Capital, is the principal distributor for shares of the State Bond Fund. The State Bond Fund has adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-1 Plan") pursuant to which the State Bond Fund pays ARMFS an amount equal to an annual rate of 0.25 of 1% of the average daily net assets of the State Bond Fund. The fee may be used by ARMFS to (i) provide initial and ongoing sales compensation to its investment executives and to other broker-dealers in connection with the sale of State Bond Fund shares and to pay for other advertising and promotional expenses in connection with the sale of State Bond Fund shares, and (ii) to provide compensation to entities in connection with the provision of certain personal and account maintenance services to State Bond Fund shareholders including, but not limited to, responding to shareholder inquiries and providing information on their investments. The Federated Fund will not assume any liabilities or make any voluntary reimbursements on account of the State Bond Fund's Rule 12b-1 Plan. Certain costs exist with respect to the purchase and sale of Federated Fund and State Bond Fund shares. Class A Shares of the Federated Fund and shares of the State Bond Fund are sold at their net asset value next determined after an order is received, plus 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 shares to State Bond Fund shareholders as a result of the Reorganization. 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 of 1% 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 shares received by shareholders of the State Bond Fund as a result of the consummation of the Reorganization. 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 State Bond Fund dated May 1, 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 (formerly called Federated Services Company). The transfer agent and dividend disbursing agent for the State Bond Fund is ARM Transfer Agency, Inc. Procedures for the purchase, exchange and redemption of the Federated Fund's Class A Shares differ slightly from procedures applicable to the purchase, exchange and redemption of the State Bond Fund's 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 or the State Bond Fund's shares may be obtained from FSC, principal distributor for the Federated Fund, at 1-800-341-7400 or from ARMFS, principal distributor for the State Bond Fund, at 1-800-328-4735. Reference is made to the Prospectus of the Federated Fund dated May 31, 1996, and the Prospectus of the State Bond Fund dated May 1, 1996, for a complete description of the purchase, exchange and redemption procedures applicable to purchases, exchanges and redemptions of Federated Fund and State Bond 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 the State Bond Fund's shares. Purchases of Class A Shares of the Federated Fund may be made through a financial institution who has an agreement with FSC or, once an account has been established, by wire or check. Purchases of shares of the State Bond Fund may be made through ARMFS and through certain broker- dealers under contract with ARMFS or directly by wire or check once an account has been established. The minimum initial investment in the Federated Fund is $500, 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 State Bond Fund is $250. Subsequent investments must be in an amount of at least $50. The Federated Fund and the State Bond Fund each reserve the right to reject any purchase request. In connection with the sale of Class A Shares of the Federated Fund, FSC may from time to time offer certain items of nominal value to any shareholder. The purchase price of the Federated Fund's Class A Shares and the State Bond Fund's shares is based on net asset value plus a sales charge. The net asset value per share for each of the Federated Fund and the State Bond 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 State Bond 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 shares of the State Bond Fund received from authorized broker/dealers will be executed at the offering price next determined after the receipt of the order by the broker/dealer, provided that the broker/dealer promptly transmits the order to ARMFS the same day. Redemption orders for shares of the State Bond Fund received by the State Bond Fund's transfer agent from authorized dealers or representatives of ARMFS prior to the close of the NYSE will be entered at that day's price; such redemption orders received after the close of the NYSE will be entered at the net asset value determined at the close of the NYSE on the next trading day. 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. Holders of Class A Shares of the Federated Fund have exchange privileges with respect to Class A 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 in the Federated Fund may be exchanged for Class A Shares of certain Federated Funds at net asset value without a contingent deferred sales charge. To the extent a shareholder exchanges Class A Shares of the Federated Fund for Class A Shares in 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. 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 State Bond Fund have exchange privileges with respect to shares in certain of the other funds for which ARM Capital serves as investment manager (collectively, the ``tate Bond Group''), each of which has different investment objectives and policies. Any exchange for shares of other funds in the State Bond Group will generally be at the respective net asset values next determined after receipt of the request for exchange. 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 State Bond Fund, as appropriate. Redemptions of Federated Fund Class A 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 State Bond Fund shares may be made through an authorized dealer or representative of ARMFS or by mailing a written request to the State Bond Fund's transfer agent. Class A 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. Shares of the State Bond Fund are redeemed at their net asset value, determined at the close of the NYSE on the date the redemption request is received. Proceeds will ordinarily be distributed by check within seven days after receipt of a redemption request. Dividends Each of the Federated Fund's and the State Bond Fund's current policy is to declare and pay dividends quarterly from net investment income and to make annual distributions of net realized capital gains, if any. With respect to both the Federated Fund and the State Bond 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. Tax Consequences As a condition to the Reorganization transactions, the Federated Fund and the State Bond 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 State Bond Fund or the shareholders of the State Bond Fund. The tax basis of the Federated Fund shares received by State Bond Fund shareholders will be the same as the tax basis of their shares in the State Bond 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 State Bond 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 State Bond Fund. A full discussion of the risks inherent in investment in the Federated Fund and the State Bond Fund is set forth in the Federated Fund's Prospectus and Statement of Additional Information, each dated May 31, 1996 and the State Bond Fund's Prospectus and Statement of Additional Information, each dated May 1, 1996, each of which is incorporated herein by reference thereto. INFORMATION ABOUT THE REORGANIZATION Background and Reasons for the Proposed Reorganization On June 14, 1995, SBM Company, which was then the investment adviser to the State Bond Fund, completed the sale of substantially all of its business operations to ARM (the ``995 Transaction''). In connection with the 1995 Transaction, ARM Capital became the investment manager of the State Bond Fund. In addition, ARM acquired all of the outstanding stock of SBM Financial Services, Inc., the predecessor in interest to ARMFS, the current distributor of shares of the State Bond Fund. Considerations of the Board of Directors of the State Bond Fund. On June 6, 1996, ARM management advised the Board of Directors of the State Bond Fund that ARM was considering redirecting its corporate strategy away from the management and distribution of retail mutual funds in order to concentrate more fully on its core businesses. Moreover, ARM management stated that due to the relatively small net assets in the State Bond Fund and the other mutual funds in the State Bond Group, ARM and its affiliates were not in a position to provide the value-added shareholder services, technological advancements, comprehensive distribution networks and diversified product choices that many larger mutual fund complexes offer. As a result, management stated that ARM was engaged in the identification and analysis of various potential alternatives for the State Bond Fund and the other funds in the State Bond Group. After conducting a screening process, ARM determined that in its judgment, the proposed Reorganization was the most desirable alternative involving the State Bond Fund that was reasonably available and that it should be presented to the State Bond Fund's Board of Directors for its consideration. A meeting of the entire Board of Directors was held on August 16, 1996, at which Federated (as defined below) 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 $90 billion invested across more than 250 funds under management and/or administration by its subsidiaries, and over 2,000 employees. Federated's management also discussed the growth of assets under management and/or administration by Federated from approximately $35 billion in 1989 to over $90 billion as of August 1996. Federated's management 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 State Bond Group, the exchange privileges that would be available to former State Bond 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 State Bond Fund would exchange their shares for Shares of the Federated Fund without the imposition of any sales charge. Federated's management advised the Board of its reputation for customer servicing, noting that it has received a #1 rating for five years 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 loads with the Board. While the maximum front end sales load of the Federated Fund is higher than that of the State Bond Fund, Federated's management advised the Board that it is lower than the average for equity funds distributed through brokers (as reported by Strategic Insight), and is competitive. Federated's management described rights of accumulation and other programs that can reduce sales charges with respect to the Federated 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 State Bond Fund and considered potential economies of scale that might be experienced by former State Bond Fund shareholders if they were to become shareholders of a larger fund. Federated's management discussed with the Board expense waiver and reimbursement arrangements with respect to both the Federated Fund in particular and to the complex generally. The Chief Investment Officer, Equities/High Yield, of Federated discussed with the Board the investment philosophy of Federated Advisers for its funds, including the Federated Fund. He also described the background and significant investment experience of Federated portfolio managers and other related personnel issues. The Board was presented with materials comparing the investment objectives and policies of the State Bond Fund with those of the Federated Fund, and determined that they were substantially similar. The Board was also presented with and discussed materials comparing the performance, Morningstar ratings and relative risks of the State Bond 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 also considered the potential benefits to ARM if the Reorganization is consummated. The Board discussed the fact that ARM and ARM Capital would be compensated for selling the books, records and goodwill relating to the management of the State Bond Group, agreeing to certain non-competition arrangements and cooperating in assisting in the transfer of the net assets of the State Bond Group to the Federated Funds. They also took into account the proposed payment to ARMFS of 0.25% of the average daily net assets of the Federated Fund attributable to shareholder accounts serviced by ARMFS, as well as the possible compensation of ARMFS for distribution of additional Federated financial products in the future. The Board noted that the State Bond Fund would not bear any of the costs involved in the Reorganization, which would be borne entirely by ARM and/or Federated. In addition, the Board discussed the anticipated tax- free nature of the Reorganization to the State Bond 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 ARM), 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 directors of the investment company are not ``nterested persons'' (as defined in the 1940 Act) of the new investment manager or its predecessor; and (2) no ``nfair 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 ``nfair 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 ARM that the agreement among Federated, ARM and ARM Capital would contain representations and covenants that the Reorganization would not impose an unfair burden on the State Bond Group. After reviewing and considering all of the information provided by Federated and ARM, including the terms of the Reorganization, the Board, including all of the Directors who are not interested persons of the State Bond Fund or ARM Capital, voted unanimously at a special telephonic meeting held on August 26, 1996, to approve the Reorganization and to recommend it to the shareholders of the State Bond 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 a majority of 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 Among ARM, ARM Capital and Federated The Reorganization is being proposed as part of an agreement by and among Federated, ARM, and ARM Capital, pursuant to which ARM and ARM Capital would be compensated for selling to Federated the books, records and goodwill relating to the management of the State Bond Group and cooperating in facilitating the transaction contemplated by the agreement. As part of that agreement, ARM Capital and its affiliates have agreed not to compete with Federated by providing investment advisory services to certain investment companies. Following the Reorganization, ARM or its affiliates have agreed to provide certain services to shareholders for which ARM or its affiliates may receive fees paid by Federated and/or mutual funds in which the shareholders are invested. Description of the Plan of Reorganization The Plan provides that the Federated Fund will acquire all of the net assets of the State Bond Fund in exchange for the Federated Fund's Class A Shares to be distributed pro rata by the State Bond Fund to its shareholders in complete liquidation of the State Bond Fund on or about December , 1996 (the "Closing Date"). Shareholders of the State Bond --- 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 State Bond 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 State Bond 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 State Bond 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 State Bond Fund prior to the Closing Date by either party if it believes that consummation of the Reorganization would not be in the best interests of its shareholders. 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, accountants' fees, 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 State Bond Fund's shareholders and the costs of holding the Special Meeting (as hereinafter defined). ARM is responsible for the payment of the legal fees of the State Bond Fund. The foregoing description of the Plan entered into between the Federated Fund and the State Bond 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 of the Federated Fund will be issued without the imposition of a sales charge or other fee to the shareholders of the State Bond Fund in accordance with the procedures described above. Class A Shares of the Federated Fund to be issued to shareholders of the State Bond 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 of the Federated Fund. Federal Income Tax Consequences As a condition to the Reorganization, the Federated Fund and the State Bond 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 State Bond Fund's assets solely in exchange for Federated Fund Class A Shares; (3) no gain or loss will be recognized by the State Bond Fund upon the transfer of its assets to the Federated Fund in exchange for Federated Fund Class A Shares or upon the distribution (whether actual or constructive) of the Federated Fund Class A Shares to the State Bond Fund shareholders in exchange for their shares of the State Bond Fund; (4) no gain or loss will be recognized by shareholders of the State Bond Fund upon the exchange of their State Bond Fund shares for Federated Fund Class A Shares; (5) the tax basis of the State Bond Fund's assets acquired by the Federated Fund will be the same as the tax basis of such assets to the State Bond Fund immediately prior to the Reorganization; (6) the tax basis of Federated Fund Class A Shares received by each shareholder of the State Bond Fund pursuant to the Plan will be the same as the tax basis of State Bond Fund shares held by such shareholder immediately prior to the Reorganization; (7) the holding period of the assets of the State Bond Fund in the hands of the Federated Fund will include the period during which those assets were held by the State Bond Fund; and (8) the holding period of Federated Fund Class A Shares received by each shareholder of the State Bond Fund will include the period during which the State Bond Fund shares exchanged therefor were held by such shareholder, provided the State Bond 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 State Bond 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 State Bond Fund, followed by the taxable liquidation of the State Bond Fund. Comparative Information on Shareholder Rights and Obligations General. Both the Federated Fund and the State Bond 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, Bylaws, and Board of Directors, in addition to applicable state and Federal law. The State Bond Fund is organized as a separate series of State Bond Investment Funds, Inc. under the laws of the State of Maryland and is governed by its Articles of Incorporation, Bylaws, and Board of Directors, 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 State Bond Fund. Shares of the Federated Fund and the State Bond Fund. The Federated Fund is authorized to issue 100,000,000 shares of common stock, par value $.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 State Bond Fund has an authorized capital of 10,000,000,000 shares of common stock with a par value of $.00001 per share. The State Bond Fund is currently the sole investment portfolio of State Bond Investment Funds, Inc. and has only one class of shares. Issued and outstanding shares of both the Federated Fund and State Bond Fund are fully paid and nonassessable, and freely transferable. Voting Rights. Neither the Federated Fund nor the State Bond Fund is 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 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. A special meeting of the shareholders of the State Bond Fund is required to be called upon the written request of shareholders representing not less than 25% of the issued and outstanding shares 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 State Bond Fund have equal voting rights. Directors. The Bylaws of the Federated Fund provide that the term of office of each Director shall be until his or her resignation or removal or until the next annual meeting of shareholders and until the 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 entitled to vote at any special meeting of shareholders, and such shareholders may elect a Director to fill the vacancy. A vacancy on the Board may be filled by a majority of the Directors remaining in office. The Bylaws of the State Bond Fund provide that each Director holds office from the time of his or her election until the next annual meeting of shareholders or until his or her successor is duly elected and qualifies or the earlier of his or her death, resignation, removal, or other cause. A Director of the State Bond Fund may be removed, with or without cause, by the affirmative vote of a majority of the votes entitled to be cast for the election of Directors, and such shareholders may elect a qualified person as Director to replace the Director so removed. In case of any vacancy on the Board of Directors, a majority of the remaining Directors may elect a successor to hold office until the next annual meeting of the shareholders and until his or her successor is duly elected and qualifies. With respect to both the Federated Fund and the State Bond 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 and Officers. Under the Articles of Restatement 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 Restatement 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 Articles of Amendment and Restatement of the State Bond Fund contain a provision eliminating liability of directors and officers to the State Bond Fund or its shareholders to the fullest extent permitted by Maryland law. Therefore, directors and officers of the State Bond Fund will not be liable for monetary damages to the State Bond Fund or its shareholders for breach of the duty of care. However, such elimination of liability regarding a director's duty of care does not permit the elimination or limitation of liability (1) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services; (2) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was committed in bad faith or was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (3) for any action or failure to act occurring prior to February 18, 1988. In addition, due to the provisions of the 1940 Act, shareholders would still have the right to pursue monetary claims against directors or officers for acts involving willful malfeasance, bad faith, gross negligence or reckless disregard of their duties as directors or officers. Under the agreement by and among Federated, ARM and ARM Capital, Federated has agreed for a period of three (3) years following the Closing to provide coverage under a directors and officers liability insurance policy for the current Directors of the State Bond Fund. 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 State Bond Fund, the shareholders of the respective fund or class are entitled to receive, when and as declared by its Directors 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 of the Federated Fund and the shares of the State Bond Fund as of August 31, 1996 and on a pro forma combined basis as of that date: Federated Fund State Bond Pro Forma (Class A Shares) Fund Combined Net Asset $481,049,165 $46,529,066 $527,578,231 Net Asset Value Per Share $19.48 $10.62 $19.48 Shares Outstanding 24,695,789 4,381,558 27,084,468 INFORMATION ABOUT THE FEDERATED FUND AND THE STATE BOND 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 by reference herein. Additional information about the Federated Fund is included in the Federated Fund's Annual Report to Shareholders dated March 31, 1996, the Statement of Additional Information dated May 31, 1996 and the Statement of Additional Information dated November , 1996 (relating to this Prospectus/Proxy Statement), each -- of which is incorporated herein by reference. Copies of the 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 1-800-341- 7400 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, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 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, D.C. 20549 at prescribed rates. 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. State Bond Diversified Fund Information about the State Bond Fund and State Bond Investment Funds, Inc. is contained in the State Bond Fund's current Prospectus dated May 1, 1996, the Annual Report to Shareholders dated December 31, 1995, the Semi-Annual Report to Shareholders dated June 30, 1996, its Statement of Additional Information dated May 1, 1996 and the Statement of Additional Information dated November , 1996 (relating to this Prospectus/Proxy -- Statement), each of which is incorporated herein by reference. Copies of such Prospectus, Annual Report, Semi-Annual Report, and Statement(s) of Additional Information, which have been filed with the SEC, may be obtained upon request and without charge from the State Bond Fund by calling 1-800- 328-4735 or by writing to the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069. The State Bond 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 State Bond Investment Funds, Inc. or its portfolio, the State Bond Fund, can be obtained by calling or writing the State Bond 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 Directors of the State Bond Fund of proxies for use at the Special Meeting of Shareholders (the "Special Meeting") to be held at 3:20 p.m. on December , 1996 at: 100 North Minnesota Street, -- New Ulm, Minnesota 56073-0069, 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 State Bond Fund an instrument revoking the proxy, by submitting a proxy bearing a later date or by attending and voting at the Special Meeting. 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 of the State Bond Fund, Federated Advisers and their respective affiliates at no additional cost to the State Bond Fund. Such solicitations may be by telephone, telegraph or personal contact. 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 Directors of the State Bond Fund has fixed the close of business on October 11, 1996 as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting and any adjournment thereof. As of the record date, there were shares ------- of the State Bond Fund outstanding. Each of the State Bond Fund's shares is entitled to one vote and fractional shares have proportionate voting rights. [On the record date, the Directors and officers of the State Bond Fund as a group owned less than 1% of the outstanding shares of the State Bond Fund.] To the best knowledge of ARM Capital, as of the record date, no person, except as set forth in the table below, owned beneficially or of record 5% or more of the State Bond Fund's outstanding shares. Percent of Shares Owned Percent of Outstanding Name and Address of Beneficially Outstanding Shares of the Beneficial Owner Shares Federated Fund Following Reorganization As of the record date, there were Class A, Class B, -------- ---- ---- Class C and 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, Class B, Class C and Class F Shares of the Federated Fund outstanding. To the best knowledge of Federated Advisers, as of the record date, 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 A, Class B, Class C or Class F Shares. Class A Name and Address of Shares Percent of Percent of Shares Beneficial Owner Owned Outstanding Outstanding Beneficially Shares Shares of the Federated Fund Following Reorganization Class B Name and Address of Shares Percent of Shares Beneficial Owner Owned Outstanding Class C Name and Address of Shares Percent of Shares Beneficial Owner Owned Outstanding Class F Name and Address of Shares Percent of Shares Beneficial Owner Owned Outstanding Approval of the Plan requires the affirmative vote of a majority of the outstanding shares of the State Bond Fund. The votes of shareholders of the Federated Fund are not being solicited since their approval is not required in order to effect the Reorganization. One-third of the issued and outstanding shares of the State Bond Fund, represented in person or by proxy, will be required to constitute a quorum at the Special Meeting for the purpose of voting on the proposed Reorganization. For purposes of determining the presence of a quorum, shares represented by abstentions and "broker non-votes" will be counted as present, but not as votes cast, at the Special Meeting. Because approval of the Reorganization requires the approval of a majority of the outstanding shares of the State Bond Fund, abstentions and "broker non-votes" will have the same effect as if they were votes against the Reorganization. Dissenter's Right of Appraisal Shareholders of the State Bond Fund objecting to the Reorganization have no appraisal rights under the State Bond Fund's Articles of Incorporation or Maryland law. Under the Plan, if approved by State Bond Fund shareholders, each shareholder will become the owner of Class A 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 State Bond Fund at the Closing Date. OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY Management of the State Bond Fund knows of no other matters that may properly be, or which are likely to be, brought before the meeting. However, if any other business shall properly come before the 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 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 September 23, 1996 (the "Agreement"), between FEDERATED AMERICAN LEADERS FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and STATE BOND INVESTMENT FUNDS, INC., a Maryland corporation (hereinafter called the "Corporation") on behalf of its portfolio STATE BOND DIVERSIFIED FUND (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 of the net assets of the Acquired Fund in exchange solely for Class A 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 Corporation 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 exchange of all of the assets 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 Directors, including a majority of the directors who are not "interested persons" (as defined under the 1940 Act), of the Corporation has determined that the exchange of all of the assets 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: 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 Acquired Fund will discharge or make provision for the discharge of all of its liabilities and obligations prior to or on the Closing Date. 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 Section 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 Corporation up to and including the Closing Date and such later dates, with respect to dissolution and deregistration of the Corporation, on which the Corporation is dissolved and deregistered. 1.9 The Corporation shall be deregistered as an investment company under the 1940 Act and dissolved as a Maryland corporation 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. 3.CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be December , 1996 or such later date as -- the parties may mutually agree. All acts taking place at the Closing Date 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 ARM Transfer Agency, Inc., 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 Corporation represents and warrants to the Acquiring Fund as follows: (a) The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has power to own all of its properties and assets and to carry out this Agreement. (b) The Corporation 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 Corporation is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Corporation's Articles of Incorporation or Bylaws 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, 1994 has been audited by independent auditors and at December 31, 1995 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) The unaudited Statement of Assets and Liabilities of the Acquired Fund at June 30, 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 December 31, 1995 which has been audited by Ernst & Young LLP, independent auditors, and such statement (copies of which have been furnished to the Acquiring Fund) fairly reflects the financial condition of the Acquired Fund as of such date, and there are no known liabilities of the Acquired Fund, contingent or otherwise, as of such date not disclosed therein. (i) Since June 30, 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. (j) 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. (k) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (l) 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. (m) 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. (n) 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 Corporation 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). (o) 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 Corporation 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) Since March 31, 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, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) 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. (i) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) 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. (k) 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). (l) 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 Corporation 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 Corporation'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(m), 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, the 1940 Act and such of the state Blue Sky or securities laws 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 Code section 103(a) over its deductions disallowed under Code sections 265 and 171(a)(2) for the taxable periods or years ended on or before December 31, 1995 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, 1995 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 Corporation 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 Corporation 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. 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 the Corporation's Articles of Incorporation and the 1940 Act. 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 and of state Blue Sky and securities authorities) 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 Corporation 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 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; (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 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 Directors of the Corporation 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 circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 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 directors or officers of the Corporation 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 Directors of the Corporation, 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 State of New York, 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 accountants' fees, 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's shareholders and the costs of holding the Special Meeting of Shareholders. ARM Financial Group, Inc. will assume the legal fees of the Acquired Fund. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 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. Acquired Fund: STATE BOND INVESTMENT FUNDS, INC., on behalf of its portfolio, Attest: STATE BOND DIVERSIFIED FUND /s/ Sheri Bean By: /s/ Kevin L. Howard Name: Sheri Bean Name: Kevin L. Howard Title: Assistant Secretary Title: Vice President and Secretary Acquiring Fund: Attest: FEDERATED AMERICAN LEADERS FUND, INC. /s/ S. Elliot Cohan By: /s/ J.Christopher Donahue Name: S. Elliot Cohan Name: J. Christopher Donahue Title: Assistant Secretary Title: Executive Vice President STATEMENT OF ADDITIONAL INFORMATION November , 1996 --- ACQUISITION OF THE ASSETS OF STATE BOND DIVERSIFIED FUND, A PORTFOLIO OF STATE BOND INVESTMENT FUNDS, INC. 100 NORTH MINNESOTA STREET P.O. BOX 69 NEW ULM, MINNESOTA 56073-0069 TELEPHONE NUMBER: 1-800-328-4735 BY AND IN EXCHANGE FOR CLASS A SHARES OF FEDERATED AMERICAN LEADERS FUND, INC. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 TELEPHONE NUMBER: 1-800-341-7400 This Statement of Additional Information dated November , 1996 --- is not a prospectus. A Prospectus/Proxy Statement dated November , 1996 --- 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 State Bond Diversified Fund, a portfolio of State Bond Investment Funds, Inc., dated May 1, 1996. 3. Financial Statements of Federated American Leaders Fund, Inc., dated March 31, 1996. 4. Financial Statements of State Bond Diversified Fund, a portfolio of State Bond Investment Funds, Inc., dated December 31, 1995. 5. Financial Statements (unaudited) of State Bond Diversified Fund, a portfolio of State Bond Investment Funds, Inc., dated June 30, 1996. 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 9, 1996. A copy may be obtained, upon request and without charge, from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-341-7400. The Statement of Additional Information of State Bond Diversified Fund (the "State Bond Fund"), a portfolio of State Bond Investment Funds, Inc. (the "Corporation"), dated May 1, 1996, is incorporated herein by reference to Post-Effective Amendment No. 50 to the Corporation's Registration Statement on Form N-1A (File Nos. 2-22365 and 811-1256) which was filed with the Securities and Exchange Commission on or about March 1, 1996. A copy may be obtained, upon request and without charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number: 1-800-328-4735. 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 15222-3279; telephone number: 1-800-341-7400. The audited financial statements of the State Bond Fund, dated December 31, 1995, are incorporated herein by reference to the State Bond Fund's Annual Report to Shareholders dated December 31, 1995, which was filed with the Securities and Exchange Commission. A copy may be obtained, upon request and without charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number 1-800-328-4735. The unaudited financial statement of the State Bond Fund, dated June 30, 1996, are incorporated herein by reference to the State Bond Fund's Semi-Annual Report to Shareholders, dated June 30, 1996, which was filed with the Securities and Exchange Commission. A copy may be obtained, upon request and without charge, from the State Bond Fund at 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069; telephone number: 1-800-328-4735. Pro forma financial statements are not included herein as the total net assets of the State Bond Fund do not exceed 10% of the total assets of the Federated Fund. At August 31, 1996, the total net assets of the State Bond Fund were $46,529,066 and the total net assets of the Federated Fund were $964,292,855. PART C - OTHER INFORMATION Item 15. Indemnification Indemnification is provided to directors and officers of the Registrant pursuant to the Registrant's Articles of Incorporation, except where such indemnification is not permitted by law. However, the Articles of Incorporation do not protect the directors or officers from liability based on willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office. Directors and officers of the Registrant are insured against certain liabilities, including liabilities arising under the Securities Act of 1933 (the "Act"). Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers, and controlling persons of the Registrant by the Registrant pursuant to the Articles of Incorporation or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by directors, officers, or controlling persons of the Registrant in connection with the successful defense of any act, suit, or proceeding) is asserted by such directors, officers, or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Insofar as indemnification for liabilities may be permitted pursuant to Section 17 of the Investment Company Act of 1940 for directors, officers, or controlling persons of the Registrant by the Registrant pursuant to the Articles of Incorporation or otherwise, the Registrant is aware of the position of the Securities and Exchange Commission as set forth in Investment Company Act Release No. IC-11330. Therefore, the Registrant undertakes that in addition to complying with the applicable provisions of the Articles of Incorporation or otherwise, in the absence of a final decision on the merits by a court or other body before which the proceeding was brought, that an indemnification payment will not be made unless in the absence of such a decision, a reasonable determination based upon factual review has been made (i) by a majority vote of a quorum of non-party directors who are not interested persons of the Registrant or (ii) by independent legal counsel in a written opinion that the indemnitee was not liable for an act of willful misfeasance, bad faith, gross negligence, or reckless disregard of duties. The Registrant further undertakes that advancement of expenses incurred in the defense of a proceeding (upon undertaking for repayment unless it is ultimately determined that indemnification is appropriate) against an officer, director, or controlling person of the Registrant will not be made absent the fulfillment of at least one of the following conditions: (i) the indemnitee provides security for his undertaking; (ii) the Registrant is insured against losses arising by reason of any lawful advances; or (iii) a majority of a quorum of disinterested non-party directors or independent legal counsel in a written opinion makes a factual determination that there is reason to believe the indemnitee will be entitled to indemnification. Item 16. Exhibits 1.1 Conformed Copy of Articles of Incorporation of the Registrant, as restated(1) 1.2 Conformed Copy of the Registrant's Articles Supplementary(1) 2.1 Bylaws of the Registrant, as amended(1) 3 Not Applicable 4 Agreement and Plan of Reorganization dated September 23, 1996, between State Bond Investment Funds, Inc., a Maryland corporation, on behalf of its portfolio, State Bond Diversified Fund, and Federated American Leaders Fund, Inc., a Maryland corporation* 5 Copy of Specimen Certificate for Shares of Beneficial Interest of the Registrant(2) 6.1 Conformed Copy of Investment Advisory Contract of the Registrant(1) 7.1 Conformed Copy of Distributor's Contract of the Registrant(3) 7.2 Conformed Copy of Exhibit D to the Distributor's Contract of the Registrant(1) 7.3 The Registrant hereby incorporates the conformed copy of the specimen Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement; and Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of the Cash Trust Series II Registration Statement on Form N-1A, filed with the Commission on July 24, 1995. (File Nos. 33-38550 and 811-6269) 8 Not Applicable 9 Conformed Copy of Custodian Agreement of the Registrant(1) 10.1 Conformed Copy of Distribution Plan of the Registrant(4) 10.2 Conformed Copy of Exhibit A to the Distribution Plan of the Registrant(1) 10.3 Conformed Copy of Exhibit B to the Distribution Plan of the Registrant(1) 10.4 The Registrant hereby incorporates the conformed copy of the specimen Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc. Registration Statement on Form N-1A, filed with the Commission on January 26, 1996. (File Nos. 33-52149 and 811-07141) 10.5 The responses described in Item 16 (7.3) are hereby incorporated by reference 11 Opinion of S. Elliott Cohan, Deputy General Counsel, Federated Investors regarding legality of shares being issued* 12 Opinion of Dickstein Shapiro Morin & Oshinsky LLP regarding tax consequences of Reorganization(5) 13.1 Conformed Copy of Agreement for Fund Accounting Services, Administrative Services, Shareholder Recordkeeping Services and Custody Services Procurement(6) 13.2 The responses described in Item 16 (7.3) and Item 16 (10.4) are hereby incorporated by reference 13.3 The Registrant hereby incorporates the conformed copy of the Shareholder Services Subcontract between National Pensions Alliance, Ltd. and Federated Shareholder Services from Item 24(b)(9)(ii) of the Federated GNMA Trust Registration Statement on Form N-1A, filed with the Commission on March 25, 1996. (File Nos. 2-75670 and 811-3375) 13.4 The Registrant hereby incorporates the conformed copy of the Shareholder Services Subcontract between Fidelity and Federated Shareholder Services from Item 24(b)(9)(iii) of the Federated GNMA Trust Registration on Form N-1A, filed with the Commission on March 25, 1996. (File Nos. 2- 75670 and 811-3375) 14.1 Conformed Copy of Consent of Independent Public Accountants of Federated American Leaders Fund, Inc., Arthur Andersen LLP* 14.2 Conformed Copy of Consent of Independent Auditors of State Bond Diversified Fund, Ernst & Young LLP* 14.3 Conformed Copy of Consent of Independent Auditors of State Bond Diversified Fund, Deloitte & Touche LLP* 15 Not Applicable 16 Conformed Copy of Power of Attorney* 17.1 Declaration under Rule 24f-2* 17.2 Form of Proxy of State Bond Diversified Fund* * Filed electronically. (1) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 60 on Form N-1A filed on May 25, 1995. (File Nos. 2-29786 and 811-1704) (2) Response is incorporated by reference to Registrant's Initial Registration Statement on Form S-5 filed August 5, 1968. (File Nos. 2- 29786 and 811-1704) (3) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 59 on Form N-1A filed May 26, 1994. (File Nos. 2-29786 and 811-1704) (4) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 59 on Form N-1A filed on May 26, 1994. (File Nos. 2-29786 and 811-1704) (5) To be filed by Post-Effective Amendment pursuant to `Dear Registrant''letter dated February 15, 1996. (6) Response is incorporated by reference to Registrant's Post-Effective Amendment No. 61 on Form N-1A filed May 29, 1996. (File Nos. 2-29786 and 811-1704) Item 17. Undertakings (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new Registration Statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Federated American Leaders Fund, Inc., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth of Pennsylvania on September 30, 1996. FEDERATED AMERICAN LEADERS FUND, INC. (Registrant) By: * John F. Donahue President SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on September 30, 1996: * President and Director John F. Donahue (Chief Executive Officer) * Executive Vice President and Director J. Christopher Donahue * Treasurer John W. McGonigle (Principal Financial and Accounting Officer) * Director Thomas G. Bigley * Director John T. Conroy, Jr. * Director William J. Copeland * Director James E. Dowd * Director Lawrence D. Ellis, M.D. * Director Edward L. Flaherty, Jr. * Director Peter E. Madden * Director Gregor F. Meyer * Director John E. Murray, Jr., J.D., S.J.D. * Director Wesley W. Posvar cbrx01!.doc/589083 78 * Director Marjorie P. Smuts 1* By: /s/ S. Elliott Cohan Attorney in Fact 1* Such signature has been affixed pursuant to a Power of Attorney. EX-99.LEGOFSHRSOP 2 FEDERATED AMERICAN LEADERS FUND, INC. EXHIBIT 11 Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 September 27, 1996 The Directors of Federated American Leaders Fund, Inc. Federated Investors Tower Pittsburgh, PA 15222-3779 Gentlemen: Federated American Leaders Fund, Inc. (the `Fund''), a Maryland Corporation, proposes to issue shares of capital stock (such shares of capital stock being herein referred to as `Shares'') in connection with the acquisition of the assets of State Bond Diversified Fund, a portfolio of State Bond Investment Funds, Inc., a Maryland corporation, pursuant to the Agreement and Plan of Reorganization dated as of September 23, 1996 (`Agreement''), filed as an exhibit to the registration statement of the Fund filed on Form N-14 (Securities Act of 1933 No. to be assigned) under the Securities Act of 1933 as amended (`N-14 Registration''). As counsel I have participated in the organization of the Fund, its registration under the Investment Company Act of 1940, the registration of its securities on Form N-1A under the Securities Act of 1933 and its N-14 Registration. I have examined and am familiar with the written Articles of Incorporation dated July 22, 1968 (`Articles of Incorporation''), the Bylaws of the Fund, the Agreement and such other documents and records deemed relevant. I have also reviewed questions of law and consulted with counsel thereon as deemed necessary or appropriate for the purposes of this opinion. Based upon the foregoing, it is my opinion that: 1. The Fund is duly organized and validly existing pursuant to the Articles of Incorporation. 2. The Shares which are currently being registered by the N-14 Registration may be legally and validly issued in accordance with the provisions of the Agreement and the Articles of Incorporation upon receipt of consideration sufficient to comply with the provisions of Article Fifth, Section (a), of the Articles of Incorporation and subject to compliance with the Investment Company Act of 1940, as amended, and applicable state laws regulating the sale of securities. Such Shares, when so issued, will be fully paid and non-assessable. I consent to your filing this opinion as an exhibit to the N-14 Registration referred to above and to any application or registration statement filed under the securities laws of any of the states of the United States. Very truly yours, FEDERATED AMERICAN LEADERS FUND, INC. By:/s/ S. Elliott Cohan S. Elliott Cohan Assistant Secretary EX-99.AUDITORCONSNT 3 Exhibit 14.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement (Form N-14 of Federated American Leaders Fund, Inc.) of our report dated May 15, 1996, included in the Federated American Leaders Fund, Inc. Annual Report for the year ended March 31, 1996, and to all references to our firm included in this registration Statement. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania September 27, 1996 EX-99.AUDITORCONSNT 4 Exhibit 14.2 CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the captions `Financial Highlights''and ``Independent Auditors'' and the use of our report dated January 26, 1996 on the financial statements of State Bond Diversified Fund (the Fund) in the Registration Statement (Form N-1A) of the Fund which is incorporated by reference in, and reference to our firm in Exhibit A of, the Registration Statement (Form N-14) of Federated American Leaders Fund, Inc. filed with the Securities and Exchange Commission. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Kansas City, Missouri September 30, 1996 EX-99.POWEROFATTY 5 EXHIBIT 16 POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints the Secretary and Assistant Secretary of FEDERATED AMERICAN LEADERS FUND, INC. and the Deputy General Counsel of Federated Investors, and each of them, their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for them and in their names, place and stead, in any and all capacities, to sign any and all documents to be filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means of the Securities and Exchange Commission's electronic disclosure system known as EDGAR; and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to sign and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. SIGNATURES TITLE DATE /s/John F. Donahue Chairman and Director September 26, 1996 John F. Donahue (Chief Executive Officer) /s/J. Christopher Donahue Executive Vice President September 26, 1996 J. Christopher Donahue and Director /s/John W. McGonigle Treasurer and Executive September 26, 1996 John W. McGonigle Vice President (Principal Financial and Accounting Officer) /s/Thomas G. Bigley Director September 26, 1996 Thomas G. Bigley /s/John T. Conroy, Jr. Director September 26, 1996 John T. Conroy, Jr. /s/William J. Copeland Director September 26, 1996 /s/James E. Dowd Director September 26, 1996 James E. Dowd /s/Lawrence D. Ellis, M.D. Director September 26, 1996 Lawrence D. Ellis, M.D. /s/Edward L. Flaherty, Jr. Director September 26, 1996 Edward L. Flaherty, Jr. /s/Peter E. Madden Director September 26, 1996 Peter E. Madden /s/Gregor F. Meyer Director September 26, 1996 Gregor F. Meyer /s/John E. Murray, Jr. Director September 26, 1996 John E. Murray, Jr. /s/Wesley W. Posvar Director September 26, 1996 Wesley W. Posvar /s/Marjorie P. Smuts Director September 26, 1996 Marjorie P. Smuts Sworn to and subscribed before me this 26th day of September, 1996 /s/Jody L.Petras Notarial Seal Jody L. Petras, Notary Public Pittsburgh, Allegheny County My Commission Expires Sept. 27, 1999 Member, Pennsylvania Association of Notaries EX-99.PRIOR24F-2 6 EXHIBIT 17.1 Rule 24f-2 Notice AMERICAN LEADERS FUND, INC. (Fund Name) Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 1933 Act No. 2-29786 (i) fiscal period for which notice is filed March 31, 1995 (ii) The number or amount of securities of the same class or series, if any, which had been registered under the Securities Act of 1933, other than pursuant to Rule 24f-2 but which remained unsold at April 1, 1994, the beginning of the Registrant's fiscal period -0- (iii) The number or amount of securities, if any, registered during the fiscal period of this notice other than pursuant to Rule 24f-2 575,449 575,449 (iv) The number or amount of securities sold during the fiscal period of this notice 8,792,239 (v) The number or amount of securities sold during the fiscal period of this notice in reliance upon registration pursuant to Rule 24f-2 (see attached Computation of Fee) 8,216,790 WITNESS the due execution hereof this 15th day of May, 1995. By: /s/Charles H Field Charles H. Field Assistant Secretary COMPUTATION OF FEE 1. Actual aggregate sale price of Registrant's securities sold pursuant to Rule 24f-2 during the fiscal period for which the 24f-2 notice is filed (see Section v) $124,130,406 2. Reduced by the difference between: (a) actual aggregate redemption price of such securities redeemed by the issuer during the fiscal period for which the 24f-2 notice is filed $54,123,894 (b) actual aggregate redemption price of such redeemed securities previously applied by the issuer pursuant to Section 24e(2)(a) for the fiscal period for which the 24f-2 notice is filed -0- $54,123,894 Total amount upon which the fee calculation specified in Section 6(b) of the Securities Act of 1933 is based $70,006,512 FEE SUBMITTED (1/29 of 1% of Total amount) $24,140 Federated Administrative Services FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 412-288-1900 May 15, 1995 American Leaders Fund, Inc. Federated Investors Tower Pittsburgh, PA 15222-3779 Gentlemen: You have requested my opinion for use in conjunction with a Rule 24f-2 Notice for American Leaders Fund, Inc. ("Corporation") to be filed in respect of shares of the Corporation ("Shares") sold for the fiscal year ended March 31, 1995, pursuant to the Corporation's registration statement filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 2-29786) ("Registration Statement"). In its Registration Statement, the Corporation elected to register an indefinite number of shares pursuant to the provisions of Investment Company Act Rule 24f-2. As counsel I have participated in the preparation and filing of the Corporation's amended Registration Statement under the Securities Act of 1933. Further, I have examined and am familiar with the provisions of the Articles of Incorporation dated January 22, 1968 ("Articles of Incorporation"), the Bylaws of the Corporation and such other documents and records deemed relevant. I have also reviewed questions of law and consulted with counsel thereon as deemed necessary or appropriate by me for the purposes of this opinion. On the basis of the foregoing, it is my opinion the Shares sold for the fiscal year ended March 31, 1995, registration of which the Rule 24f-2 Notice makes definite in number, were legally issued, fully paid and non-assessable by the Corporation. I hereby consent to the filing of this opinion as an exhibit to the Rule 24f-2 Notice referred to above, the Registration Statement of the Corporation and to any application or registration statement filed under the securities laws of any of the States of the United States. The foregoing opinion is limited to the Federal laws of the United States and the laws of the State of Maryland, and I am expressing no opinion as to the effect of the laws of any other jurisdiction. Very truly yours, /s/ Charles H. Field Charles H. Field Fund Attorney AMERICAN LEADERS FUND, INC. Federated Investors Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 May 15, 1995 EDGAR Operations Branch Securities and Exchange Commission Division of Investment Management 450 Fifth Street, Northwest Washington, DC 20549 RE: Rule 24f-2 Notice for AMERICAN LEADERS FUND, INC. 1933 Act File No. 2-29786 1940 Act File No. 811-1704 Dear Sir or Madam: Pursuant to the provisions of Rule 24f-2 of the Investment Company Act of 1940, I enclose the Rule 24f-2 Notice for American Leaders Fund, Inc. Since the aggregate sales price of securities sold by the fund during the period for which the Rule 24f-2 Notice is filed exceeded the aggregate redemption price of securities redeemed, an additional filing fee in the amount of $24,140 pursuant to Rule 24f-2(c) has been remitted to the U.S. Treasury Lockbox at Mellon Bank in Pittsburgh. As required by Rule 24f-2(b)(1)(v), a conformed opinion of counsel has been electronically filed herewith which indicates whether the securities, the registration of which this Notice makes definite in number, were legally, fully paid and non-assessable. Very truly yours, /s/ Charles H. Field Charles H. Field Assistant Secretary Enclosures cc: Charles H. Morin, Esquire Matthew G. Maloney, Esquire Linda L. Banas EX-99.AGMTPLNREORG 7 EXHIBIT 4 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated September 23, 1996 (the "Agreement"), between FEDERATED AMERICAN LEADERS FUND, INC., a Maryland corporation (hereinafter called the "Acquiring Fund"), and STATE BOND INVESTMENT FUNDS, INC., a Maryland corporation (hereinafter called the "Corporation") on behalf of its portfolio STATE BOND DIVERSIFIED FUND (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 of the net assets of the Acquired Fund in exchange solely for Class A 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 Corporation 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 exchange of all of the assets 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 Directors, including a majority of the directors who are not "interested persons" (as defined under the 1940 Act), of the Corporation has determined that the exchange of all of the assets 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 Acquired Fund will discharge or make provision for the discharge of all of its liabilities and obligations prior to or on the Closing Date. 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 Section 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 Corporation up to and including the Closing Date and such later dates, with respect to dissolution and deregistration of the Corporation, on which the Corporation is dissolved and deregistered. 1.9 The Corporation shall be deregistered as an investment company under the 1940 Act and dissolved as a Maryland corporation 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. 3.CLOSING AND CLOSING DATE. 3.1 The Closing Date shall be December , 1996 or such later date as -- the parties may mutually agree. All acts taking place at the Closing Date 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 ARM Transfer Agency, Inc., 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 Corporation represents and warrants to the Acquiring Fund as follows: (a) The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has power to own all of its properties and assets and to carry out this Agreement. (b) The Corporation 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 Corporation is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Corporation's Articles of Incorporation or Bylaws 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, 1994 has been audited by independent auditors and at December 31, 1995 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) The unaudited Statement of Assets and Liabilities of the Acquired Fund at June 30, 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 December 31, 1995 which has been audited by Ernst & Young LLP, independent auditors, and such statement (copies of which have been furnished to the Acquiring Fund) fairly reflects the financial condition of the Acquired Fund as of such date, and there are no known liabilities of the Acquired Fund, contingent or otherwise, as of such date not disclosed therein. (i) Since June 30, 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. (j) 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. (k) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquired Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (l) 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. (m) 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. (n) 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 Corporation 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). (o) 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 Corporation 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) Since March 31, 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, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund. (h) 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. (i) For each fiscal year of its operation, subject to applicable statute of limitation periods, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) 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. (k) 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). (l) 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 Corporation 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 Corporation'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(m), 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, the 1940 Act and such of the state Blue Sky or securities laws 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 Code section 103(a) over its deductions disallowed under Code sections 265 and 171(a)(2) for the taxable periods or years ended on or before December 31, 1995 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, 1995 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 Corporation 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 Corporation 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. 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 the Corporation's Articles of Incorporation and the 1940 Act. 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 and of state Blue Sky and securities authorities) 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 Corporation 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 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; (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 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 Directors of the Corporation 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 circumstances should develop that, in the opinion of either of the parties' Board, make proceeding with the Agreement inadvisable. 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 directors or officers of the Corporation 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 Directors of the Corporation, 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, 18 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 State of New York, 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 accountants' fees, 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's shareholders and the costs of holding the Special Meeting of Shareholders. ARM Financial Group, Inc. will assume the legal fees of the Acquired Fund. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 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. Acquired Fund: STATE BOND INVESTMENT FUNDS, INC., on behalf of its portfolio, Attest: STATE BOND DIVERSIFIED FUND /s/ Sheri Bean By: /s/ Kevin L. Howard Name: Sheri Bean Name: Kevin L. Howard Title: Assistant Secretary Title: Vice President and Secretary Acquiring Fund: Attest: FEDERATED AMERICAN LEADERS FUND, INC. /s/ S. Elliot Cohan By: /s/ J. Christopher Donahue Name: S. Elliot Cohan Name: J. Christopher Donahue Title: Assistant Secretary Title: Executive Vice President EX-99.BALLOT 8 EXHIBIT 17.2 STATE BOND DIVERSIFIED FUND, a Portfolio of STATE BOND INVESTMENT FUNDS, INC., SPECIAL MEETING OF SHAREHOLDERS December , 1996 == STATE BOND DIVERSIFIED FUND, a Portfolio of STATE BOND INVESTMENT FUNDS, INC. CUSIP NO. 856900105 The undersigned shareholder(s) of State Bond Diversified Fund, a portfolio of State Bond Investment Funds, Inc. (the `State Bond Fund''), hereby appoint(s) Kevin L. Howard, Keith O. Martens and Dale C. Bauman, or any of them true and lawful proxies, with power of substitution of each, to vote all shares of the State Bond Fund which the undersigned is entitled to vote, at the Special Meeting of Shareholders to be held on December , -- 1996, at 100 North Minnesota Street, New Ulm, Minnesota 56073-0069, at 3:20 p.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 DIRECTORS. 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. PROPOSAL TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN THE STATE BOND FUND AND FEDERATED AMERICAN LEADERS FUND, INC. PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND RETAIN THE TOP PORTION. 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. STATE BOND DIVERSIFIED FUND, a portfolio of State Bond Investment Funds, Inc. RECORD DATE SHARES: ----------------- VOTE ON THE PROPOSAL FOR AGAINST ABSTAIN 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. - ----------------------------------- Signature(s) of Shareholder(s) Date:______________________________ EX-99.AUDITORCONSNT 9 Exhibit 14.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in the Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A of State Bond Diversified Fund of our report dated January 23, 1995 (except for Note E, dated February 16, 1995) accompanying the financial statements of State Bond Diversified Fund for the year ended December 31, 1994 and to the reference to us under the heading `Financial Highlights'' appearing in the Prospectus which is part of such Registration Statement and is incorporated by reference in the Registration Statement (Form N-14) of Federated Fund American Leaders Fund, Inc. filed with the Securities and Exchange Commission. /s/Deloitte & Touche LLP Deloitte & Touche LLP Minneapolis, Minnesota September 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----