-----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, JTw9vlaeGjUQioDTzXjVLvfeD61F2LIxtZM11yy9xyaKDYuzSa599Ix0XKkK7gbF E11FzQHEB7dEgvY03AmAPw== 0000005352-99-000006.txt : 19990624 0000005352-99-000006.hdr.sgml : 19990624 ACCESSION NUMBER: 0000005352-99-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990525 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: N-30D SEC ACT: SEC FILE NUMBER: 811-01704 FILM NUMBER: 99633870 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 N-30D 1 ANNUAL REPORT [Graphic] JOHN F. DONAHUE President Federated American Leaders Fund, Inc. President's Message Dear Fellow Shareholder: Federated American Leaders Fund, Inc. was created in 1969, and I am pleased to present its 30th Annual Report. This fund invests in America's blue-chip corporations-81 well-known, large-capitalized corporations whose shares are held by individuals and institutions alike. During the past fiscal year, assets grew to more than $3.6 billion. This robust growth reflected a sizable increase in the value of fund shares, as well as the continued confidence of more than 87,000 investors who purchased shares of this attractive, high-quality, blue-chip stock fund. This report covers the 12-month reporting period from April 1, 1998 through March 31, 1999. It begins with an interview with fund portfolio manager Michael P. Donnelly, Vice President of Federated Investment Management Company. Following his discussion are three additional items of shareholder interest. First is a series of graphs showing the fund's long-term investment performance. Second is a complete listing of the fund's high-quality, blue- chip stocks and third is the publication of the fund's financial statements. While the returns of the stock market and Federated American Leaders Fund, Inc. continued to be positive, the 12-month reporting period reminded us that volatility is inherent in stock market investing. The first half of the fund's fiscal year was a very difficult period for stocks, as investor sentiment turned negative in response to Asian and Russian economic and political difficulties. The second half of the year saw marked improvement, influenced by a series of interest rate cuts by the Federal Reserve Board (the "Fed"), a continued strong economic environment, and revitalized investor confidence. However, as Michael explains, most of the market's positive performance over the fiscal year was concentrated among a relatively narrow band of large, growth-oriented stocks. Federated American Leaders Fund, Inc. gives investors the opportunity to participate in the growth and income opportunities of a high-quality stock portfolio representing all 12 major industry groups-including leaders like Anheuser-Busch, Bristol-Myers Squibb, Deere & Co., Exxon, General Motors, IBM, Merck, and Wal-Mart. Over the 12-month reporting period, the fund's carefully selected holdings outperformed the average Lipper Growth & Income Fund, 1 which in turn lagged the growth stock-influenced returns of the Standard & Poor's 500 Index ("S&P 500").1 Shares of your fund produced moderate capital appreciation, plus quarterly income dividends and realized capital gains. Individual share class total return performance for the 12-month reporting period, including income distributions and realized gains, follows. 2
TOTAL RETURN INCOME CAPITAL GAINS NET ASSET VALUE CHANGE Class A Shares 6.31% $0.20 $3.01 $26.64 to $24.90 = (7%) Class B Shares 5.54% $0.02 $3.01 $26.61 to $24.87 = (7%) Class C Shares 5.55% $0.02 $3.01 $26.61 to $24.88 = (7%) Class F Shares 6.36% $0.20 $3.01 $26.61 to $24.88 = (7%)
Thank you for participating in the growth and income opportunities afforded to you by the fund's portfolio of reasonably valued stocks. Remember, reinvesting your earnings is a convenient way to build the value of your account-and help your shares increase through the benefit of quarterly compounding. Sincerely, [Graphic] John F. Donahue President May 15, 1999 1 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the category indicated. These figures do not take sales charges into account. The S&P 500 is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Investments cannot be made in an index. 2 Performance quoted is based on net asset value, reflects past performance and is not indicative of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns for the period, based on offering price (i.e., less any applicable sales charge), for Class A, B, C, and F Shares were 0.46%, 0.40%, 4.62%, and 4.36%, respectively. [Graphic] MICHAEL P. DONNELLY Vice President Federated Investment Management Company Investment Review IT WAS BOTH A POSITIVE AND NEGATIVE YEAR FOR EQUITIES, WITH SIGNIFICANT QUARTER-TO-QUARTER VOLATILITY AND PERFORMANCE THAT WAS CONCENTRATED IN A NARROW GROUP OF STOCKS IN THE MARKET. WHAT ARE YOUR COMMENTS? Overall, the fund's fiscal year was a period of positive performance for stocks as the S&P 500 returned 18.46%. However, this performance masked the weakness of the broader market. The majority of the S&P 500's return was generated by a short list of large-capitalization growth stocks including names such as MICROSOFT, GENERAL ELECTRIC, WAL-MART, INTEL, PFIZER, IBM, and MCI WORLDCOM, which dominated the Index's weightings. The average stock in the S&P 500, as measured by the equal weighted S&P 500, returned only 1.10% for the 12-month reporting period. Small capitalization stocks, as measured by the S&P 600 Small Cap Index, 1 lost 19.10% of their value during the reporting period. The cause of this huge disparity in performance was the global economic uncertainty which caused a "flight-to-quality," liquidity, and perceived earnings certainty in the equity markets. 1 The S&P 600 Small Cap Index is an unmanaged capitalization- weighted index representing all major industries in the small-cap range of the U.S. stock market. Investments cannot be made in an index. During the first half of the fund's fiscal year, we experienced rekindled fears about Asia, the political and economic collapse of Russia, and the subsequent unwinding of hedge fund leverage due to the collapse of Long-Term Capital Management. These events, combined with the reduction of long-term interest rates, caused investors to pour money into very large, liquid, leading global growth franchises. During the second half of the fiscal year, the momentum for this select list of large-capitalization growth stocks fed upon itself, leading to one of the most disparate 12-month periods for equity market performance. This type of environment has not been seen since the "Nifty Fifty" market of the late 1960s and early 1970s. History has shown that an environment where a handful of leading growth companies are valued at dramatic premiums to the rest of the market is not sustainable. HOW DID FEDERATED AMERICAN LEADERS FUND, INC. PERFORM FOR SHAREHOLDERS DURING THE 12-MONTH REPORTING PERIOD? For the 12-month reporting period ended March 31, 1999, the fund's Class A, B, C, and F Shares produced total returns of 6.31%, 5.54%, 5.55%, and 6.36%, respectively, based on net asset value. 2 This performance included capital appreciation, income dividends, and capital gains. These returns compared favorably to the 5.47% return of the 808 growth and income funds tracked by Lipper Analytical Services, Inc.3 WHAT IS YOUR PERSPECTIVE ON THE UNDERPERFORMANCE OF INVESTING IN VALUE-ORI ENTED STOCKS IN THIS MARKET? Although positive, the past year was a relatively difficult one for active value managers versus the S&P 500. The S&P Barra Value Index, 4 which measures the performance of leading value stocks, returned 5.68% for the 12-month reporting period. As mentioned earlier, the S&P 500's returns were dominated by a handful of ultra-large, growth-oriented technology, pharmaceutical and telephone companies. The degree of disparity between the average stock and the market itself is something the market has not experienced in the last 25 years. While the performance of Federated American Leaders Fund, Inc. compared favorably with the average Lipper Growth & Income Fund, we are obviously not pleased with our relative performance versus the S&P 500. However, given our value investment style and market conditions, the fund's returns are not unreasonable. It is worth noting that historically, after periods of extremely narrow market leadership dominated by a handful of growth stocks, active value management can provide superior returns. 2 Performance quoted is based on net asset value, reflects past performance and is not indicative of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns for the period, based on offering price (i.e., less any applicable sales charge), for Class A, B, C, and F Shares were 0.46%, 0.40%, 4.62%, and 4.36%, respectively. 3 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the category indicated. These figures do not take sales charges into account. 4 The S&P Barra Value Index is an unmanaged, market capitalization-weighted index of stocks with lower price-to-book ratios. Investments cannot be made in an index. WHAT WAS THE FUND'S SECTOR EXPOSURE AS OF MARCH 31, 1999?
PERCENTAGE PERCENTAGE OF OF S&P 500 SECTOR NET ASSETS INDEX Finance 16.6% 16.1% Capital Goods 12.1% 7.9% Technology 11.8% 20.6% Consumer Cyclicals 11.1% 9.2% Consumer Staples 11.0% 13.6% Energy Minerals 8.8% 5.6% Health Care 7.8% 12.0% Utilities 7.1% 2.6% Basic Materials 5.5% 3.0% Communication Services 4.7% 8.5% Transportation 1.6% 0.9% Cash/Miscellaneous 1.6% 0.0%
WHAT WERE SOME OF YOUR NOTEWORTHY PURCHASES AND SALES DURING THE REPORTING PERIOD? Our portfolio additions included the following companies: BANK ONE CORP. (0.98% of net assets): Despite possessing one of the largest credit card businesses in the banking industry, this national franchise trades at a significant discount to the banking group. The successful integration of First Chicago NBD and better business line disclosure by management should serve as the catalysts to bring valuation in line with the group. KING WORLD PRODUCTIONS, INC. (1.02% of net assets): Selling at a price per earnings ratio of less than 13 times and generating tremendous free cash flow this company possesses a valuable programming franchise anchored by Oprah Winfrey. A consolidating entertainment industry and a new stable of shows led by The New Hollywood Squares make this an attractive addition to the portfolio. SUN MICROSYSTEMS, INC. (2.47% of net assets): We purchased this high-quality computer systems company right near the market's low in early October 1998. Valued at a significant discount to the market, this Unix-based company is thriving as a leading "pick and shovel" manufacturer for the explosion of the Internet. Its recent joint venture with Netscape and America On-Line further solidifies this company as a "franchise" technology company. U.S. WEST, INC. (0.88% of net assets): An overreaction to the company's announcement to increase capital spending to accelerate the pace of its high- speed Internet service provided a buying opportunity for this well-run telephone company. U.S. West is the most attractively valued Bell operating company based on earnings, cash flow, and yield potential. WASHINGTON MUTUAL, INC. (0.99% of net assets): After falling from its 52-week high, this leading savings and loan was added to the portfolio. Selling at less than 11 times earnings, fears about its ability to absorb HF Ahmanson and a flattening yield curve provided an excellent buying opportunity. Some of the companies we sold during the period were: CNF TRANSPORTATION, INC.: After a strong year-to-date run, the stock no longer appeared attractive on our valuation disciplines. Uncertainty about the progress of the restructuring at Emery Worldwide also tempered our enthusiasm for this name. COASTAL CORP.: This natural gas stock was sold due to its valuation looking less favorable in light of weak commodity prices and a mild winter. This stock had performed quite well relative to the natural gas group. COLUMBIA ENERGY GROUP: This stock held up well as the natural gas business began to deteriorate. We took profits before the stock price caught up with fundamentals. This sale also helped reduce our overweighted position in the utilities sector and provided us with funds to increase our finance sector exposure. READERS DIGEST ASSOCIATION, INC.: After a strong bounce off the lows caused by a change in management, we eliminated this position due to concerns about the long-term viability of their business model. SEQUENT COMPUTER SYSTEMS, INC.: Although this computer systems company appeared extremely attractive on our valuation models, we lost confidence in the fundamentals of this stock. Although a potential take-out play, the near-term outlook for this company was very disappointing. WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF MARCH 31, 1999? PERCENTAGE OF NAME NET ASSETS Sun Microsystems, Inc. 2.5% Conseco, Inc. 2.2% First Data Corp. 1.9% Pharmacia & Upjohn, Inc. 1.9% United Healthcare Corp. 1.8% Kimberly-Clark Corp. 1.8% Electronic Data Systems Corp. 1.8% CIGNA Corp. 1.8% GTE Corp. 1.7% CIT Group, Inc., Class A 1.7% TOTAL 19.1% WHAT IS YOUR OUTLOOK FOR THIS UNUSUALLY VALUED MARKET? Our market outlook remains basically unchanged. The market appears overvalued by all traditional measures, but no visible catalyst is positioned to derail this bull move. Confidence in the demographically led "cult of equities" and the nirvana of low inflation seem to have lulled investors into a dangerous state of complacency. Given the recent uptick in interest rates, it is surprising to see the market hold so strongly. The dividend discount models maintained by the Fed and leading market strategists show that the S&P 500 is now more than 20% overvalued given the increase in interest rates. Given the strength apparent in the economy, the market is betting on continued earnings strength offsetting these higher interest rates. Despite market narrowness, money flows and sentiment are extremely strong. WHAT DOES THE MARKET'S VALUATION MEAN TO SHAREHOLDERS OF FEDERATED AMERICAN LEADERS FUND, INC.? In this type of environment, we believe that our value disciplines-identifying leading companies that are temporarily out of favor and appear inexpensive relative to their history to the market as well as to their expected growth-will provide a more reasonable ride as rationality works its way back into the equity market. In addition, we believe that value portfolios should do well given the style's recent dramatic underperformance and the apparent strength that the economy is showing, benefiting the more cyclically exposed companies that inhabit the universe of value stocks. Last Meeting of Shareholders The Annual Meeting of Shareholders of Federated American Leaders Fund, Inc. (the "Fund") was held on March 26, 1999. The following items were submitted to shareholders for approval. The meeting was adjourned to May 12, 1999, where all items were approved as follows: 1. ELECTION OF DIRECTORS: SHARES VOTED SHARES AFFIRMATIVELY WITHHELD Thomas G. Bigley 120,607,014 2,471,631 John T. Conroy, Jr. 120,635,777 2,442,868 John F. Cunningham 120,656,795 2,421,850 Peter E. Madden 120,688,447 2,390,198 Charles F. Mansfield, Jr. 120,695,438 2,383,207 John E. Murray, Jr., J.D., S.J.D. 120,701,739 2,376,906 John S. Walsh 120,711,125 2,367,520 2. TO RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP AS THE FUND'S INDEPENDENT PUBLIC ACCOUNTANTS: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 117,788,701 806,394 4,483,549 3. TO MAKE CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT POLICIES: a. To approve the Fund's fundamental investment policy with regard to diversification of its investments: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 75,911,773 2,529,684 5,120,040 b. To approve making non-fundamental, and amending, the Fund's fundamental investment policy regarding investing in restricted securities: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 74,006,884 3,863,559 5,691,054 c. To approve amending the Fund's fundamental investment policy regarding borrowing to permit the purchase of securities while borrowings are outstanding: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 72,927,044 5,028,999 5,605,454 d. To approve making non-fundamental, and amending, the Fund's fundamental investment policy to permit the Fund to invest in the securities of other investment companies: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 75,062,530 3,208,164 5,290,803 e. To approve making non-fundamental the Fund's fundamental investment policy prohibiting investment in securities to exercise control of an issuer: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 73,830,385 3,523,754 6,207,358 f. To approve making non-fundamental the Fund's fundamental investment policy regarding the description of "The Leaders List": SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 74,708,685 3,019,564 5,833,248 g. To approve amending the Fund's fundamental investment policy regarding investment in real estate: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 73,024,510 5,014,449 5,522,538 4. TO ELIMINATE CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT POLICIES: a. To approve removing the Fund's fundamental investment policy on investing in new issuers: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 73,454,822 4,487,304 5,619,371 b. To approve removing the Fund's fundamental investment policy on investing in issuers whose securities are owned by Officers and Directors: SHARES VOTED SHARES VOTED SHARES AFFIRMATIVELY NEGATIVELY ABSTAINING 71,619,124 6,139,297 5,803,076 Two Ways You May Seek to Invest for Success: INITIAL INVESTMENT IF YOU MADE AN INITIAL INVESTMENT OF $31,000 IN THE CLASS A SHARES OF FEDER ATED AMERICAN LEADERS FUND, INC. ON 2/26/69, REINVESTED DIVIDENDS AND CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $734,309 ON 3/31/99. YOU WOULD HAVE EARNED AN 11.39% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE INVESTMENT LIFE SPAN. One key to investing wisely is to reinvest all distributions in fund shares. This increases the number of shares on which you can earn future dividends, and you gain the benefit of compounding. As of 3/31/99, the Class A Shares' average annual 1-year, 5-year, and 10-year total returns were 0.46%, 20.18%, and 15.42%, respectively. Class B Shares' average annual 1-year and since inception (7/25/94) total returns were 0.40% and 21.08%, respectively. Class C Shares' average annual 1-year, 5-year, and since inception (4/22/93) total returns were 4.62%, 20.67%, and 17.83%, respectively. Class F Shares' average annual 1-year, 5-year, and since inception (7/28/93) total returns were 4.36%, 21.26%, and 18.45%, respectively.2 [Graphic representation "A1" omitted. See Appendix.] 1 Total return represents the change in the value of an investment after reinvesting all income and capital gains, and takes into account the 5.50% sales charge applicable to an initial investment in Class A Shares. Data quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. 2 The total returns stated take into account all applicable sales charges. The maximum sales charges and contingent deferred sales charges for the fund are as follows: Class A Shares, 5.50% sales charge; Class B Shares, 5.50% contingent deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge; Class F Shares, 1.00% sales charge and 1.00% contingent deferred sales charge. ONE STEP AT A TIME $1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 30 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $348,941. With this approach, the key is consistency. If you had started investing $1,000 annually in the Class A Shares of Federated American Leaders Fund, Inc. on 2/26/69, reinvested your dividends and capital gains and did not redeem any shares, you would have invested only $31,000, but your account would have reached a total value of $348,941 1 by 3/31/99. You would have earned an average annual total return of 13.19%. A practical investment plan helps you pursue long-term performance from blue-chip stocks. Through systematic investing, you buy shares on a regular basis and reinvest all earnings. An investment plan works for you when you invest only $1,000 annually. You can take it one step at a time. Put time, money and compounding to work. [Graphic representation "A2" omitted. See Appendix.] 1 This chart assumes that the subsequent annual investments are made on the last day of each anniversary month. No method of investing can guarantee a profit or protect against loss in down markets. Hypothetical Investor Profile- Investing for a College Education David and Joan Rice are a fictional couple who, like many shareholders, are searching for a way to make their money grow over time. David and Joan have been planning for the college education of their three children. On March 31, 1984, they invested $5,000 in the Class A Shares of Federated American Leaders Fund, Inc. Since then, David and Joan have made additional investments of $250 every month. As this chart shows, over 15 years, the original $5,000 investment along with their additional monthly $250 investments totaling $50,000 has grown to $196,357. This represents a 15.18% average annual total return. For the Rices, a dedicated program of monthly investments really paid off. [Graphic representation "A3" omitted. See Appendix.] This hypothetical scenario is provided for illustrative purposes only and does not represent the result obtained by any particular shareholder. Past performance does not guarantee future results. Federated American Leaders Fund, Inc.- Class A Shares GROWTH OF $10,000 INVESTMENT The graph below illustrates the hypothetical investment of $10,000 1 in Federated American Leaders Fund, Inc. (Class A Shares) (the "Fund") from March 31, 1989 to March 31, 1999, compared to the Standard & Poor's 500 Index (S&P 500) and the Lipper Growth and Income Funds Average (LGIFA).2 AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999 1 Year 0.46% 5 Years 20.18% 10 Years 15.42% Start of Performance (2/26/69) 11.39% [Graphic representation "A4" omitted. See Appendix.] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. 1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550) that was in effect prior to October 1, 1994. As of October 1, 1994, the maximum sales charge was 5.50%. The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LGIFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. 2 The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission ("SEC") requires to be reflected in the Fund's performance. The index is unmanaged. The LGIFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in a fund's performance. 3 Total returns quoted reflect all applicable sales charges. Federated American Leaders Fund, Inc.- Class B Shares GROWTH OF $10,000 INVESTMENT The graph below illustrates the hypothetical investment of $10,000 1 in Federated American Leaders Fund, Inc. (Class B Shares) (the "Fund") from July 25, 1994 (start of performance) to March 31, 1999, compared to the Standard & Poor's 500 Index (S&P 500) and the Lipper Growth and Income Funds Average (LGIFA).2 AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999 1 Year 0.40% Start of Performance (7/25/94) 21.08% [Graphic representation "A5" omitted. See Appendix.] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. 1 Represents a hypothetical investment of $10,000 in the Fund. The ending value of the Fund reflects a 2.00% contingent deferred sales charge on any redemption less than four years from the purchase date. The maximum contingent deferred sales charge is 5.50% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LGIFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. 2 The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission ("SEC") requires to be reflected in the Fund's performance. The index is unmanaged. The LGIFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in a fund's performance. 3 Total returns quoted reflect all applicable sales charges and contingent deferred sales charges. Federated American Leaders Fund, Inc.- Class C Shares GROWTH OF $10,000 INVESTMENT The graph below illustrates the hypothetical investment of $10,000 1 in Federated American Leaders Fund, Inc. (Class C Shares) (the "Fund") from April 22, 1993 (start of performance) to March 31, 1999, compared to the Standard & Poor's 500 Index (S&P 500) and the Lipper Growth and Income Funds Average (LGIFA).2 AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999 1 Year 4.62% 5 Years 20.67% Start of Performance (4/22/93) 17.83% [Graphic representation "A6" omitted. See Appendix.] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. 1 Represents a hypothetical investment of $10,000 in the Fund. The maximum contingent deferred sales charge is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LGIFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. 2 The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (the "SEC") requires to be reflected in the Fund's performance. The index is unmanaged. The LGIFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in a fund's performance. 3 Total returns quoted reflect all applicable sales charges and contingent deferred sales charges. Federated American Leaders Fund, Inc.- Class F Shares GROWTH OF $10,000 INVESTMENT The graph below illustrates the hypothetical investment of $10,000 1 in Federated American Leaders Fund, Inc. (Class F Shares) (the "Fund") from July 28, 1993 (start of performance) to March 31, 1999, compared to the Standard & Poor's 500 Index (S&P 500) and the Lipper Growth and Income Funds Average (LGIFA).2 AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999 1 Year 4.36% 5 Years 21.26% Start of Performance (7/28/93) 18.45% [Graphic representation "A7" omitted. See Appendix.] PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. 1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900). A contingent deferred sales charge of 1.00% would be charged on any redemption less than four year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LGIFA have been adjusted to reflect reinvestment of dividends on securities in the index and average. 2 The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (the "SEC") requires to be reflected in the Fund's performance. The index is unmanaged. The LGIFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling in the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in a fund's performance. 3 Total returns quoted reflect all applicable sales charges and contingent deferred sales charges. Portfolio of Investments MARCH 31, 1999
SHARES VALUE COMMON STOCKS-98.1% BASIC MATERIALS-5.5% 3,410,925 Archer-Daniels-Midland Co. $ 50,097,961 1,460,000 Barrick Gold Corp. 24,911,250 2,187,400 Corn Products International, Inc. 52,360,888 272,900 Dow Chemical Co. 25,430,868 1,100,000 Nucor Corp. 48,468,750 TOTAL 201,269,717 CAPITAL GOODS-12.1% 896,673 AMP, Inc. 48,140,132 872,100 Allied-Signal, Inc. 42,896,419 1,761,800 Boeing Co. 60,121,425 1,278,800 Crown Cork & Seal Co., Inc. 36,525,725 955,000 Deere & Co. 36,886,875 580,500 Ingersoll-Rand Co. 28,807,312 517,500 Johnson Controls, Inc. 32,279,062 514,900 Koninklijke (Royal) Philips Electronics NV, ADR 42,447,069 1,008,700 Parker-Hannifin Corp. 34,547,975 1,340,400 Tenneco, Inc. 37,447,425 999,500 Waste Management, Inc. 44,352,813 TOTAL 444,452,232 COMMUNICATION SERVICES-4.7% 542,800 AT&T Corp. 43,322,225 1,046,500 GTE Corp. 63,313,250 703,200 SBC Communications, Inc. 33,138,300 589,700 U.S. West, Inc. 32,470,356 TOTAL 172,244,131 CONSUMER CYCLICALS-11.1% 1,033,000 Brunswick Corp. 19,691,562 957,600 Cooper Tire & Rubber Co. 17,595,900 1,461,400 Dillards, Inc., Class A 37,083,025 640,300 General Motors Corp. 55,626,063 2,184,400 1 K Mart Corp. 36,725,225 1,335,600 Liz Claiborne, Inc. 43,573,950 SHARES VALUE COMMON STOCKS-continued CONSUMER CYCLICALS-CONTINUED 2,020,800 News Corp. Ltd., ADR $ 55,572,000 1,396,200 Sherwin-Williams Co. 39,268,125 3,168,800 1 Toys 'R' Us, Inc. 59,613,050 454,800 Wal-Mart Stores, Inc. 41,926,875 TOTAL 406,675,775 CONSUMER STAPLES-11.0% 511,800 Anheuser-Busch Cos., Inc. 38,992,762 1,361,100 Kimberly-Clark Corp. 65,247,731 1,220,400 1 King World Productions, Inc. 37,298,475 1,053,500 Philip Morris Cos., Inc. 37,070,031 1,716,600 RJR Nabisco Holdings Corp. 42,915,000 1,220,300 Sara Lee Corp. 30,202,425 739,800 1 Tricon Global Restaurants, Inc. 51,970,950 2,040,300 UST, Inc. 53,302,838 567,500 1 Viacom, Inc., Class A 47,279,844 TOTAL 404,280,056 ENERGY MINERALS-8.8% 1,168,700 Ashland, Inc. 47,843,656 1,211,000 Diamond Offshore Drilling, Inc. 38,297,875 419,300 Exxon Corp. 29,586,856 360,000 Mobil Corp. 31,680,000 785,500 Royal Dutch Petroleum Co., ADR 40,846,000 931,800 Schlumberger Ltd. 56,082,713 892,400 Sunoco, Inc. 32,182,175 365,800 Texaco, Inc. 20,759,150 949,700 USX Corp. 26,116,750 TOTAL 323,395,175 FINANCE-16.6% 3,566,200 ABB AB, ADR 44,354,612 1,424,800 Allstate Corp. 52,806,650 656,300 Bank One Corporation 36,137,519 984,747 Bear Stearns Cos., Inc. 44,005,882 772,500 CIGNA Corp. 64,745,156 2,030,000 CIT Group, Inc., Class A 62,041,875 2,667,604 Conseco, Inc. 82,362,284 SHARES VALUE COMMON STOCKS-continued FINANCE-CONTINUED 437,000 Lincoln National Corp. $ 43,208,375 460,100 Loews Corp. 34,334,962 605,900 MBIA Insurance Corp. 35,142,200 705,750 Marsh & McLennan Cos., Inc. 52,357,828 452,000 Republic New York Corp. 20,848,500 893,300 Washington Mutual, Inc. 36,513,638 TOTAL 608,859,481 HEALTH CARE-7.8% 764,200 Abbott Laboratories 35,774,112 582,600 Bristol-Myers Squibb Co. 37,468,462 481,000 Merck & Co., Inc. 38,570,188 2,470,400 1 Oxford Health Plans, Inc. 38,600,000 1,102,500 Pharmacia & Upjohn, Inc. 68,768,438 1,284,800 United Healthcare Corp. 67,612,600 TOTAL 286,793,800 TECHNOLOGY-11.8% 430,000 Eastman Kodak Co. 27,466,250 1,340,100 Electronic Data Systems Corp. 65,246,119 1,645,200 First Data Corp. 70,332,300 242,000 International Business Machines Corp. 42,894,500 176,400 1 Lexmark Intl. Group, Class A 19,712,700 546,300 Motorola, Inc. 40,016,475 1,282,000 1 Seagate Technology, Inc. 37,899,125 1,400,200 1 Storage Technology Corp. 39,030,575 726,000 1 Sun Microsystems, Inc. 90,704,625 TOTAL 433,302,669 TRANSPORTATION-1.6% 552,000 Canadian National Railway 30,705,000 1,112,500 Ryder Systems, Inc. 30,732,813 TOTAL 61,437,813 UTILITIES-7.1% 784,800 Consolidated Natural Gas Co. 38,209,950 1,300,000 Entergy Corp. 35,750,000 631,500 FPL Group, Inc. 33,627,375 1,205,000 P G & E Corp. 37,430,312 SHARES OR PRINCIPAL AMOUNT VALUE COMMON STOCKS-continued UTILITIES-CONTINUED 1,223,900 Peco Energy Co. $ 56,605,375 823,000 Public Service Enterprises Group, Inc. 31,428,313 1,030,700 Reliant Energy, Inc. 26,862,619 TOTAL 259,913,944 TOTAL COMMON STOCKS (IDENTIFIED COST $2,998,288,255) 3,602,624,793 REPURCHASE AGREEMENT-1.6% 2 $ 58,860,000 ABN AMRO, Inc., 5.05%, dated 3/31/1999, due 4/1/1999 $ 58,860,000 TOTAL INVESTMENTS (IDENTIFIED COST $3,057,148,255) 3 $ 3,661,484,793
1 Non-income producing security. 2 The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of the portfolio. The investment in the repurchase agreement is through participation in a joint account with other Federated funds. 3 The cost of investments for federal tax purposes amounts to $3,057,148,255. The net unrealized appreciation of investments on a federal tax basis amounts to $604,336,538 which is comprised of $773,499,874 appreciation and $169,163,336 depreciation at March 31, 1999. Note: The categories of investments are shown as a percentage of net assets ($3,670,815,716) at March 31, 1999. The following acronym is used throughout this portfolio: ADR -American Depositary Receipt See Notes which are an integral part of the Financial Statements Statement of Assets and Liabilities MARCH 31, 1999 ASSETS: Total investments in securities, at value (identified and tax cost $3,057,148,255) $ 3,661,484,793 Cash 6,063 Income receivable 7,367,715 Receivable for investments sold 1,289,567 Receivable for shares sold 12,773,839 TOTAL ASSETS 3,682,921,977 LIABILITIES: Payable for shares redeemed $ 10,307,528 Income distribution payable 1,040 Payable for taxes withheld 226,337 Accrued expenses 1,571,356 TOTAL LIABILITIES 12,106,261 Net assets for 147,495,848 shares outstanding $ 3,670,815,716 NET ASSETS CONSIST OF: Paid in capital $ 2,996,786,387 Net unrealized appreciation of investments 604,336,538 Accumulated net realized gain on investments and foreign currency transactions 68,609,095 Undistributed net investment income 1,083,696 TOTAL NET ASSETS $ 3,670,815,716 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: CLASS A SHARES: Net Asset Value Per Share ($1,621,527,279 / 65,109,552 shares outstanding) $24.90 Offering Price Per Share (100/94.50 of $24.90) 1 $26.35 Redemption Proceeds Per Share $24.90 CLASS B SHARES: Net Asset Value Per Share ($1,738,564,403 / 69,895,833 shares outstanding) $24.87 Offering Price Per Share $24.87 Redemption Proceeds Per Share (94.50/100 of $24.87) 1 $23.50 CLASS C SHARES: Net Asset Value Per Share ($175,843,296 / 7,068,205 shares outstanding) $24.88 Offering Price Per Share $24.88 Redemption Proceeds Per Share (99.00/100 of $24.88) 1 $24.63 CLASS F SHARES: Net Asset Value Per Share ($134,880,738 / 5,422,258 shares outstanding) $24.88 Offering Price Per Share (100/99.00 of $24.88) 1 $25.13 Redemption Proceeds Per Share (99.00/100 of $24.88) 1 $24.63
1 See "What Do Shares Cost?" in the Prospectus. See Notes which are an integral part of the Financial Statements Statement of Operations YEAR ENDED MARCH 31, 1999 INVESTMENT INCOME: Dividends $ 61,575,862 Interest 2,117,207 TOTAL INCOME 63,693,069 EXPENSES: Investment advisory fee $ 20,575,888 Administrative personnel and services fee 2,424,668 Custodian fees 205,528 Transfer and dividend disbursing agent fees and expenses 2,863,894 Directors'/Trustees' fees 31,846 Auditing fees 31,961 Legal fees 12,321 Portfolio accounting fees 317,069 Distribution services fee-Class B Shares 10,850,463 Distribution services fee-Class C Shares 1,156,234 Shareholder services fee-Class A Shares 3,714,740 Shareholder services fee-Class B Shares 3,616,821 Shareholder services fee-Class C Shares 385,411 Shareholder services fee-Class F Shares 322,379 Share registration costs 165,124 Printing and postage 809,224 Insurance premiums 8,923 Taxes 88,938 Miscellaneous 42,322 TOTAL EXPENSES 47,623,754 Net investment income 16,069,315 REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments and foreign currency transactions 279,325,386 Net change in unrealized appreciation (depreciation) of investments (90,333,825) Net realized and unrealized gain (loss) on investments and foreign currency transactions 188,991,561 Change in net assets resulting from operations $ 205,060,876
See Notes which are an integral part of the Financial Statements Statement of Changes in Net Assets
YEAR ENDED MARCH 31 1999 1998 INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income $ 16,069,315 $ 11,455,050 Net realized gain on investments and foreign currency transactions ($279,325,542 and $354,467,088, respectively, as computed for federal tax purposes) 279,325,386 354,458,500 Net change in unrealized appreciation/depreciation of investments (90,333,825) 484,020,318 CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 205,060,876 849,933,868 NET EQUALIZATION CREDITS - 2,869,258 DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income Class A Shares (12,269,937) (9,470,939) Class B Shares (1,639,307) (1,019,987) Class C Shares (131,274) (115,071) Class F Shares (1,055,791) (911,279) Distributions from net realized gains Class A Shares (174,322,085) (136,036,451) Class B Shares (168,304,148) (106,307,915) Class C Shares (17,835,525) (12,719,363) Class F Shares (15,130,507) (13,912,321) CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (390,688,574) (280,493,326) SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME): Proceeds from sale of shares 1,361,055,422 799,421,022 Proceeds from shares issued in connection with the acquisition of Penn Square Mutual Fund's Class A and Class C Shares - 336,495,867 1 Net asset value of shares issued to shareholders in payment of distributions declared 352,843,676 251,515,083 Cost of shares redeemed (781,014,882) (370,401,026) CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 932,884,216 1,017,030,946 Change in net assets 747,256,518 1,589,340,746 NET ASSETS: Beginning of period 2,923,559,198 1,334,218,452 End of period (including undistributed net investment income of $1,083,696 and $110,846, respectively) $ 3,670,815,716 $ 2,923,559,198
1 Includes $80,295,577 and $500,251 of unrealized appreciation on Class A Shares and Class C Shares, respectively. See Notes which are an integral part of the Financial Statements Financial Highlights-Class A Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 NET ASSET VALUE, BEGINNING OF PERIOD $26.64 $21.40 $19.78 $15.66 $14.58 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.21 0.29 0.23 0.22 0.25 Net realized and unrealized gain on investments and foreign currency transactions 1.26 8.39 3.11 4.70 1.42 TOTAL FROM INVESTMENT OPERATIONS 1.47 8.68 3.34 4.92 1.67 LESS DISTRIBUTIONS: Distributions from net investment income (0.20) (0.21) (0.21) (0.17) (0.24) Distributions from net realized gain on investments and foreign currency transactions (3.01) (3.23) (1.51) (0.63) (0.35) TOTAL DISTRIBUTIONS (3.21) (3.44) (1.72) (0.80) (0.59) NET ASSET VALUE, END OF PERIOD $24.90 $26.64 $21.40 $19.78 $15.66 TOTAL RETURN 1 6.31% 43.95% 17.40% 32.00% 11.87% RATIOS TO AVERAGE NET ASSETS: Expenses 1.11% 1.14% 1.17% 1.16% 1.23% Net investment income 0.87% 0.84% 0.95% 1.07% 1.71% Expense waiver/reimbursement 2 - - 0.03% 0.07% - SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $1,621,527 $1,457,925 $638,082 $455,867 $268,470 Portfolio turnover 44% 63% 88% 46% 34%
1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 2 This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. See Notes which are an integral part of the Financial Statements Financial Highlights-Class B Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 1 NET ASSET VALUE, BEGINNING OF PERIOD $26.61 $21.40 $19.79 $15.67 $14.97 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.03 0.06 0.05 0.10 0.13 Net realized and unrealized gain on investments and foreign currency transactions 1.26 8.41 3.12 4.70 0.92 TOTAL FROM INVESTMENT OPERATIONS 1.29 8.47 3.17 4.80 1.05 LESS DISTRIBUTIONS: Distributions from net investment income (0.02) (0.03) (0.05) (0.05) (0.12) Distributions from net realized gain on investments (3.01) (3.23) (1.51) (0.63) (0.23) TOTAL DISTRIBUTIONS (3.03) (3.26) (1.56) (0.68) (0.35) NET ASSET VALUE, END OF PERIOD $24.87 $26.61 $21.40 $19.79 $15.67 TOTAL RETURN 2 5.54% 42.78% 16.49% 31.10% 7.28% RATIOS TO AVERAGE NET ASSETS: Expenses 1.86% 1.89% 1.95% 1.93% 1.95% 3 Net investment income 0.13% 0.11% 0.18% 0.32% 1.09% 3 Expense waiver/reimbursement 4 - - - 0.05% 0.12% 3 SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $1,738,564 $1,201,402 $540,995 $261,024 $46,671 Portfolio turnover 44% 63% 88% 46% 34%
1 Reflects operations for the period from July 25, 1994 (date of initial public investment) to March 31,1995. 2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 3 Computed on an annualized basis. 4 This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. See Notes which are an integral part of the Financial Statements Financial Highlights-Class C Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 NET ASSET VALUE, BEGINNING OF PERIOD $26.61 $21.40 $19.80 $15.66 $14.55 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.03 0.05 0.04 0.05 0.14 Net realized and unrealized gain on investments and foreign currency transactions 1.27 8.42 3.12 4.75 1.45 TOTAL FROM INVESTMENT OPERATIONS 1.30 8.47 3.16 4.80 1.59 LESS DISTRIBUTIONS: Distributions from net investment income (0.02) (0.03) (0.05) (0.03) (0.13) Distributions from net realized gain on investments and foreign currency transactions (3.01) (3.23) (1.51) (0.63) (0.35) TOTAL DISTRIBUTIONS (3.03) (3.26) (1.56) (0.66) (0.48) NET ASSET VALUE, END OF PERIOD $24.88 $26.61 $21.40 $19.80 $15.66 TOTAL RETURN 1 5.55% 42.78% 16.42% 31.14% 11.23% RATIOS TO AVERAGE NET ASSETS: Expenses 1.86% 1.89% 1.95% 1.96% 2.04% Net investment income 0.12% 0.11% 0.18% 0.27% 0.91% Expense waiver/reimbursement 2 - - - 0.02% - SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $175,843 $134,773 $69,990 $44,434 $20,055 Portfolio turnover 44% 63% 88% 46% 34%
1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 2 This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. See Notes which are an integral part of the Financial Statements Financial Highlights-Class F Shares (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 NET ASSET VALUE, BEGINNING OF PERIOD $26.61 $21.40 $19.78 $15.66 $14.58 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.21 0.22 0.20 0.19 0.25 Net realized and unrealized gain on investments and foreign currency transactions 1.27 8.43 3.13 4.72 1.42 TOTAL FROM INVESTMENT OPERATIONS 1.48 8.65 3.33 4.91 1.67 LESS DISTRIBUTIONS: Distributions from net investment income (0.20) (0.21) (0.20) (0.16) (0.24) Distributions from net realized gain on investments and foreign currency transactions (3.01) (3.23) (1.51) (0.63) (0.35) TOTAL DISTRIBUTIONS (3.21) (3.44) (1.71) (0.79) (0.59) NET ASSET VALUE, END OF PERIOD $24.88 $26.61 $21.40 $19.78 $15.66 TOTAL RETURN 1 6.36% 43.80% 17.39% 31.95% 11.80% RATIOS TO AVERAGE NET ASSETS: Expenses 1.11% 1.14% 1.19% 1.21% 1.27% Net investment income 0.87% 0.86% 0.94% 1.02% 1.69% Expense waiver/reimbursement 2 - - 0.01% 0.02% - SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $134,881 $129,458 $85,151 $55,329 $28,495 Portfolio turnover 44% 63% 88% 46% 34%
1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 2 This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. See Notes which are an integral part of the Financial Statements Notes to Financial Statements MARCH 31, 1999 ORGANIZATION Federated American Leaders Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund offers four classes of shares: Class A Shares, Class B Shares, Class C Shares and Class F Shares. The investment objective of the Fund is to seek growth of capital and of income by concentrating on the area of investment decision in the securities of high quality companies. On June 2, 1997, the Fund's Class A Shares and Class C Shares acquired all the net assets of Penn Square Mutual Fund's Class A Shares and Class C Shares (the "Acquired Class A Shares and Acquired Class C Shares") pursuant to a plan of reorganization approved by the Acquired Class A Shares' and Acquired Class C Shares' shareholders. The acquisition was accomplished by a tax-free exchange of 14,929,279 and 92,816 shares, respectively, of the Fund's Class A Shares and Class C Shares (valued at $334,415,853 and $2,080,014, respectively) for 27,592,067 and 171,902 shares, respectively, of the Acquired Class A Shares and Acquired Class C Shares outstanding on June 1, 1997. The Acquired Class A Shares' and Acquired Class C Shares' net assets of $334,415,853 and $2,080,014, respectively, which consisted of $80,295,577 and $500,251, respectively, of unrealized appreciation, were combined at that date with those of the Fund's Class A Shares and Class C Shares. The aggregate net assets of the Fund's Class A Shares and Class C Shares and the Acquired Class A Shares and Acquired Class C Shares immediately before the acquisition were $716,179,581 and $79,736,654, respectively, and $334,415,853 and $2,080,014, respectively. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS Listed equity securities are valued at the last sale price reported on a national securities exchange. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. REPURCHASE AGREEMENTS It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Directors (the "Directors"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for foreign currency transactions and have been reclassified as follows: INCREASE(DECREASE) ACCUMULATED NET REALIZED GAIN (LOSS) ON INVESTMENTS AND UNDISTRIBUTED FOREIGN CURRENCY NET INVESTMENT PAID IN CAPITAL TRANSACTIONS INCOME ($25,084) $25,240 ($156) Net investment income, net realized gains/losses, and net assets were not affected by this reclassification. FEDERAL TAXES It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. EQUALIZATION Effective April 1, 1998, the Fund discontinued its use of equalization. Equalization is an accounting practice whereby a portion of the proceeds of sales and costs of redemptions of Fund shares is credited or charged to undistributed net investment income on a per share basis, as determined on the date of transaction. This change in accounting policy does not effect the Fund's net assets, net asset value per share, or net investment income. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER Investment transactions are accounted for on the trade date. CAPITAL STOCK At March 31, 1999, par value shares ($0.20 per share) authorized were as follows: NUMBER OF PAR VALUE CAPITAL STOCK CLASS NAME AUTHORIZED Class A Shares 30,000,000 Class B Shares 20,000,000 Class C Shares 25,000,000 Class F Shares 25,000,000
YEAR ENDED MARCH 31 1999 1998 CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 23,860,472 $ 592,015,541 14,199,455 $ 257,444,031 Shares issued to shareholders in connection with the acquisition of Penn Square Mutual Fund's Class A Shares - - 14,929,279 334,415,853 Shares issued to shareholders in payment of distributions declared 6,671,760 160,839,562 5,489,537 124,963,822 Shares redeemed (20,151,161) (497,963,928) (9,712,914) (234,846,738) NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS 10,381,071 $ 254,891,175 24,905,357 $ 481,976,968 YEAR ENDED MARCH 31 1999 1998 CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 27,415,116 $ 682,194,308 19,476,886 $ 468,919,793 Shares issued to shareholders in payment of distributions declared 6,634,213 159,886,480 4,423,479 100,689,615 Shares redeemed (9,306,496) (227,618,837) (4,032,641) (97,137,007) NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS 24,742,833 $ 614,461,951 19,867,724 $ 472,472,401 YEAR ENDED MARCH 31 1999 1998 CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 2,821,388 $ 70,046,322 2,272,169 $ 54,279,888 Shares issued to shareholders in connection with acquisition of Penn Square Mutual Fund's Class C Shares - - 92,816 2,080,014 Shares issued to shareholders in payment of distributions declared 701,366 16,918,449 524,098 11,922,133 Shares redeemed (1,519,177) (37,222,724) (1,095,674) (26,166,756) NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS 2,003,577 $ 49,742,047 1,793,409 $ 42,115,279 YEAR ENDED MARCH 31 1999 1998 CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT Shares sold 670,331 $ 16,799,251 787,209 $ 18,777,310 Shares issued to shareholders in payment of distributions declared 630,147 15,199,185 612,048 13,939,513 Shares redeemed (744,093) (18,209,393) (513,208) (12,250,525) NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS 556,385 $ 13,789,043 886,049 $ 20,466,298 NET CHANGE RESULTING FROM SHARE TRANSACTIONS 37,683,866 $ 932,884,216 47,452,539 $ 1,017,030,946
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE Effective March 31, 1999, Federated Advisers changed its name to Federated Investment Management Company. Federated Investment Management Company, the Fund's investment adviser, receives for its services an annual investment advisory fee equal to (a) a maximum of 0.55% of the average daily net assets of the Fund, and (b) 4.50% of the gross income of the Fund, excluding capital gains or losses. ADMINISTRATIVE FEE Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc. for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp., ("FSC") the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Class B and Class C Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC. PERCENTAGE OF AVERAGE DAILY NET ASSETS SHARE CLASS OF CLASS Class B Shares 0.75% Class C Shares 0.75% The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE Under the terms of a Shareholder Services Agreement with Federated Share holder Services, the Fund will pay Federated Shareholder Services Company ("FSSC") up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. FSSC can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES FServ through its subsidiary, FSSC serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. GENERAL Certain of the Officers and Directors of the Fund are Officers and Directors or Trustees of the above companies. INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the period ended March 31, 1999, were as follows: Purchases $1,930,975,440 Sales $1,401,164,815 YEAR 2000 (UNAUDITED) Similar to other financial organizations, the Fund could be adversely affected if the computer systems used by the Fund's service providers do not properly process and calculate date-related information and data from and after January 1, 2000. The Fund's Adviser and administrator are taking measures that they believe are reasonably designed to address the Year 2000 issue with respect to computer systems that they use and to obtain reasonable assurances that comparable steps are being taken by each of the Fund's other service providers. At this time, however, there can be no assurance that these steps will be sufficient to avoid any adverse impact to the Fund. Report of Independent Public Accountants TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF FEDERATED AMERICAN LEADERS FUND, INC.: We have audited the accompanying statement of assets and liabilities of Federated American Leaders Fund, Inc. (a Maryland corporation), including the portfolio of investments, as of March 31, 1999, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial high lights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 1999, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated American Leaders Fund, Inc. as of March 31, 1999, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts May 20, 1999 Directors JOHN F. DONAHUE THOMAS G. BIGLEY JOHN T. CONROY, JR. WILLIAM J. COPELAND J. CHRISTOPHER DONAHUE JAMES E. DOWD, ESQ. LAWRENCE D. ELLIS, M.D. EDWARD L. FLAHERTY, JR., ESQ. PETER E. MADDEN JOHN E. MURRAY, JR., J.D., S.J.D. WESLEY W. POSVAR MARJORIE P. SMUTS Officers JOHN F. DONAHUE President J. CHRISTOPHER DONAHUE Executive Vice President EDWARD C. GONZALES Executive Vice President JOHN W. MCGONIGLE Executive Vice President and Secretary RICHARD J. THOMAS Treasurer RICHARD B. FISHER Vice President NICHOLAS J. SEITANAKIS Assistant Secretary Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the fund's prospectus which contains facts concerning its objective and policies, management fees, expenses, and other information. [Graphic] Federated World-Class Investment Manager ANNUAL REPORT AS OF MARCH 31, 1999 Federated American Leaders Fund, Inc. 30TH ANNUAL REPORT [Graphic] Federated Federated American Leaders Fund, Inc. Federated Investors Funds 5800 Corporate Drive Pittsburgh, PA 15237-7000 1-800-341-7400 WWW.FEDERATEDINVESTORS.COM Federated Securities Corp., Distributor Cusip 313914103 Cusip 313914202 Cusip 313914301 Cusip 313914400 8042504 (5/99) [Graphic] A1. The graphic presentation here displayed consists of a legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color coded mountain chart is a visual representation of the narrative text above it. The "x" axis reflects computation periods from 2/26/69 to 3/31/99. The "y" axis is measured in increments of $100,000 ranging from $0 to $800,000 and indicates that the ending value of hypothetical initial investment of $31,000 in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $734,309 on 3/31/99. A2. The graphic presentation here displayed consists of a legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color coded mountain chart is a visual representation of the narrative text above it. The "x" axis reflects computation periods from 2/26/69 to 3/31/99. The "y" axis is measured in increments of $50,000 ranging from $0 to $350,000 and indicates that the ending value of hypothetical yearly investments of $1,000 in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $348,941 on 3/31/99. A3. The graphic presentation here displayed consists of a legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color-coded mountain chart is a visual representation of the narrative text beneath it. The "x" axis reflects computation periods from 3/31/84 to 3/31/99. The "y" axis is measured in increments of $50,000 ranging from $0 to $200,000 and indicates that the ending value of a hypothetical initial investment of $5,000 and subsequent monthly investments of $250 over 15 years in the fund's Class A Shares would have grown to $196,357 on 3/31/99. A4. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. The Class A Shares of Federated American Leaders Fund, Inc., (the "Fund") based on a 4.50% sales charge are represented by a solid line. The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and the Lipper Growth and Income Funds Average (the "LGIFA") is represented by a dashed line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in the Class A Shares of the Fund, the S&P 500 and the LGIFA. The "x" axis reflects computation periods from 3/31/89 to 3/31/99. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in the Fund's Class A Shares, based on a 4.50% sales charge, as compared to the S&P 500 and the LGIFA. The ending values were $42,420, $56,820, and $41,405, respectively. A5. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. The Class B Shares of Federated American Leaders Fund, Inc. (the "Fund") based on a 2.00% contingent deferred sales charge are represented by a solid line. The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and the Lipper Growth and Income Funds Average (the "LGIFA") is represented by a dashed line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in the Class B Shares of the Fund, the S&P 500 and the LGIFA. The "x" axis reflects computation periods from 7/25/94 to 3/31/99. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in the Fund's Class B Shares, based on a 2.00% contingent deferred sales charge, as compared to the S&P 500 and the LGIFA. The ending values were $24,221, $32,073, and $24,337, respectively. A6. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. The Class C Shares of Federated American Leaders Fund, Inc. (the "Fund") based on a 1.00% contingent deferred sales charge are represented by a solid line. The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and the Lipper Growth and Income Funds Average (the "LGIFA") is represented by a dashed line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in the Class C Shares of the Fund, the S&P 500 and the LGIFA. The "x" axis reflects computation periods from 4/22/93 to 3/31/99. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in the Fund's Class C Shares, based on a 1.00% contingent deferred sales charge, as compared to the S&P 500 and the LGIFA. The ending values were $23,864, $32,539, and $25,243, respectively. A7. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. The Class F Shares of Federated American Leaders Fund, Inc. (the "Fund") based on 1.00% sales charge are represented by a solid line. The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and the Lipper Growth and Income Funds Average (the "LGIFA") is represented by a dashed line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in the Class F Shares of the Fund, the S&P 500 and the LGIFA. The "x" axis reflects computation periods from 7/28/93 to 3/31/99. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in the Fund's Class F Shares, based on a 1.00% sales charge, as compared to the S&P 500 and the LGIFA. The ending values were $26,143, $32,539, and $25,243, respectively. -----END PRIVACY-ENHANCED MESSAGE-----