FEDERATED AMERICAN LEADERS FUND, INC.

485BPOS 1 falfform.htm FEDERATED AMERICAN LEADERS FUND, INC.



                                                       1933 Act File No. 2-29786
                                                      1940 Act File No. 811-1704

                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                 Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             X

    Pre-Effective Amendment No.         ....................

    Post-Effective Amendment No.   73  .....................        X

                                  and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X

    Amendment No.   47  ....................................        X

                   FEDERATED AMERICAN LEADERS FUND, INC.

            (Exact Name of Registrant as Specified in Charter)

                         Federated Investors Funds
                           5800 Corporate Drive
                    Pittsburgh, Pennsylvania 15237-7000
                 (Address of Principal Executive Offices)

                              (412) 288-1900
                      (Registrant's Telephone Number)

                        John W. McGonigle, Esquire
                         Federated Investors Tower
                            1001 Liberty Avenue
                    Pittsburgh, Pennsylvania 15222-3779
                  (Name and Address of Agent for Service)
             (Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

x    immediately upon filing pursuant to paragraph (b)
    on ___________ pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a)(i)
    on _____________ pursuant to paragraph (a)(i)
    75 days after filing pursuant to paragraph (a)(ii)
    on ____________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

    This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

                                Copies To:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037

Federated Investors
World-Class Investment Manager

Federated American Leaders Fund, Inc.

PROSPECTUS

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May 31, 2004

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CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES

A mutual fund seeking growth of capital and of income by investing in common stocks and other securities of high-quality companies.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Specific Risks of Investing in the Fund? 9

What Do Shares Cost? 10

How is the Fund Sold? 15

How to Purchase Shares 16

How to Redeem and Exchange Shares 18

Account and Share Information 22

Who Manages the Fund? 23

Legal Proceedings 24

Financial Information 26

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to seek growth of capital and of income by concentrating the area of investment decision in the securities of high-quality companies. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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The Fund pursues its investment objective by using the value style of investing to select primarily equity securities of large capitalization companies that are in the top 50% of their industry in terms of revenues, are characterized by sound management and have the ability to finance expected growth.

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:

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Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
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Risks Relating to Investing for Value. Due to the Fund's value style of investing, the Fund's Share price may lag that of other funds using a different investment style.
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Sector Risks. Because the Fund may allocate relatively more of its assets to one or more industry sectors comprising the Standard & Poor's 500 Index (S&P 500) than to other sectors of the Index, the Fund's performance will be more susceptible to any developments which affect the sectors emphasized by the Fund.
Risks of Investing in American Depositary Receipts. Because the Fund may invest in American Depositary Receipts issued by foreign companies, the Fund's share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards, than would otherwise be the case.

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The Shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.

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Risk/Return Bar Chart and Table

The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

The total returns shown in the bar chart for the Fund's Class A Shares do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.

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The Fund's Class A Shares total return for the three-month period from January 1, 2004 to March 31, 2004 was 2.48%.

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Within the period shown in the bar chart, the Fund's Class A Share highest quarterly return was 16.83% (quarter ended June 30, 2003). Its lowest quarterly return was (19.72)% (quarter ended September 30, 2002).

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Average Annual Total Return Table

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The Average Annual Total Returns for the Fund's Class A, Class B, Class C and Class F Shares are reduced to reflect applicable sales charges. Return Before Taxes is shown for all classes. In addition, Return After Taxes is shown for Class A Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for Standard & Poor's 500/Barra Value Index ("S&P 500/Barra Value"), a broad-based market index, and the Lipper Large-Cap Value Average ("LLCVA"), an average of funds with similar investment objectives. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index or an average. Lipper averages represent the average of the total returns reported by all mutual funds as designated by Lipper, Inc. as falling in the respective categories indicated.

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(For the periods ended December 31, 2003)

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	1 Year	5 Years	10 Years	Start of Performance¹
Class A Shares:
Return Before Taxes	20.27%	(0.14)%	9.67%	--
Return After Taxes on Distributions²	19.76%	(0.78)%	7.98%	--
Return After Taxes on Distributions and Sale of Fund Shares²	13.12%	(0.44)%	7.61%	--
Class B Shares:
Return Before Taxes	20.92%	(0.13)%	--	10.07%
Class C Shares:
Return Before Taxes	24.13%	0.05%	9.37%	--
Class F Shares:
Return Before Taxes	25.16%	0.80%	10.16%	--
S&P 500/Barra Value	31.79%	1.89%	9.81%	--
LLCVA	27.53%	1.41%	9.10%	--

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1 The Fund's Class B Share's start of performance date was July 26, 1994.

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2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns for Class B, Class C and Class F Shares will differ from those shown above for Class A Shares. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

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What are the Fund's Fees and Expenses?

FEDERATED AMERICAN LEADERS FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold the Fund's Class A, Class B, Class C and Class F Shares.

Shareholder Fees	Class A	Class B	Class C	Class F
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	5.50%	None	1.00%	1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	5.50%	1.00%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None	None
Exchange Fee	None	None	None	None

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²	0.65%	0.65%	0.65%	0.65%
Distribution (12b-1) Fee	None	0.75%	0.75%	None
Shareholder Services Fee	0.25%	0.25%	0.25%	0.25%
Other Expenses	0.31%	0.31%	0.31%	0.29%
Total Annual Fund Operating Expenses	1.21%	1.96%³	1.96%	1.19%

1 The percentages shown are based on expenses for the entire fiscal year ended March 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage.
2 The management fee equals the sum of 0.55% of the Fund's average daily net assets plus 4.50% of the Fund's gross income.
3 After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about last day of the following month. Class A Shares pay lower operating expenses than the Class B Shares.

EXAMPLE

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This Example is intended to help you compare the cost of investing in the Fund's Class A, Class B, Class C and Class F Shares with the cost of investing in other mutual funds.

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The Example assumes that you invest $10,000 in the Fund's Class A, Class B, Class C and Class F Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A, Class B, Class C and Class F Shares operating expenses as shown in the table remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	<R>$667</R>	<R>$ 913</R>	<R>$1,178</R>	<R>$1,935</R>

Expenses assuming no redemption	<R>$667</R>	<R>$ 913</R>	<R>$1,178</R>	<R>$1,935</R>

Class B:
Expenses assuming redemption	<R>$749</R>	<R>$1,015</R>	<R>$1,257</R>	<R>$2,091</R>

Expenses assuming no redemption	<R>$199</R>	<R>$ 615</R>	<R>$1,057</R>	<R>$2,091</R>

Class C:
Expenses assuming redemption	<R>$397</R>	<R>$ 709</R>	<R>$1,147</R>	<R>$2,362</R>

Expenses assuming no redemption	<R>$297</R>	<R>$ 709</R>	<R>$1,147</R>	<R>$2,362</R>

Class F:
Expenses assuming redemption	<R>$320</R>	<R>$ 574</R>	<R>$ 748</R>	<R>$1,529</R>

Expenses assuming no redemption	<R>$220</R>	<R>$ 474</R>	<R>$ 748</R>	<R>$1,529</R>

What are the Fund's Investment Strategies?

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The Fund pursues its investment objective by investing primarily in equity securities companies that are generally leaders in their industries, are characterized by sound management and have the ability to finance expected growth. The Fund's investment adviser (Adviser) attempts to identify good long-term values through disciplined investing and careful fundamental research. The Fund's holdings ordinarily will be in large capitalization companies that are in the top 50% of their industries with regard to revenues. A description of the various types of securities in which the Fund principally invests, and their risks, immediately follows the strategy discussion.

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Companies with similar characteristics may be grouped together in broad categories called sectors. The Adviser diversifies the Fund's investments, seeking to limit the Fund's risk exposure with respect to individual securities and industry sectors.

The Fund's Adviser performs traditional fundamental analysis to select securities for the Fund that exhibit the most promising long-term value for the Fund's portfolio. In selecting securities, the Adviser focuses on the current financial condition of the issuing company, in addition to examining each issuer's business and product strength, competitive position, and management expertise. Further, the Adviser considers current economic, financial market and industry factors, which may affect the issuing company. To determine the timing of purchases and sales of portfolio securities, the Adviser looks at recent stock price performance and the direction of current fiscal year earnings estimates of various companies.

The Adviser uses the value style of investing, selecting securities of companies which are trading at discounts to their historic relationship to the market as well as to their expected growth. Value stocks tend to pay higher dividends than other segments of the market. Because the Adviser uses the value style, the price of the securities held by the Fund may not, under certain market conditions, increase as rapidly as stocks selected primarily for their growth attributes.

The Adviser may invest in American Depositary Receipts (ADRs), which represent interests in underlying securities issued by a foreign company, but which are traded in the United States. The Adviser invests primarily in the ADRs of companies with significant operations within the United States. Securities of foreign companies may be more affected by foreign economic and political conditions, taxation policies, and accounting and auditing standards than those of U.S. companies.

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Because the Fund refers to American investments in its name, it will notify shareholders at least 60 days in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its assets in U.S. equity or fixed income investments.

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TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.

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What are the Principal Securities in Which the Fund Invests?

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EQUITY SECURITIES

Equity securities represent a share of an issuer's earnings and assets, after the issuer pays its liabilities. The Fund cannot predict the income it will receive from equity securities because issuers generally have discretion as to the payment of any dividends or distributions. However, equity securities offer greater potential for appreciation than many other types of securities, because in most instances, their value is tied more directly to the value of the issuer's business. The following describes the principal types of equity securities in which the Fund may invest:

Common Stocks

Common stocks are the most prevalent type of equity security. Common stocks receive the issuer's earnings after the issuer pays its creditors and any preferred stockholders. As a result, changes in an issuer's earnings directly influence the value of its common stock.

American Depositary Receipts

ADRs represent interests in underlying securities issued by a foreign company. Depositary receipts are not traded in the same market as the underlying security. The foreign securities underlying ADRs are not traded in the United States. ADRs provide a way to buy shares of foreign-based companies in the United States rather than in overseas markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange transactions. Moreover, the Fund invests primarily in the ADRs of companies with significant operations within the United States.

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DERIVATIVE CONTRACTS

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Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, commodities, currencies, financial indices or other assets or instruments. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset or instrument. The other party to a derivative contract is referred to as a counterparty.

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Many derivative contracts are traded on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Investors make payments due under their contracts through the exchange. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. Parties to the contract make (or collect) daily payments to the margin accounts to reflect losses (or gains) in the value of their contracts. This protects investors against potential defaults by the counterparty. Trading contracts on an exchange also allows investors to close out their contracts by entering into offsetting contracts.

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Depending on how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset or instrument, derivative contracts may increase or decrease the Fund's exposure to interest rate and stock market risks, and may also expose the fund to liquidity and leverage risks.

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Futures Contracts

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Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded OTC are frequently referred to as forward contracts. The Fund can buy or sell financial futures and index futures.

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Options

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Options are rights to buy or sell an underlying asset or instrument for a specified price (the exercise price) during, or at the end of, a specified period. The seller (or writer) of the option receives a payment, or premium, from the buyer, which the writer keeps regardless of whether the buyer uses (or exercises) the option. A call option gives the holder (buyer) the right to buy the underlying asset from the seller (writer) of the option. A put option gives the holder the right to sell the underlying asset to the writer of the option. Options can trade on exchanges or in the OTC market and may be bought or sold on a wide variety of underlying assets or instruments, including financial indices, individual securities, and other derivative instruments, such as futures contracts.

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Swaps

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Swaps are contracts in which two parties agree to pay each other (swap) the returns derived from underlying assets with differing characteristics. Most swaps do not involve the delivery of the underlying assets by either party, and the parties might not own the assets underlying the swap. The payments are usually made on a net basis so that, on any given day, the Fund would receive (or pay) only the amount by which its payment under the contract is less than (or exceeds) the amount of the other party's payment. Swap agreements are sophisticated instruments that can take many different forms. Common types of swaps in which the Fund may invest include interest rate swaps and total return swaps.

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What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

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The value of equity securities in the Fund's portfolio will rise and fall. These fluctuations could be a sustained trend or a drastic movement. The Fund's portfolio will reflect changes in prices of individual portfolio stocks or general changes in stock valuations. Consequently, the Fund's Share price may decline.
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The Adviser attempts to manage market risk by limiting the amount the Fund invests in each company's equity securities. However, diversification will not protect the Fund against widespread or prolonged declines in the stock market.
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SECTOR RISKS

Companies with similar characteristics may be grouped together in broad categories called sectors. Sector risk is the possibility that a certain sector may underperform other sectors or the market as a whole. As the Adviser allocates more of the Fund's portfolio holdings to a particular sector, the Fund's performance will be more susceptible to any economic, business or other developments which generally affect the sector.

RISKS RELATING TO INVESTING FOR VALUE

Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Further, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

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Because the Fund may invest in ADRs issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies, and accounting and auditing standards, than would otherwise be the case. Foreign companies may not provide information as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
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RISKS OF INVESTING IN DERIVATIVES CONTRACTS

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivatives contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus or the Fund's Statement of Additional Information, such as stock market, liquidity and leverage risks.
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What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price). NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market).

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

The following table summarizes the minimum required investment amount and the maximum sales charge, if any, that you will pay on an investment in the Fund. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A	$1,500/$100	5.50%	0.00%
Class B	$1,500/$100	None	5.50%
Class C	$1,500/$100	1.00%	1.00%
Class F	$1,500/$100	1.00%	1.00%

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1 The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively. The minimum subsequent investment amounts for Systematic Investment Programs (SIP) is $50. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $100,000 or more of Class B Shares (effective April 5, 2004) or $1 million or more of Class C Shares (effective June 14, 2004) will be invested in Class A Shares instead of Class B Shares or Class C Shares to maximize your return and minimize the sales charges and marketing fees. Accounts held in the name of an investment professional may be treated differently. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on or about the last day of the following month. This conversion is a non-taxable event.

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2 Front-End Sales Charge is expressed as a percentage of public offering price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

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As shown in the table above, each Class of Shares has a different sales charge structure. In addition, the ongoing annual operating expenses ("expense ratios"), as well as the compensation payable to investment professionals, also vary among the Classes. Before you decide which Class to purchase, you should review the different charges and expenses of each Class carefully, in light of your personal circumstances, and consult with your investment professional.

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Among the important factors to consider are the amount you plan to invest and the length of time you expect to hold your investment. You should consider, for example, that it may be possible to reduce the front-end sales charges imposed on purchases of Class A Shares. Among other ways, Class A Shares have a series of "breakpoints," which means that the front-end sales charges decrease (and can be eliminated entirely) as the amount invested increases. (The breakpoint schedule is set out below under "Sales Charge When You Purchase.") On the other hand, Class B Shares do not have front-end sales charges, but the deferred sales charges imposed on redemptions of Class B Shares do not vary at all in relation to the amounts invested. Rather, these charges decrease with the passage of time (ultimately going to zero after seven years). Finally, Class C Shares bear a relatively low front-end sales load and a contingent deferred sales charge only if redeemed within one year after purchase; however, the asset-based 12b-1 fees charged to Class C Shares are greater than those charged to Class A Shares and comparable to those charged to Class B Shares.

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You should also consider that the expense ratio for Class A Shares will be lower than that for Class B (or Class C) Shares. Thus, the fact that no front-end charges are ever imposed on purchases of Class B Shares (or that a relatively low front-end charge is imposed on purchases of Class C Shares) does not always make them preferable to Class A Shares.

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SALES CHARGE WHEN YOU PURCHASE

Class A Shares:
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $50,000	5.50%	5.82%
$50,000 but less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%
Class C Shares:
All Purchases	1.00%	1.01%
Class F Shares:
Less than $1 million	1.00%	1.01%
$1 million or greater	0.00%	0.00%

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1 A contingent deferred sales charge of 0.75% may apply. See "Sales Charge When You Redeem."

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If your investment qualifies for a reduction or elimination of the sales charge as described below, you or your investment professional should notify the Fund's Distributor at the time of purchase. If the Distributor is not notified, you will receive the reduced sales charge only on additional purchases, and not retroactively on previous purchases.

The sales charge at purchase of Class A Shares and Class F Shares only, may be reduced or eliminated by:

purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Federated funds (other than money market funds);
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
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signing a letter of intent to purchase a specific dollar amount of Shares within 13 months. (Call your investment professional or the Fund for more information.)
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The sales charge at purchase of Class A Shares will be eliminated when you purchase Shares:

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within 120 days of redeeming Shares of an equal or greater amount;
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by exchanging shares from the same share class of another Federated fund (other than a money market fund);
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through wrap accounts or other investment programs where you pay the investment professional directly for services;
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as a shareholder that originally became a shareholder of the Fund pursuant to the terms of an agreement and plan of reorganization which permits shareholders to acquire Shares at NAV;
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through investment professionals that receive no portion of the sales charge;
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as a Federated Life Member (Class A Shares only) and their immediate family members; or
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as a Director or employee of the Fund, the Adviser, the Distributor and their affiliates, and the immediate family members of these individuals.
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The sales charge at purchase of Class F Shares will be eliminated when you purchase Shares:

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within 120 days of redeeming Shares of an equal or greater amount;
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when the Fund's Distributor does not advance payment to the investment professional for your purchase;
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by exchanging shares from the same share class of another Federated fund;
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for trusts or pension or profit-sharing plans where the third-party administrator has an arrangement with the Fund's Distributor or its affiliates to purchase Shares without a sales charge; or
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through investment professionals that receive no portion of the sales charge.
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SALES CHARGE WHEN YOU REDEEM

Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC).

Class A Shares (Purchase amount of $1 million or greater):
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.
Class F Shares:
Purchase Amount	Shares Held	CDSC
Up to $2 million	4 years or less	1.00%
$2 - $5 million	2 years or less	0.50%
$5 million or more	1 year or less	0.25%

If your investment qualifies for a reduction or elimination of the CDSC as described below, you or your investment professional should notify the Distributor at the time of redemption. If the Distributor is not notified, the CDSC will apply.

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
that you exchanged into the same share class of another Federated fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account. The beneficiary on an account with a Transfer on Death registration is deemed the last surviving shareholder of the account.

To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

Shares that are not subject to a CDSC; and
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Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated funds that have been exchanged for Shares of this Fund).
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The CDSC is then calculated using the Share price at the time of purchase or redemption, whichever is lower.

How is the Fund Sold?

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The Fund offers five Share classes: Class A Shares, Class B Shares, Class C Shares, Class F Shares and Class K Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class A Shares, Class B Shares, Class C Shares and Class F Shares. All Share classes have different sales charges and other expenses which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to individuals, directly or through investment professionals, as a convenient means of accumulating an interest in a professionally managed, diversified portfolio of common stocks and other securities of high-quality companies.

When the Distributor receives marketing fees and sales charges, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

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The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Class B Shares and Class C Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees.

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How to Purchase Shares

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You may purchase Shares through an investment professional, directly from the Fund, or through an exchange from another Federated fund. The Fund reserves the right to reject any request to purchase or exchange Shares.

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Where the Fund offers more than one Share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

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THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.

An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are restricted.

By Check

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Make your check payable to The Federated Funds, note your account number on the check, and send it to:

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Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

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If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

THROUGH AN EXCHANGE

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You may purchase Shares through an exchange from the same share class of another Federated fund. You must meet the minimum initial investment requirement for purchasing Shares and both accounts must have identical registrations.

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BY SYSTEMATIC INVESTMENT PROGRAM

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Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the SIP section of the New Account Form or by contacting the Fund or your investment professional.

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BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.

RETIREMENT INVESTMENTS

You may purchase Shares as retirement investments (such as qualified plans and IRAs or transfer or rollover of assets). Call your investment professional or the Fund for information on retirement investments. We suggest that you discuss retirement investments with your tax adviser. You may be subject to an annual IRA account fee.

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

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through an investment professional if you purchased Shares through an investment professional; or
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directly from the Fund if you purchased Shares directly from the Fund.
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FOR CLASS A SHARES PURCHASED ON OR AFTER MAY 15, 2004

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Class A Shares of the Fund may be redeemed for cash or exchanged for shares of the same class of other Federated Funds on days on which the Fund computes its NAV. Redemption requests may be made by telephone or in writing.

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Class A Shares may be redeemed at the NAV next determined after the Fund receives the redemption request. If the Class A Shares are redeemed within 30 days of purchase, a 2% redemption fee will be charged. The redemption fee will be paid to the Fund.

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THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

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You may redeem or exchange Shares by sending a written request to the Fund.

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You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

In the absence of your specific instructions, 10% of the value of your redemption from a retirement account in the Fund may be withheld for taxes. This withholding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGE

You may exchange Shares of the Fund into shares of the same class of another Federated fund. To do this, you must:

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

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The Fund may modify or terminate the exchange privilege at any time. The Fund's management or Adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading that is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other Federated Funds.

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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You may automatically redeem or exchange Shares in a minimum amount of $100 on a regular basis. Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income. Generally, it is not advisable to continue to purchase Class A Shares, Class C Shares and Class F Shares subject to a sales charge while redeeming Shares using this program.

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Systematic Withdrawal Program (SWP) on Class B Shares

You will not be charged a CDSC on SWP redemptions if:

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you redeem 12% or less of your account value in a single year;
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you reinvest all dividends and capital gains distributions; and
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your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)
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You will be subject to a CDSC on redemption amounts that exceed the 12% annual limit. In measuring the redemption percentage, your account is valued when you establish the SWP and then annually at calendar year-end. You can redeem monthly, quarterly, or semi-annually.

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ADDITIONAL CONDITIONS

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Telephone Transactions

The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.

Share Certificates

The Fund no longer issues share certificates. If you are redeeming or exchanging Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption or exchange request. For your protection, send your certificates by registered or certified mail, but do not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges (except for systematic transactions). In addition, you will receive periodic statements reporting all account activity, including systematic transactions, dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares and pays any dividends quarterly to shareholders. Dividends are paid to all shareholders invested in the Fund on the record date. The record date is the date on which a shareholder must officially own Shares in order to earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.

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If you purchase Shares just before the record date for a dividend or capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the record date for a dividend or capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.

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ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, non-retirement accounts may be closed if redemptions or exchanges cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.

Fund distributions are expected to be both dividends and capital gains. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.

Who Manages the Fund?

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The Board of Directors (the "Board") governs the Fund. The Board selects and oversees the Adviser, Federated Equity Management Company of Pennsylvania. The Adviser manages the Fund's assets, including buying and selling portfolio securities. Federated Advisory Services Company (FASC), an affiliate of the Adviser, provides research, quantitative analysis, equity trading and transaction settlement and certain support services to the Adviser. The fee for these services is paid by the Adviser and not by the Fund. The address of the Adviser and FASC is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 136 mutual funds and a variety of separate accounts, which totaled approximately $198 billion in assets as of December 31, 2003. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,650 employees. More than 5,000 investment professionals make Federated funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Kevin R. McCloskey

Kevin R. McCloskey was named a Portfolio Manager of the Fund in March 2001. Mr. McCloskey joined Federated in 1999 as a Portfolio Manager and is a Vice President of the Fund's Adviser. From September 1994 to July 1999, he served as a portfolio manager, and from January 1994 to September 1994, he served as an investment/quantitative analyst at Killian Asset Management Corporation. Mr. McCloskey is a Chartered Financial Analyst. He received his M.B.A. from the University of Dayton.

Steven J. Lehman

Steven J. Lehman has been the Fund's Portfolio Manager since December 2002. Mr. Lehman joined the Fund's Adviser in May 1997 as a Portfolio Manager and Vice President. He has been a Senior Portfolio Manager since 1998. From 1986 to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice President/ Senior Portfolio Manager, at First Chicago NBD. Mr. Lehman is a Chartered Financial Analyst; he received his M.A. from the University of Chicago.

John L. Nichol

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John L. Nichol has been the Fund's Portfolio Manager since December 2002. Mr. Nichol joined Federated in September 2000 as an Assistant Vice President/ Senior Investment Analyst. He has been a Portfolio Manager since December 2000 and was named a Vice President of the Fund's Adviser in July 2001. Mr. Nichol served as a portfolio manager and analyst for the Public Employees Retirement System of Ohio from 1992 through August 2000. Mr. Nichol is a Chartered Financial Analyst. He received his M.B.A. with an emphasis in Finance and Management and Information Science from the Ohio State University.

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ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.55% of the Fund's average daily net assets plus 4.50% of the Fund's gross income. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

Gross income includes, in general, discounts earned on U.S. Treasury bills and agency discount notes, interest earned on all interest-bearing obligations, and dividend income recorded on the ex-dividend date but does not include capital gains or losses or reduction for expenses.

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Legal Proceedings

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Like many other mutual fund companies, in September 2003, Federated Investors, Inc., the parent company of the Federated funds' advisers and distributor (collectively, "Federated"), received detailed requests for information on shareholder trading activities in the Federated funds ("Funds") from the Securities and Exchange Commission, the New York State Attorney General, and the National Association of Securities Dealers. Since that time, Federated has received additional inquiries from regulatory authorities on these and related matters, and more such inquiries may be received in the future.

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As a result of these inquiries, Federated and the Funds have conducted an internal investigation of the matters raised, which revealed instances in which a few investors were granted exceptions to Federated's internal procedures for limiting frequent transactions and that one of these investors made an additional investment in another Federated fund. The investigation has also identified inadequate procedures which permitted a limited number of investors (including several employees) to engage in undetected frequent trading activities and/or the placement and acceptance of orders to purchase shares of fluctuating net asset value funds after the funds' closing times. Federated has issued a series of press releases describing these matters in greater detail and emphasizing that it is committed to compensating the Funds for any detrimental impact these transactions may have had on them. In that regard, on February 3, 2004, Federated and the independent directors of the Funds announced the establishment by Federated of a restoration fund that is intended to cover any such detrimental impact. The press releases and related communications are available in the "About Us" section of Federated's website www.federatedinvestors.com, and any future press releases on this subject will also be posted there.

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Shortly after Federated's first public announcement concerning the foregoing matters, and notwithstanding Federated's commitment to taking remedial actions, Federated and various Funds were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. The board of the Funds has retained the law firm of Dickstein, Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations have been filed, and others may be filed in the future. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

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Financial Information

FINANCIAL HIGHLIGHTS

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The Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years, or since inception, if the life of the Share Class is shorter. Some of the information is presented on a per Share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

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This information has been audited by Deloitte & Touche LLP, whose report, along with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2004			2003			2002			2001			2000
Net Asset Value, Beginning of Period	$17.23			$23.41			$23.68			$24.74			$24.90
Income From Investment Operations:
Net investment income	0.24			0.23			0.17			0.25			0.17
Net realized and unrealized gain (loss) on investments	6.33			(6.19	)		(0.06	)		(0.28	)		0.35

TOTAL FROM INVESTMENT OPERATIONS	6.57			(5.96	)		0.11			(0.03	)		0.52

Less Distributions:
Distributions from net investment income	(0.24	)		(0.22	)		(0.14	)		(0.24	)		(0.16	)
Distributions from net realized gain on investments	--			--			(0.24	)		(0.79	)		(0.52	)

TOTAL DISTRIBUTIONS	(0.24	)		(0.22	)		(0.38	)		(1.03	)		(0.68	)

Net Asset Value, End of Period	$23.56			$17.23			$23.41			$23.68			$24.74

Total Return¹	38.28	%		(25.50	)%		0.42	%		(0.17	)%		1.97	%


Ratios to Average Net Assets:

Expenses	1.21	%²		1.18	%²		1.12	%		1.16	%		1.16	%

Net investment income	1.12	%		1.13	%		0.73	%		1.04	%		0.68	%

Expense waiver/reimbursement³	0.00	%⁴		0.00	%⁴		0.00	%⁴		0.00	%⁴		--

Supplemental Data:

Net assets, end of period (000 omitted)	$1,562,277		$1,139,851			$1,626,954			$1,648,584			$1,671,780

Portfolio turnover	29	%		25	%		30	%		23	%		36	%

1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

2 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the years ended March 31, 2004 and March 31, 2003 are 1.19% and 1.17%, respectively, after taking into account these expense reductions.

3 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2004, which can be obtained free of charge.

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2004			2003			2002			2001			2000
Net Asset Value, Beginning of Period	$17.22			$23.28			$23.59			$24.67			$24.87
Income From Investment Operations:
Net investment income (loss)	0.09			0.07			(0.01	)		0.07			(0.02	)
Net realized and unrealized gain (loss) on investments	6.31			(6.13	)		(0.06	)		(0.28	)		0.34

TOTAL FROM INVESTMENT OPERATIONS	6.40			(6.06	)		(0.07	)		(0.21	)		0.32

Less Distributions:
Distributions from net investment income	(0.01	)		--			--			(0.08	)		--
Distributions from net realized gain on investments	--			--			(0.24	)		(0.79	)		(0.52	)

TOTAL DISTRIBUTIONS	(0.01	)		--			(0.24	)		(0.87	)		(0.52	)

Net Asset Value, End of Period	$23.61			$17.22			$23.28			$23.59			$24.67

Total Return¹	37.19	%		(26.03	)%		(0.36	)%		(0.90	)%		1.19	%


Ratios to Average Net Assets:

Expenses	1.96	%²		1.93	%²		1.87	%		1.91	%		1.91	%

Net investment income (loss)	0.38	%		0.38	%		(0.02	)%		0.31	%		(0.07	)%

Expense waiver/reimbursement³	0.00	%⁴		0.00	%⁴		0.00	%⁴		0.00	%⁴		--

Supplemental Data:

Net assets, end of period (000 omitted)	$991,586		$850,023			$1,421,563			$1,510,064			$1,721,729

Portfolio turnover	29	%		25	%		30	%		23	%		36	%

1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

2 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the years ended March 31, 2004 and March 31, 2003 are 1.94% and 1.92%, respectively, after taking into account these expense reductions.

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

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2004, which can be obtained free of charge.

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$17.22		$23.29		$23.60		$24.68		$24.88
Income From Investment Operations:
Net investment income (loss)	0.09		0.07		(0.01	)	0.07		(0.02	)
Net realized and unrealized gain (loss) on investments	6.33		(6.14	)	(0.06	)	(0.27	)	0.34

TOTAL FROM INVESTMENT OPERATIONS	6.42		(6.07	)	(0.07	)	(0.20	)	0.32

Less Distributions:
Distributions from net investment income	(0.01	)	--		--		(0.09	)	--
Distributions from net realized gain on investments	--		--		(0.24	)	(0.79	)	(0.52	)

TOTAL DISTRIBUTIONS	(0.01	)	--		(0.24	)	(0.88	)	(0.52	)

Net Asset Value, End of Period	$23.63		$17.22		$23.29		$23.60		$24.68

Total Return¹	37.26	%	(26.06	)%	(0.36	)%	(0.88	)%	1.19	%


Ratios to Average Net Assets:

Expenses	1.96	%²	1.93	%²	1.87	%	1.91	%	1.91	%

Net investment income (loss)	0.37	%	0.38	%	(0.02	)%	0.29	%	(0.07	)%

Expense waiver/reimbursement³	0.00	%⁴	0.00	%⁴	0.00	%⁴	0.00	%⁴	--

Supplemental Data:

Net assets, end of period (000 omitted)	$126,806		$105,820		$168,012		$176,693		$185,063

Portfolio turnover	29	%	25	%	30	%	23	%	36	%

1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

2 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the years ended March 31, 2004 and March 31, 2003 are 1.94% and 1.92%, respectively, after taking into account these expense reductions.

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

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2004, which can be obtained free of charge.

Financial Highlights -- Class F Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$17.21		$23.37		$23.65		$24.71		$24.88
Income From Investment Operations:
Net investment income	0.25		0.25		0.18		0.27		0.17
Net realized and unrealized gain (loss) on investments	6.31		(6.19	)	(0.08	)	(0.30	)	0.34

TOTAL FROM INVESTMENT OPERATIONS	6.56		(5.94	)	0.10		(0.03	)	0.51

Less Distributions:
Distributions from net investment income	(0.24	)	(0.22	)	(0.14	)	(0.24	)	(0.16	)
Distributions from net realized gain on investments	--		--		(0.24	)	(0.79	)	(0.52	)

TOTAL DISTRIBUTIONS	(0.24	)	(0.22	)	(0.38	)	(1.03	)	(0.68	)

Net Asset Value, End of Period	$23.53		$17.21		$23.37		$23.65		$24.71

Total Return¹	38.29	%	(25.46	)%	0.37	%	(0.17	)%	1.94	%


Ratios to Average Net Assets:

Expenses	1.19	%²	1.18	%²	1.12	%	1.16	%	1.16	%

Net investment income	1.15	%	1.13	%	0.73	%	1.07	%	0.68	%

Expense waiver/reimbursement³	0.00	%⁴	0.00	%⁴	0.00	%⁴	0.00	%⁴	--

Supplemental Data:

Net assets, end of period (000 omitted)	$71,908		$57,804		$95,918		$104,302		$123,714

Portfolio turnover	29	%	25	%	30	%	23	%	36	%

1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

2 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the years ended March 31, 2004 and March 31, 2003 are 1.17% and 1.17%, respectively, after taking into account these expense reductions.

3 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Represents less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2004, which can be obtained free of charge.

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A Statement of Additional Information (SAI) dated May 31, 2004, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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These documents, as well as additional information about the Fund (including portfolio holdings, performance and distributions), are also available on Federated's Internet site at www.federatedinvestors.com.

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You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

Federated Investors
World-Class Investment Manager

Federated American Leaders Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com

Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Investment Company Act File No. 811-1704

Federated is a registered mark of Federated Investors, Inc. 2004 ©Federated Investors, Inc.

Cusip 313914103
Cusip 313914202
Cusip 313914301
Cusip 313914400

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G01085-01 (5/04)

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Federated Investors
World-Class Investment Manager

Federated American Leaders Fund, Inc.

PROSPECTUS

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May 31, 2004

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CLASS K SHARES

A mutual fund seeking growth of capital and of income by investing in common stocks and other securities of high-quality companies.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 9

What Do Shares Cost? 10

How is the Fund Sold? 11

How to Purchase Shares 11

How to Redeem and Exchange Shares 14

Account and Share Information 17

Who Manages the Fund? 18

Legal Proceedings 20

Financial Information 21

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:

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Stock Market Risks. The value of equity securities in the Fund's portfolio will fluctuate and, as a result, the Fund's Share price may decline suddenly or over a sustained period of time.
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Risks Relating to Investing for Value. Due to the Fund's value style of investing, the Fund's Share price may lag that of other funds using a different investment style.
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Sector Risks. Because the Fund may allocate relatively more of its assets to one or more industry sectors comprising the Standard & Poor's 500 Index (S&P 500) than to other sectors of the Index, the Fund's performance will be more susceptible to any developments which affect the sectors emphasized by the Fund.
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Risks of Investing in American Depositary Receipts. Because the Fund may invest in American Depositary Receipts issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards, than would otherwise be the case.
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Risk/Return Bar Chart and Table

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The Fund's Class K Shares is a new class of shares, and commenced operation on April 8, 2003. The Fund offers four other classes of shares, Class A Shares, Class B Shares, Class C Shares and Class F Shares. For the period prior to the commencement of operations of the Class K Shares, the performance information shown in the bar chart below is for the Fund's Class A Shares, adjusted to reflect the expenses of the Class K Shares. This performance information will help you to analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Class K Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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The Fund's Class K Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon net asset value.

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The Fund's Class K Shares total return for the three-month period from January 1, 2004 to March 31, 2004 was 2.35%.

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Within the period shown in the bar chart, the Fund's Class A Shares highest quarterly return was 16.83% (quarter ended June 30, 2003). Its lowest quarterly return was (19.72)% (quarter ended September 30, 2002).

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Average Annual Total Return Table

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As previously discussed, the Fund's Class K Shares is a new class of shares, which commenced operations on April 8, 2003. Accordingly, for the period prior to the commencement of operations, the performance information shown in the Average Annual Total Return Table is for the Fund's Class A Shares, adjusted to reflect the expenses of the Class K Shares. Return Before Taxes is shown for the Fund's Class K Shares. In addition, Return After Taxes is shown to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Standard & Poor's 500/Barra Value Index (S&P 500/Barra Value), a broad-based market index, and the Lipper Large-Cap Value Average (LLCVA), an average of funds with similar investment objectives. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index or average. Lipper averages represent the average of the total returns reported by all mutual funds as designated by Lipper, Inc. as falling in the respective categories indicated.

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(For the periods ended December 31, 2003)

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	1 Year	5 Years	10 Years
Fund:
Return Before Taxes	26.77%	0.52%	9.77%
Return After Taxes on Distributions¹	26.45%	0.06%	8.30%
Return After Taxes on Distributions and Sale of Fund Shares¹	17.37%	0.23%	7.88%
S&P 500/Barra Value	31.79%	1.89%	9.81%
LLCVA	27.53%	1.41%	9.10%

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1 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all Shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding Shares through tax-deferred programs, such as IRA or 401(k) plans.

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What are the Fund's Fees and Expenses?

FEDERATED AMERICAN LEADERS FUND, INC.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold the Fund's Class K Shares.

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)		None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)		None
Redemption Fee (as a percentage of amount redeemed, if applicable)		None
Exchange Fee		None

Annual Fund Operating Expenses¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.65%
Distribution (12b-1) Fee		0.50%
Other Expenses		0.51%
Total Annual Fund Operating Expenses		1.66%

1 The percentages shown are based on expenses for the entire fiscal year ended March 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage.
2 The management fee equals the sum of 0.55% of the Fund's average daily net assets plus 4.50% of the Fund's gross income.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's Class K Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class K Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. This Example also assumes that your investment has a 5% return each year and that the Fund's Class K Shares operating expenses as shown in the table remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

1 Year	$	169

3 Years	$	523

5 Years	$	902

10 Years	$	1,965

What are the Fund's Investment Strategies?

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The Fund's Adviser performs traditional fundamental analysis to select securities for the Fund that exhibit the most promising long-term value for the Fund's portfolio. In selecting securities, the Adviser focuses on the current financial condition of the issuing company, in addition to examining each issuer's business and product strength, competitive position and management expertise. Further, the Adviser considers current economic, financial market and industry factors, which may affect the issuing company. To determine the timing of purchases and sales of portfolio securities, the Adviser looks at recent stock price performance and the direction of current fiscal year earnings estimates of various companies.

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TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Common Stocks

American Depositary Receipts

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DERIVATIVE CONTRACTS

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Futures Contracts

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Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. The Fund has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under that Act. Futures contracts traded over-the-counter (OTC) are frequently referred to as forward contracts. The Fund can buy or sell financial futures and index futures.

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Options

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Swaps

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What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

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The value of equity securities in the Fund's portfolio will rise and fall. These fluctuations could be a sustained trend or a drastic movement. The Fund's portfolio will reflect changes in prices of individual portfolio stocks or general changes in stock valuations. Consequently, the Fund's Share price may decline.
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The Adviser attempts to manage market risk by limiting the amount the Fund invests in each company's equity securities. However, diversification will not protect the Fund against widespread or prolonged declines in the stock market.

SECTOR RISKS

Companies with similar characteristics may be grouped together in broad categories called sectors. Sector risk is the possibility that a certain sector may
underperform
other sectors or the market as a whole. As the Adviser allocates more of the Fund's portfolio holdings to a particular sector, the Fund's performance will be more susceptible to any economic, business or other developments which generally affect the sector.

RISKS RELATING TO INVESTING FOR VALUE

Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Further, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

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Because the Fund may invest in ADRs issued by foreign companies, the Fund's Share price may be more affected by foreign economic and political conditions, taxation policies, and accounting and auditing standards, than would otherwise be the case. Foreign companies may not provide information as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
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RISKS OF INVESTING IN DERIVATIVES CONTRACTS

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The Fund's use of derivative contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. First, changes in the value of the derivative contracts in which the Fund invests may not be correlated with changes in the value of the underlying asset or if they are correlated, may move in the opposite direction than originally anticipated. Second, while some strategies involving derivatives may reduce the risk of loss, they may also reduce potential gains or, in some cases, result in losses by offsetting favorable price movements in portfolio holdings. Third, there is a risk that derivatives contracts may be mispriced or improperly valued and, as a result, the Fund may need to make increased cash payments to the counterparty. Finally, derivative contracts may cause the Fund to realize increased ordinary income or short-term capital gains (which are treated as ordinary income for Federal income tax purposes) and, as a result, may increase taxable distributions to shareholders. Derivative contracts may also involve other risks described in this prospectus or the Fund's Statement of Additional Information, such as stock market, liquidity and leverage risks.
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What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus), it is processed at the next calculated net asset value (NAV). The Fund's Class K Shares do not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market).

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively.

A retirement plan's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

How is the Fund Sold?

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The Fund offers five Share classes: Class A Shares, Class B Shares, Class C Shares, Class F Shares and Class K Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class K Shares. All Share classes have different sales charges and other expenses which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other classes.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus generally to 401(k) plans, 457 plans, employer sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans and IRA rollovers from such plans, directly or through investment professionals. Class K Shares are generally available only to retirement plans where plan level omnibus accounts are held on the books of the Fund.

When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of

Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Class K Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees.

How to Purchase Shares

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THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within one business day. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are restricted.

By Check

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Make your check payable to The Federated Funds, note your account number on the check, and send it to:

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Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

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If you send your check by a private courier or overnight delivery service that requires a street address, send it to:

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Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

THROUGH AN EXCHANGE

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BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the Systematic Investment Program (SIP) section of the New Account Form or by contacting the Fund or your investment professional. The minimum investment amount for SIPs is $50.

BY AUTOMATED CLEARING HOUSE (ACH)

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RETIREMENT INVESTMENTS

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How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

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You may redeem or exchange Shares by sending a written request to the Fund.

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You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

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A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer or securities exchange member. A notary public cannot provide a signature guarantee.

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PAYMENT METHODS FOR REDEMPTIONS

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

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REDEMPTIONS FROM RETIREMENT ACCOUNTS

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EXCHANGE PRIVILEGE

You may exchange Shares of the Fund into shares of the same class of another Federated fund. To do this, you must:

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

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SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM

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ADDITIONAL CONDITIONS

Telephone Transactions

The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

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TAX INFORMATION

Who Manages the Fund?

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THE FUND'S PORTFOLIO MANAGERS ARE:

Kevin R. McCloskey

He received his M.B.A. from the University of Dayton.

Steven J. Lehman

Steven J. Lehman has been the Fund's Portfolio Manager since December 2002. Mr. Lehman joined the Fund's Adviser in May 1997 as a Portfolio Manager and Vice President. He has been a Senior Portfolio Manager since 1998. From 1986 to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice President/Senior Portfolio Manager, at First Chicago NBD. Mr. Lehman is a Chartered Financial Analyst; he received his M.A. from the University of Chicago.

John L. Nichol

John L. Nichol has been the Fund's Portfolio Manager since December 2002. Mr. Nichol joined Federated in September 2000 as an Assistant Vice President/Senior Investment Analyst. He has been a Portfolio Manager since December 2000 and was named a Vice President of the Fund's Adviser in July 2001. Mr. Nichol served as a portfolio manager and analyst for the Public Employees Retirement System of Ohio from 1992 through August 2000. Mr. Nichol is a Chartered Financial Analyst. He received his M.B.A. with an emphasis in Finance and Management and Information Science from the Ohio State University.

ADVISORY FEES

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Legal Proceedings

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Financial Information

FINANCIAL HIGHLIGHTS

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This information has been audited by Deloitte & Touche LLP, whose report, along with the Fund's audited financial statements, is included in the Annual Report.

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Financial Highlights

(For a Share Outstanding Throughout Each Period)

	Period Ended 3/31/2004	¹
Net Asset Value, Beginning of Period	$17.74
Income From Investment Operations:
Net investment income	0.13
Net realized and unrealized gain on investments	5.85

TOTAL FROM INVESTMENT OPERATIONS	5.98

Less Distributions:
Distributions from net investment income	(0.15	)

Net Asset Value, End of Period	$23.57

Total Return²	33.76	%


Ratios to Average Net Assets:

Expenses	1.66	%^3,4

Net investment income	0.54	%³

Expense waiver/reimbursement⁵	0.00	%^3,6

Supplemental Data:

Net assets, end of period (000 omitted)	$3,082

Portfolio turnover	29	%⁷

1 Reflects operations for the period from April 8, 2003 (start of performance) to March 31, 2004.

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 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratio is 1.64% after taking into account these expense reductions.

5 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

6 Represents less than 0.01%.

7 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the fiscal year ended March 31, 2004.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2004, which can be obtained free of charge.

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Investment Company Act File No. 811-1704

Federated is a registered mark of Federated Investors, Inc. 2004 ©Federated Investors, Inc.

Cusip 313914509

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28210 (5/04)

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FEDERATED AMERICAN LEADERS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
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MAY 31, 2004

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CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

CLASS F SHARES

CLASS K SHARES

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This Statement of Additional Information (SAI) is not a prospectus.
Read this SAI in conjunction with the prospectuses for Class A Shares,
Class B Shares, Class C Shares, Class F Shares and Class K Shares of
Federated American Leaders Fund, Inc., (Fund), dated May 31, 2004.
This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectuses or the Annual Report without charge by calling
1-800-341-7400.

CONTENTS
How is the Fund Organized?.............. 1
Securities in Which the
Fund Invests............................ 1
What Do Shares Cost?....................13
How is the Fund Sold?...................15
Exchanging Securities for
Shares..................................18
Subaccounting Services..................18
Redemption in Kind......................18
Account and Share
Information.............................18
Tax Information.........................19
Who Manages and Provides
Services to the Fund?...................19
How Does the Fund Measure
Performance?............................29
Who is Federated Investors,
Inc.?...................................31
Financial Information...................34
Investment Ratings......................34
Addresses...............................36
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HOW IS THE FUND ORGANIZED?

The Fund is a diversified open-end, management investment company that
was established under the laws of the State of Maryland on July 22,
1968.

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The Board of Directors (the Board) has established five classes of
shares of the Fund, known as Class A Shares, Class B Shares, Class C
Shares, Class F Shares and Class K Shares (Shares). This SAI relates to
all classes of Shares. The Fund's investment adviser is Federated
Equity Management Company of Pennsylvania (Adviser). Prior to January
1, 2004, Federated Investment Management Company was the Adviser to the
Fund. Both the current Adviser and the former Adviser are wholly owned
subsidiaries of Federated Investors, Inc. (Federated).

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SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the
following securities for any purpose that is consistent with its
investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets,
after the issuer pays its liabilities. The Fund cannot predict the
income it will receive from equity securities because issuers generally
have discretion as to the payment of any dividends or distributions.
However, equity securities offer greater potential for appreciation
than many other types of securities, because in most instances their
value is tied more directly to the value of the issuer's business. The
following describes the types of equity securities in which the Fund
may invest:

Common Stocks
Common stocks are the most prevalent type of equity security. Common
stockholders receive the issuer's earnings after the issuer pays its
creditors and any preferred stockholders. As a result, changes in an
issuer's earnings directly influence the value of its common stock.

Preferred Stocks
Holders of preferred stock have the right to receive specified
dividends or distributions before the issuer makes payments on its
common stock. Some preferred stocks also participate in dividends and
distributions paid to common stockholders. The issuer may, in certain
circumstances, redeem the preferred stock. The Fund may treat such
redeemable preferred stock as a fixed income security.

Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies,
business trusts and companies organized outside the United States may
issue securities comparable to common or preferred stock.

Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income
tax if they limit their operations and distribute most of their income.
Such tax requirements limit a REIT's ability to respond to changes in
the commercial real estate market.

Warrants
Warrants give the Fund the option to buy the issuer's equity securities
at a specified price (the exercise price) by a specified future date
(the expiration date). The Fund may buy the designated securities by
paying the exercise price before the expiration date. Warrants may
become worthless if the price of the stock does not rise above the
exercise price by the expiration date. This increases the market risks
of warrants as compared to the underlying security. Rights are the same
as warrants, except companies typically issue rights to existing
stockholders.

FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be a fixed percentage of the principal or
adjusted periodically. In addition, the issuer of a fixed income
security must repay the principal amount of the security, normally
within a specified time. Fixed income securities provide more regular
income than equity securities. However, the returns on fixed income
securities are limited and normally do not increase with the issuer's
earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as
a percentage of its price. A security's yield will increase or decrease
depending upon whether it costs less (a discount) or more (a premium)
than the principal amount. If the issuer may redeem the security before
its scheduled maturity, the price and yield on a discount or premium
security may change based upon the probability of an early redemption.
Securities with higher risks generally have higher yields.
The following describes the types of fixed income securities in which
the Fund may invest:

Treasury Securities
Treasury securities are direct obligations of the federal government of
the United States. Treasury securities are generally regarded as having
the lowest credit risks.

Agency Securities
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Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity (GSE) acting under federal authority. Some
GSE securities are supported by the full faith and credit of the United
States. These include the Government National Mortgage Association,
Small Business Administration, Farm Credit System Financial Assistance
Corporation, Farmer's Home Administration, Federal Financing Bank,
General Services Administration, Department of Housing and Urban
Development, Export-Import Bank, Overseas Private Investment
Corporation, and Washington Metropolitan Area Transit Authority Bonds.
Other GSE securities receive support through federal subsidies, loans
or other benefits. For example, the U.S. Treasury is authorized to
purchase specified amounts of securities issued by (or otherwise make
funds available to) the Federal Home Loan Bank System, Federal Home
Loan Mortgage Corporation, Federal National Mortgage Association,
Student Loan Marketing Association, and Tennessee Valley Authority in
support of such obligations.
A few GSE securities have no explicit financial support, but are
regarded as having implied support because the federal government
sponsors their activities. These include the Farm Credit System,
Financing Corporation, and Resolution Funding Corporation.

Investors regard agency securities as having low credit risks, but not
as low as Treasury securities.
A Fund treats mortgage-backed securities guaranteed by a GSE as if
issued or guaranteed by a federal agency. Although such a guarantee
protects against credit risks, it does not reduce market and prepayment
risks.
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Corporate Debt Securities
Corporate debt securities are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities. The Fund may also
purchase interests in bank loans to companies. The credit risks of
corporate debt securities vary widely among issuers.
In addition, the credit risk of an issuer's debt security may vary
based on its priority for repayment. For example, higher ranking
(senior) debt securities have a higher priority than lower ranking
(subordinated) securities. This means that the issuer might not make
payments on subordinated securities while continuing to make payments
on senior securities. In addition, in the event of bankruptcy, holders
of senior securities may receive amounts otherwise payable to the
holders of subordinated securities. Some subordinated securities, such
as trust preferred and capital securities notes, also permit the issuer
to defer payments under certain circumstances. For example, insurance
companies issue securities known as surplus notes that permit the
insurance company to defer any payment that would reduce its capital
below regulatory requirements.
Commercial Paper

Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper
reduces both the market and credit risks as compared to other debt
securities of the same issuer.

DEMAND INSTRUMENTS

Demand instruments are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such
as a dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.

Zero Coupon Securities
Zero coupon securities do not pay interest or principal until final
maturity unlike debt securities that provide periodic payments of
interest (referred to as a coupon payment). Investors buy zero coupon
securities at a price below the amount payable at maturity. The
difference between the purchase price and the amount paid at maturity
represents interest on the zero coupon security. Investors must wait
until maturity to receive interest and principal, which increases the
market and credit risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a
discount and are referred to as zero coupon or capital appreciation
bonds. Others are created from interest bearing bonds by separating the
right to receive the bond's coupon payments from the right to receive
the bond's principal due at maturity, a process known as coupon
stripping. Treasury STRIPs, IOs and POs are the most common forms of
stripped zero coupon securities. In addition, some securities give the
issuer the option to deliver additional securities in place of cash
interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.

CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has
the option to exchange for equity securities at a specified conversion
price. The option allows the Fund to realize additional returns if the
market price of the equity securities exceeds the conversion price. For
example, the Fund may hold fixed income securities that are convertible
into shares of common stock at a conversion price of $10 per share. If
the market value of the shares of common stock reached $12, the Fund
could realize an additional $2 per share by converting its fixed income
securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued
the conversion price exceeds the market value of the underlying equity
securities. Thus, convertible securities may provide lower returns than
non-convertible fixed income securities or equity securities depending
upon changes in the price of the underlying equity securities. However,
convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations,
because of their unique characteristics.

AMERICAN DEPOSITARY RECEIPTS
American Depositary Receipts represent interests in underlying
securities issued by a foreign company. Depositary receipts are not
traded in the same market as the underlying security. The foreign
securities underlying American Depositary Receipts (ADRs) are not
traded in the United States. ADRs provide a way to buy shares of
foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. Moreover, the Fund invests primarily in
the ADRs of companies with significant operations within the United
States.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments
based upon changes in the values of designated (or underlying)
securities, currencies, commodities, financial indices or other assets.
Some derivative contracts (such as futures, forwards and options)
require payments relating to a future trade involving the underlying
asset. Other derivative contracts (such as swaps) require payments
relating to the income or returns from the underlying asset. The other
party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the
contract except for the price. Investors make payments due under their
contracts through the exchange. Most exchanges require investors to
maintain margin accounts through their brokers to cover their potential
obligations to the exchange. Parties to the contract make (or collect)
daily payments to the margin accounts to reflect losses (or gains) in
the value of their contracts. This protects investors against
potential defaults by the counterparty. Trading contracts on an
exchange also allows investors to close out their contracts by entering
into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset
at a future date by entering into an offsetting contract to sell the
same asset on the same date. If the offsetting sale price is more than
the original purchase price, the Fund realizes a gain; if it is less,
the Fund realizes a loss. Exchanges may limit the amount of open
contracts permitted at any one time. Such limits may prevent the Fund
from closing out a position. If this happens, the Fund will be
required to keep the contract open (even if it is losing money on the
contract), and to make any payments required under the contract (even
if it has to sell portfolio securities at unfavorable prices to do so).
Inability to close out a contract could also harm the Fund by
preventing it from disposing of or trading any assets it has been using
to secure its obligations under the contract.

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The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty.
OTC contracts do not necessarily have standard terms, so they cannot be
directly offset with other OTC contracts. In addition, OTC contracts
with more specialized terms may be more difficult to price than
exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the
relationships between the market value of a derivative contract and the
underlying asset, derivative contracts may increase or decrease the
Fund's exposure to interest rate and stock market risks, and may also
expose the Fund to liquidity and leverage risks. OTC contracts also
expose the Fund to credit risks in the event that a counterparty
defaults on the contract.

The Fund may trade in the following types of derivative contracts.

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Futures Contracts

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Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of an underlying asset at a
specified price, date, and time. Entering into a contract to buy an
underlying asset is commonly referred to as buying a contract or
holding a long position in the asset. Entering into a contract to sell
an underlying asset is commonly referred to as selling a contract or
holding a short position in the asset. Futures contracts are
considered to be commodity contracts. The Fund has claimed an
exclusion from the definition of the term "commodity pool operator"
under the Commodity Exchange Act and, therefore, is not subject to
registration or regulation as a commodity pool operator under that
Act. Futures contracts traded OTC are frequently referred to as
forward contracts. The Fund can buy or sell financial futures and
index futures.

Options

Options are rights to buy or sell an underlying asset or instrument for
a specified price (the exercise price) during, or at the end of, a
specified period. The seller (or writer) of the option receives a
payment, or premium, from the buyer, which the writer keeps regardless
of whether the buyer uses (or exercises) the option. Options can trade
on exchanges or in the OTC market and may be bought or sold on a wide
variety of underlying assets or instruments, including financial
indices, individual securities, and other derivative instruments, such
as futures contracts. Options that are written on futures contracts
will be subject to margin requirements similar to those applied to
futures contracts.

The Fund may buy/sell the following types of options:

CALL OPTIONS

A call option gives the holder (buyer) the right to buy the underlying
asset from the seller (writer) of the option. The Fund may use call
options in the following ways:

o Buy call options on indices, individual securities, index futures
and financial futures in anticipation of an increase in the value of
the underlying asset or instrument; and

o Write call options on indices, portfolio securities, index
futures and financial futures] to generate income from premiums, and
in anticipation of a decrease or only limited increase in the value
of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in
the market price of the underlying asset over the exercise price
plus the premium received.

PUT OPTIONS

A put option gives the holder the right to sell the underlying asset to
the writer of the option. The Fund may use put options in the following
ways:

o Buy put options on indices, individual securities, index futures
and financial futures in anticipation of a decrease in the value of
the underlying asset; and

o Write put options on indices, portfolio securities, index futures
and financial futures to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of
the underlying asset. In writing puts, there is a risk that the Fund
may be required to take delivery of the underlying asset when its
current market price is lower than the exercise price.

The Fund may also buy or write options, as needed, to close out
existing option positions.

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Swaps

Swaps are contracts in which two parties agree to pay each other (swap)
the returns derived from underlying assets with differing
characteristics. Most swaps do not involve the delivery of the
underlying assets by either party, and the parties might not own the
assets underlying the swap. The payments are usually made on a net
basis so that, on any given day, the Fund would receive (or pay) only
the amount by which its payment under the contract is less than (or
exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are
known by a variety of names including caps, floors, and collars.
Common swap agreements that the Fund may use include:

INTEREST RATE SWAPS

Interest rate swaps are contracts in which one party agrees to make
regular payments equal to a fixed or floating interest rate times a
stated principal amount of fixed income securities, in return for
payments equal to a different fixed or floating rate times the same
principal amount, for a specific period. For example, a $10 million
LIBOR swap would require one party to pay the equivalent of the London
Interbank Offer Rate of interest (which fluctuates) on $10 million
principal amount in exchange for the right to receive the equivalent of
a stated fixed rate of interest on $10 million principal amount.
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TOTAL RATE OF RETURN SWAPS

Total rate of return swaps are contracts in which one party agrees to
make payments of the total return from the underlying asset during the
specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from another underlying asset.

SPECIAL TRANSACTIONS

Inter-Fund Borrowing and Lending Arrangements
The Securities and Exchange Commission (SEC) has granted an exemption
that permits the Fund and all other funds advised by subsidiaries of
Federated Investors, Inc. (Federated funds) to lend and borrow money
for certain temporary purposes directly to and from other Federated
funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending Federated funds, and an inter-fund loan
is only made if it benefits each participating Federated fund.
Federated Investors, Inc. (Federated) administers the program according
to procedures approved by the Fund''s Board, and the Board monitors the
operation of the program. Any inter- fund loan must comply with
certain conditions set out in the exemption, which are designed to
assure fairness and protect all participating Federated funds.

For example, inter-fund lending is permitted only: (a) to meet
shareholder redemption requests;, and (b) to meet commitments arising
from "failed" trades. All inter-fund loans must be repaid in seven
days or less. The Fund''s participation in this program must be
consistent with its investment policies and limitations, and must meet
certain percentage tests. Inter-fund loans may be made only when the
rate of interest to be charged is more attractive to the lending
Federated fund than market-competitive rates on overnight repurchase
agreements (Repo Rate) and more attractive to the borrowing Federated
fund than the rate of interest that would be charged by an unaffiliated
bank for short-term borrowings (Bank Loan Rate), as determined by the
Board. The interest rate imposed on inter-fund loans is the average of
the Repo Rate and the Bank Loan Rate.

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Repurchase Agreements
Repurchase agreements are transactions in which a Fund buys a security
from a dealer or bank and agrees to sell the security back at a
mutually agreed-upon time and price. The repurchase price exceeds the
sale price, reflecting an agreed-upon interest rate effective for the
period the Fund owns the security subject to repurchase. The
agreed-upon interest rate is unrelated to the interest rate on the
underlying security. The Funds will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by the Adviser to be creditworthy.
A Fund's custodian or subcustodian is required to take possession of
the securities subject to repurchase agreements. The Adviser or
subcustodian will monitor the value of the underlying security each day
to ensure that the value of the security always equals or exceeds the
repurchase price.
Repurchase agreements are subject to credit risk.

Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the
Fund is the seller (rather than the buyer) of the securities, and
agrees to repurchase them at an agreed-upon time and price. A reverse
repurchase agreement may be viewed as a type of borrowing by the Fund.
Reverse repurchase agreements are subject to credit risks. In addition,
reverse repurchase agreements create leverage risks because the Fund
must repurchase the underlying security at a higher price, regardless
of the market value of the security at the time of repurchase.

Securities Lending
The Fund may lend securities from its portfolio to borrowers that the
Adviser deems creditworthy. In return, the Fund receives cash or liquid
securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities
increases. Also, the borrower must pay the Fund the equivalent of any
dividends or interest received on the loaned securities.
The Fund will reinvest cash collateral in securities that qualify as
an acceptable investment for the Fund. However, the Fund must pay
interest to the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the
borrower. The Fund will not have the right to vote on securities while
they are on loan, but it will terminate a loan in anticipation of any
important vote. The Fund may pay administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest
earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to market risks and
credit risks.

Asset Coverage
In order to secure its obligations in connection with special
transactions, the Fund will either own the underlying assets, enter
into an offsetting transaction or set aside readily marketable
securities with a value that equals or exceeds the Fund's obligations.
Unless the Fund has other readily marketable assets to set aside, it
cannot trade assets used to secure such obligations. This may cause the
Fund to miss favorable trading opportunities or to realize losses on
derivative contracts or special transactions.

Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment
companies, including the securities of affiliated money market funds,
as an efficient means of carrying out its investment policies and
managing its uninvested cash.
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Foreign Securities
Foreign securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United
States if:

* it is organized under the laws of, or has a principal office
located in, another country;

* the principal trading market for its securities is in another
country; or

* it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets, capitalization, gross revenue or
profit from goods produced, services performed, or sales made in
another country.

Foreign securities are primarily denominated in foreign currencies.
Along with the risks normally associated with domestic securities of
the same type, foreign securities are subject to currency risks and
risks of foreign investing. Trading in certain foreign markets is also
subject to liquidity risks.

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INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The
Fund's principal risks are described in its prospectus. Additional risk
factors are outlined below.

EQUITY SECURITIES INVESTMENT RISKS

Stock Market Risks
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o The value of equity securities in the Fund's portfolio will rise
and fall. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of
individual portfolio stocks or general changes in stock valuations.
Consequently, the Fund's share price may decline.
o The Adviser attempts to manage market risk by limiting the amount
the Fund invests in each company's equity securities. However,
diversification will not protect the Fund against widespread or
prolonged declines in the stock market.

Sector Risks
o Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that
a certain sector may underperform other sectors or the market as a
whole. As the Adviser allocates more of the Fund's portfolio
holdings to a particular sector, the Fund's performance will be more
susceptible to any economic, business or other developments which
generally affect that sector.

Liquidity Risks
o Trading opportunities are more limited for equity securities that
are not widely held. This may make it more difficult to sell or buy
a security at a favorable price or time. Consequently, the Fund may
have to accept a lower price to sell a security, sell other
securities to raise cash or give up an investment opportunity, any
of which could have a negative effect on the Fund's performance.
Infrequent trading of securities may also lead to an increase in
their price volatility.
o Liquidity risk also refers to the possibility that the Fund may
not be able to sell a security or close out a derivative contract
when it wants to. If this happens, the Fund will be required to
continue to hold the security or keep the position open, and the
Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk
than exchange-traded contracts.

Risks Related to Investing for Value
o Due to their relatively low valuations, value stocks are
typically less volatile than growth stocks. For instance, the price
of a value stock may experience a smaller increase on a forecast of
higher earnings, a positive fundamental development, or positive
market development. Further, value stocks tend to have higher
dividends than growth stocks. This means they depend less on price
changes for returns and may lag behind growth stocks in an up market.

Risks of Investing in American Depositary Receipts
o Because the Fund may invest in American Depositary Receipts
issued by foreign companies, the Fund's Share price may be more
affected by foreign economic and political conditions, taxation
policies, and accounting and auditing standards, than would
otherwise be the case.
Credit Risks
o Credit risk includes the possibility that a party to a
transaction involving the Fund will fail to meet its obligations.
This could cause the Fund to lose the benefit of the transaction or
prevent the Fund from selling or buying other securities to
implement its investment strategy.

Leverage Risks
o Leverage risk is created when an investment exposes the Fund to a
level of risk that exceeds the amount invested. Changes in the value
of such an investment magnify the Fund's risk of loss and potential
for gain.
o Investments can have these same results if their returns are
based on a multiple of a specified index, security, or other
benchmark.

Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic
or political conditions may be less favorable than those of the
United States. Securities in foreign markets may also be subject to
taxation policies that reduce returns for U.S. investors.
o Foreign companies may not provide information (including
financial statements) as frequently or to as great an extent as
companies in the United States. Foreign companies may also receive
less coverage than United States companies by market analysts and
the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or
regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Adviser from
obtaining information concerning foreign companies that is as
frequent, extensive and reliable as the information available
concerning companies in the United States.
o Foreign countries may have restrictions on foreign ownership of
securities or may impose exchange controls, capital flow
restrictions or repatriation restrictions which could adversely
affect the liquidity of the Fund's investments.

FIXED INCOME SECURITIES INVESTMENT RISKS
Interest Rate Risks
o Prices of fixed income securities rise and fall in response to
interest rate changes in the interest rate paid by similar
securities. Generally, when interest rates rise, prices of fixed
income securities fall. However, market factors, such as the demand
for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other
securities rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed
income securities with longer durations. Duration measures the price
sensitivity of a fixed income security to changes in interest rates.

Credit Risks
o Credit risk is the possibility that an issuer will default on a
security by failing to pay interest or principal when due. If an
issuer defaults, the Fund will lose money.
o Many fixed income securities receive credit ratings from services
such as Standard & Poor's and Moody's Investor Services, Inc.
These services assign ratings to securities by assessing the
likelihood of issuer default. Lower credit ratings correspond to
higher credit risk. If a security has not received a rating, the
Fund must rely entirely upon the Adviser's credit assessment.
o Fixed income securities generally compensate for greater credit
risk by paying interest at a higher rate. The difference between the
yield of a security and the yield of a U.S. Treasury security with a
comparable maturity (the spread) measures the additional interest
paid for risk. Spreads may increase generally in response to adverse
economic or market conditions. A security's spread may also increase
if the security's rating is lowered, or the security is perceived to
have an increased credit risk. An increase in the spread will cause
the price of the security to decline.
o Credit risk includes the possibility that a party to a
transaction involving the Fund will fail to meet its obligations.
This could cause the Fund to lose the benefit of the transaction or
prevent the Fund from selling or buying other securities to
implement its investment strategy.

Liquidity Risks
o Trading opportunities are more limited for fixed income
securities that have not received any credit ratings, have received
ratings below investment grade or are not widely held. These
features may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a
lower price to sell a security, sell other securities to raise cash
or give up an investment opportunity, any of which could have a
negative effect on the Fund's performance. Infrequent trading of
securities may also lead to an increase in their price volatility.
o Liquidity risk also refers to the possibility that the Fund may
not be able to sell a security when it wants to. If this happens,
the Fund will be required to continue to hold the security and the
Fund could incur losses.

Risks Associated with Noninvestment Grade Securities
o The Fund may invest in convertible securities rated below
investment grade, also known as junk bonds. Such convertible
securities generally entail greater market, credit and liquidity
risks than investment grade securities. For example, their prices
are more volatile, economic downturns and financial setbacks may
affect their prices more negatively, and their trading market may be
more limited.

Call Risks
o Call risk is the possibility that an issuer may redeem a fixed
income security before maturity (a call) at a price below its
current market price. An increase in the likelihood of a call may
reduce the security's price.
o If a fixed income security is called, the Fund may have to
reinvest the proceeds in other fixed income securities with lower
interest rates, higher credit risks, or other less
favorable characteristics.

Sector Risks
o A substantial part of the Fund's portfolio may be comprised of
securities issued or credit enhanced by companies in similar
businesses, or with other similar characteristics. As a result, the
Fund will be more susceptible to any economic, business, political,
or other developments which generally affect these issuers.

Risks of Investing in Derivatives Contracts
o The Fund's use of derivative contracts involves risks different
from, or possibly greater than, the risks associated with investing
directly in securities and other traditional investments. First,
changes in the value of the derivative contracts in which the Fund
invests may not be correlated with changes in the value of the
underlying asset or if they are correlated, may move in the opposite
direction than originally anticipated. Second, while some strategies
involving derivatives may reduce the risk of loss, they may also
reduce potential gains or, in some cases, result in losses by
offsetting favorable price movements in portfolio holdings. Third,
there is a risk that derivatives contracts may be mispriced or
improperly valued and, as a result, the Fund may need to make
increased cash payments to the counterparty. Finally, derivative
contracts may cause the Fund to realize increased ordinary income or
short-term capital gains (which are treated as ordinary income for
Federal income tax purposes) and, as a result, may increase taxable
distributions to shareholders. Derivative contracts may also
involve other risks, such as stock market, credit, liquidity and
leverage risks.

FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES
The Fund's fundamental investment objective is to seek growth of
capital and of income by concentrating the area of investment decision
in the securities of high -quality companies. The investment objective
may not be changed by the Fund's directors without shareholder approval.
</R>

Whenever deemed appropriate to the attainment of its investment
objective, the Fund may make investments in a particular industry which
would result in up to 25% of its total assets, taken at market value,
being invested in such industry. If through market action the market
value of the Fund's assets invested in a particular industry exceeds
25% of the market value of its total assets, the Fund will not be
required to make any reduction of its holdings in the particular
industry.

INVESTMENT LIMITATIONS

Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities
on margin, but it may obtain such short-term credits as may be
necessary for clearance or purchase and sales of securities.

Borrowing Money
The Fund will not borrow money except from banks as a temporary measure
for extraordinary or emergency purposes and then: (1) only in amounts
not in excess of 5% of the value of its total assets; or (2) in an
amount up to one-third of the value of its total assets, including the
amount borrowed, in order to meet redemption requests without
immediately selling any portfolio instruments. In addition, the Fund
may enter into reverse repurchase agreements and otherwise borrow up to
one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling any portfolio instruments. The use of repurchase agreements and
the borrowing provision in (2) above, is not for investment leverage
but solely to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio
instruments is deemed to be inconvenient or disadvantageous.

Interest paid on borrowed funds will not be available for investment
and will reduce net income. The Fund will liquidate any such borrowings
as soon as possible and may not purchase any portfolio securities while
the borrowings are outstanding. However, during the period any reverse
repurchase agreements are outstanding, but only to the extent necessary
to assure completion of the reverse repurchase agreements, the Fund
will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements.

Pledging Assets
The Fund will not mortgage, pledge, or hypothecate its securities.

Diversification of Investments
The Fund will not purchase the securities of any issuer if such
purchase at the time thereof would cause more than 5% of the total
assets (taken at market value) to be invested in the securities of such
issuer, except U.S. government securities as defined in the Investment
Company Act of 1940 (1940 Act), and will not purchase more than 10% of
any class of voting securities of any one issuer.

Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment companies or
investment trusts, except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase
other than the customary brokerage commissions or except when such
purchase, though not made in the open market, is part of a plan of
merger or consolidation.

Investing in New Issuers
<R>
The Fund will not invest more than 5% of its total assets (taken at
market value) in securities of issuers which have a record of less than
three years of continuous operation, including, however, in such three
years the operation of any predecessor company or companies,
partnership, or individual enterprise if the issuer whose securities are
proposed as investment for funds of the Fund has come into existence as
a result or a merger, consolidation, reorganization or the purchase of
substantially all of the assets of such predecessor company or
companies, partnership or individual enterprise.
</R>

Investing in Issuers whose Securities are Owned by Officers of the Fund
The Fund will not purchase or retain in its portfolio any securities
issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Director of the Fund or is a member,
officer, director or trustee of the investment adviser, if at the time
of or after the purchase of the securities of such issuer by the Fund
one or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both (all taken at market value) of such
issuer and such persons owning more than one-half of one percent (1/2%)
of such shares or together own beneficially more than 5% of such shares
or securities, or both (all taken at market value).

Underwriting
The Fund will not underwrite or engage in agency distribution of
securities issued by others; provided, however, that this shall not be
construed to prevent or limit in any manner the power of the Fund to
purchase securities for investment as herein provided.

Investing in Commodities or Real Estate
The Fund will not invest in commodities, commodity contracts, or real
estate.

Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities.
(This shall not prevent the purchase or holding of U.S. government
securities, bonds, debentures, notes, certificates of indebtedness or
other debt securities of an issuer, repurchase agreements covering
U.S. government securities, or other transactions which are permitted by
the Fund's investment objective and policies or Articles of
Incorporation.)

Acquiring Securities
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may invest in up to
10% of any class of the voting securities of any one issuer and may
exercise its voting powers consistent with the best interests of the
Fund. In addition, the Fund, other companies advised by the Fund's
investment adviser, and other affiliated companies may together buy and
hold substantial amounts of voting stock of a company and may vote
together in regard to such company's affairs. In some such cases, the
Fund and its affiliates might collectively be considered to be in
control of such company. In some cases, the Directors and other persons
associated with the Fund and its affiliates might possibly become
directors of companies in which the Fund holds stock.

Concentration of Investments
The Fund will not invest more than 25% of the value of its total assets
in any one industry.

Issuing Senior Securities
The Fund will not issue senior securities.

Investing in Restricted Securities
The Fund will not purchase restricted securities if immediately
thereafter more than 15% of the net assets of the Fund, taken at market
value, would be invested in such securities.
<R>
The above limitations cannot be changed unless authorized by the Board
and by the "vote of a majority of its outstanding voting securities,"
as defined by the 1940 Act. The following limitations, however, may be
changed by the Board without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes
effective.

</R>

For purposes of the above limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a
domestic bank or savings association having capital, surplus and
undivided profits in excess of $100,000,000 at the time of investment
to be "cash items." Except with respect to borrowing money, if a
percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value
or net assets will not result in a violation of such limitation.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as
follows:

<R>

o for equity securities, according to the last sale price in the
market in which they are primarily traded (either a national
securities exchange or the over-the-counter market), if available;

o in the absence of recorded sales for equity securities, according
to the mean between the last closing bid and asked prices;

o futures contracts and options are generally valued at market
values established by the exchanges on which they are traded at the
close of trading on such exchanges. Options traded in the over-
the-counter market are generally valued according to the mean between
the last bid and the last asked price for the option as provided by
an investment dealer or other financial institution that deals in the
option. The Board may determine in good faith that another method of
valuing such investments is necessary to appraise their fair market
value;

o for fixed income securities, according to the mean between bid
and asked prices as furnished by an independent pricing service,
except that fixed income securities with remaining maturities of less
than 60 days at the time of purchase may be valued at amortized
cost; and

o for all other securities at fair value as determined in good
faith by the Board.

Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider
institutional trading in similar groups of securities, yield, quality,
stability, risk, coupon rate, maturity, type of issue, trading
characteristics, and other market data or factors. From time to time,
when prices cannot be obtained from an independent pricing service,
securities may be valued based on quotes from broker- dealers or other
financial institutions that trade the securities.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which vary from
the closing of the New York Stock Exchange (NYSE). In computing its
NAV, the Fund values foreign securities at the latest closing price on
the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. Foreign
securities quoted in foreign currencies are translated into U.S.
dollars at current rates. Occasionally, events that affect these values
and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially
affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Fund's
Board, although the actual calculation may be done by others.

</R>

WHAT DO SHARES COST?

The Fund''s net asset value (NAV) per Share fluctuates and is based on
the market value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in
daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class
are entitled.

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as
follows:

<R>

Quantity Discounts (Class A Shares and Class F Shares only)

Larger purchases of the same Share class reduce or eliminate the sales
charge you pay. You can combine purchases of Shares made on the same
day by you, your spouse and your children under age 21. In addition,
purchases made at one time by a trustee or fiduciary for a single trust
estate or a single fiduciary account can be combined.

Accumulated Purchases (Class A Shares and Class F Shares only)

If you make an additional purchase of Shares, you can count previous
Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.

Concurrent Purchases (Class A Shares and Class F Shares only)
</R>

You can combine concurrent purchases of the same share class of two or
more Federated funds in calculating the applicable sales charge.

Letter of Intent (Class A Shares and Class F Shares only)
You can sign a Letter of Intent committing to purchase a certain amount
of the same class of Shares within a 13-month period to combine such
purchases in calculating the sales charge. The Fund's custodian will
hold Shares in escrow equal to the maximum applicable sales charge. If
you complete the Letter of Intent, the Custodian will release the
Shares in escrow to your account. If you do not fulfill the Letter of
Intent, the Custodian will redeem the appropriate amount from the
Shares held in escrow to pay the sales charges that were not applied to
your purchases.

Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at
the next determined NAV without any sales charge.

Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy
Shares at NAV without any sales charge because there are nominal sales
efforts associated with their purchases:

<R>

o the Directors, employees and sales representatives of the Fund,
the Adviser, the Distributor and their affiliates;

o any associated person of an investment dealer who has a sales
agreement with the Distributor; and

o trusts, pension or profit-sharing plans for these individuals.

Purchases Through Omnibus Accounts (Class C Shares)
Class C Shares may be purchased without an initial sales charge by any
investor who buys Class C Shares through an omnibus account with a
financial intermediary, such as a broker or a bank, that does not
accept or charge the initial sales charge.

Reorganizations (Class A Shares)
Class A Shares may be purchased without an initial sales charge by any
shareholder that originally became a shareholder of the Fund pursuant
to the terms of an agreement and plan of reorganization which permits
shareholders to acquire shares at NAV.

</R>

Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt
from paying any front-end sales charge. These shareholders joined the
Fund originally:

<R>

o through the "Liberty Account," an account for Liberty Family of
Funds shareholders on February 28, 1987 (the Liberty Account and
Liberty Family of Funds are no longer marketed); or

o as Liberty Account shareholders by investing through an affinity
group prior to August 1, 1987.

</R>

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales
commissions have been advanced to the investment professional selling
Shares; the shareholder has already paid a Contingent Deferred Sales
Charge (CDSC); or nominal sales efforts are associated with the
original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no
CDSC will be imposed on redemptions:

o following the death or post-purchase disability, as defined in
Section 72(m)(7) of the Internal Revenue Code of 1986, of the last
surviving shareholder;

o representing minimum required distributions from an Individual
Retirement Account or other retirement plan to a shareholder who has
attained the age of 70 1/2;

o of Shares that represent a reinvestment within 120 days of a
previous redemption;

o of Shares held by the Directors, employees, and sales
representatives of the Fund, the Adviser, the Distributor and their
affiliates; employees of any investment professional that sells
Shares according to a sales agreement with the Distributor; and the
immediate family members of the above persons;

o of Shares originally purchased through a bank trust department, a
registered investment adviser or retirement plans where the third
party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other investment professional,
to the extent that no payments were advanced for purchases made
through these entities;

o which are involuntary redemptions processed by the Fund because
the accounts do not meet the minimum balance requirements;

Class B Shares Only
o which are qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program;

Class F Shares Only
o representing a total or partial distribution from a qualified
plan. A total or partial distribution does not include an account
transfer, rollover or other redemption made for purposes of
reinvestment. A qualified plan does not include an Individual
Retirement Account, Keogh Plan, or a custodial account, following
retirement.

To keep the sales charge as low as possible, the Fund redeems your
Shares in this order:

o Shares that are not subject to a CDSC; and

o Shares held the longest (to determine the number of years your
Shares have been held, include the time you held shares of other
Federated funds that have been exchanged for Shares of this Fund).

The CDSC is then calculated using the share price at the time of
purchase or redemption, whichever is lower.

HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor
(Federated Securities Corp.) offers Shares on a continuous, best-
efforts basis.

FRONT-END SALES CHARGE REALLOWANCES
<R>

The Distributor receives a front-end sales charge on certain Share
sales. The Distributor pays a portion of this charge to investment
professionals that are eligible to receive it (the "Dealer
Reallowance") and retains any remaining portion of the front-end sales
charge.

When an investment professional's customer purchases Shares, the
investment professional may receive a Dealer Reallowance as follows:

CLASS A SHARES Dealer
Reallowance
Purchase Amount as a percentage
of
Public Offering
Price
Less than $50,000 5.00%
$50,000 but less than $100,000 4.00%
$100,000 but less than $250,000 3.25%
$250,000 but less than $500,000 2.25%
$500,000 but less than $1 million 1.80%
$1 million or greater 0.00%

-------------------------------------------------------------------------
CLASS C SHARES Dealer Reallowance
as a Percentage of
Public Offering
Price
All Purchase Amounts 1.00%

ADVANCE COMMISSIONS
-------------------------------------------------------------------------
When an investment professional's customer purchases Shares, the
investment professional may receive an advance commission as follows:

Class A Shares (for purchases over $1 million)
Advance Commission
as a Percentage of
Purchase Amount Public Offering
Price
First $1 million - $5 0.75%
million
Next $5 million - $20 0.50%
million
Over $20 million 0.25%
Advance commissions are calculated on a year by year basis based on
amounts invested during that year. Accordingly, with respect to
additional purchase amounts, the advance commission breakpoint resets
annually to the first breakpoint on the anniversary of the first
purchase.
-------------------------------------------------------------------------

Class A Share purchases under this program may be made by Letter of
Intent or by combining concurrent purchases. The above advance
commission will be paid only on those purchases that were not
previously subject to a front-end sales charge or dealer advance
commission. Certain retirement accounts may not be eligible for this
program.

Advance Commission
as a Percentage of
Class B Shares Public Offering
Price
All Purchase Amounts Up to 5.50%
Advance Commission
as a Percentage of
Class C Shares Public Offering
Price
All Purchase Amounts 1.00%
Class F Shares
Advance Commission
as a Percentage of
Purchase Amount Public Offering
Price
Less than $2 million 1.00%
$2million -but less than $5 0.50%
million
$5 million or greater 0.25%

RULE 12B-1 PLAN (CLASS B SHARES, CLASS C SHARES AND CLASS K SHARES ONLY)
-------------------------------------------------------------------------
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay
the Distributor for activities principally intended to result in the
sale of Shares such as advertising and marketing of Shares (including
printing and distributing prospectuses and sales literature to
prospective shareholders and financial institutions) and providing
incentives to investment professionals to sell Shares. The Rule 12b-1
Plan allows the Distributor to contract with investment professionals
to perform activities covered by the Plan. The Rule 12b-1 Plan is
expected to benefit the Fund in a number of ways. For example, it is
anticipated that the Plan will help the Fund attract and retain assets,
thus providing cash for orderly portfolio management and Share
redemptions and possibly helping to stabilize or reduce other operating
expenses. In addition, the Plan is integral to the multiple class
structure of the Fund, which promotes the sale of Shares by providing a
range of options to investors. The Fund's service providers that
receive asset-based fees also benefit from stable or increasing Fund
assets.

The Fund may compensate the Distributor more or less than its actual
marketing expenses. In no event will the Fund pay for any expenses of
the Distributor that exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can
be paid in any one year may not be sufficient to cover the
marketing-related expenses the Distributor has incurred. Therefore, it
may take the Distributor a number of years to recoup these expenses.

Federated and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third
parties who have provided the funds to make advance commission payments
to investment professionals.

SERVICE FEES
The Fund may pay fees not to exceed 0.25% of average daily net assets
(Service Fees) to investment professionals or to Federated Shareholder
Services Company (FSSC), a subsidiary of Federated, for providing
services to shareholders and maintaining shareholder accounts. Under
certain agreements, rather than paying investment professionals
directly, the Fund may pay Service Fees to FSSC and FSSC will use the
fees to compensate investment professionals.

SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees, in significant amounts, out
of the assets of the Distributor. These fees do not come out of Fund
assets. The Distributor may be reimbursed by the Adviser or its
affiliates.

These supplemental payments may be based upon such factors as the
number or value of Shares the investment professional sells or may
sell; the value of client assets invested; and/or the type and nature
of services, sales support or marketing support furnished by the
investment professional.

In addition to these supplemental payments, an investment professional
may also receive payments under the Rule 12b-1 Plan and/or Service Fees.
</R>

EXCHANGING SECURITIES FOR SHARES

You may contact the Distributor to request a purchase of Shares in
exchange for securities you own. The Fund reserves the right to
determine whether to accept your securities and the minimum market
value to accept. The Fund will value your securities in the same manner
as it values its assets. This exchange is treated as a sale of your
securities for federal tax purposes.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping
requirements. The transfer agent may charge a fee based on the level of
subaccounting services rendered. Investment professionals holding
Shares in a fiduciary, agency, custodial or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal
trust or agency account fees. They may also charge fees for other
services that may be related to the ownership of Shares. This
information should, therefore, be read together with any agreement
between the customer and the investment professional about the services
provided, the fees charged for those services, and any restrictions and
limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves
the right, as described below, to pay the redemption price in whole or
in part by a distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the
1940 Act, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net
assets represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in
cash unless the Fund's Board determines that payment should be in kind.
In such a case, the Fund will pay all or a portion of the remainder of
the redemption in portfolio securities, valued in the same way as the
Fund determines its NAV. The portfolio securities will be selected in a
manner that the Fund's Board deems fair and equitable and, to the
extent available, such securities will be readily marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving the portfolio securities and
selling them before their maturity could receive less than the
redemption value of the securities and could incur certain transaction
costs.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director
elections and other matters submitted to shareholders for vote.

All Shares of the Fund have equal voting rights, except that in matters
affecting only a particular class, only Shares of that class are
entitled to vote.

Directors may be removed by the Board or by shareholders at a special
meeting. A special meeting of shareholders will be called by the Board
upon the written request of shareholders who own at least 10% of the
Fund''s outstanding Shares.

<R>

As of May 11, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares:
Edward Jones & Co., Maryland Heights, MO, owned approximately
25,447,997 Shares (38.04%).

As of May 11, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class B Shares:
Edward Jones & Co., Maryland Heights, MO, owned approximately
4,834,409 Shares (11.93%).

As of May 11, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Edward
Jones & Co., Maryland Heights, MO, owned approximately 818,699
Shares (15.28%), MLPF&S, Jacksonville, FL, owned approximately
733,817 Shares (13.69%) and Citigroup Global Markets Inc., New York,
NY, owned approximately 356,441 Shares (6.65%).

As of May 11, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class F Shares:
MLPF&S, Jacksonville, FL, owned approximately 408,284 Shares
(13.53%), Edward Jones & Co., Maryland Heights, MO, owned
approximately 361,313 Shares (11.97%) and Nationwide Trust Company FSB,
Columbus, OH, 190,703 Shares (6.32%).

As of May 11, 2004, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class K Shares:
Planmember Services Corp., Kansas City, MO, 121,294 Shares (91.78%).

</R>

Shareholders owning 25% or more of outstanding Shares may be in control
and be able to affect the outcome of certain matters presented for a
vote of shareholders.

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. If these
requirements are not met, it will not receive special tax treatment and
will be subject to federal corporate income tax.

The Fund is entitled to a loss carry-forward, which may reduce the
taxable income or gain that the Fund would realize, and to which the
shareholder would be subject, in the future.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
<R>

The Board is responsible for managing the Fund's business affairs and
for exercising all the Fund's powers except those reserved for the
shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of
each person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA. The Federated Fund Complex consists of 44 investment
companies (comprising 136 portfolios). Unless otherwise noted, each
Officer is elected annually. Unless otherwise noted, each Board member
oversees all portfolios in the Federated Fund Complex; serves for an
indefinite term; and also serves as a Board member of the following
investment company complexes: Banknorth Funds-four portfolios; Golden
Oak(R) Family of Funds-seven portfolios and WesMark Funds-five portfolios.

As of May 11, 2004, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Class A Shares, Class B Shares, Class
C Shares, Class F Shares and Class K Shares.

INTERESTED DIRECTORS BACKGROUND AND COMPENSATION
Name Total
Birth Date Aggregate Compensation
Address ----------------------------------- Compensation From Fund and
Positions Held with Principal Occupation(s) for Past From Fund Federated Fund
Fund Five Years, Other Directorships (past Complex
Date Service Began Held and Previous Position(s) fiscal year) (past calendar
year)
Principal Occupations: Chairman $0 $0
John F. Donahue* and Director or Trustee of the
Birth Date: July Federated Fund Complex; Chairman
28, 1924 and Director, Federated
CHAIRMAN AND Investors, Inc.
DIRECTOR
Began serving: July Previous Positions: Trustee,
1968 Federated Investment Management
Company and Chairman and
Director, Federated Investment
Counseling.

Principal Occupations: Principal $0 $0
J. Christopher Executive Officer and President
Donahue* of the Federated Fund Complex;
Birth Date: April Director or Trustee of some of
11, 1949 the Funds in the Federated Fund
PRESIDENT AND Complex; President, Chief
DIRECTOR Executive Officer and Director,
Began serving: Federated Investors, Inc.;
October 1999 Chairman and Trustee, Federated
Investment Management Company;
Trustee, Federated Investment
Counseling; Chairman and
Director, Federated Global
Investment Management Corp.;
Chairman, Federated Equity
Management Company of
Pennsylvania, Passport Research,
Ltd. and Passport Research II,
Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services
Company.

Previous Positions: President,
Federated Investment Counseling;
President and Chief Executive
Officer, Federated Investment
Management Company, Federated
Global Investment Management
Corp. and Passport Research, Ltd.

Principal Occupations: Director $2,467.03 $148,500
Lawrence D. Ellis, or Trustee of the Federated Fund
M.D.* Complex; Professor of Medicine,
Birth Date: October University of Pittsburgh;
11, 1932 Medical Director, University of
3471 Fifth Avenue Pittsburgh Medical Center
Suite 1111 Downtown; Hematologist,
Pittsburgh, PA Oncologist and Internist,
DIRECTOR University of Pittsburgh Medical
Began serving: Center.
August 1987
Other Directorships Held:
Member, National Board of
Trustees, Leukemia Society of
America.

Previous Positions: Trustee,
University of Pittsburgh;
Director, University of
Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F.
Donahue is the father of J. Christopher Donahue; both are "interested"
due to the positions they hold with Federated and its subsidiaries.
Lawrence D. Ellis, M.D. is "interested" because his son-in-law is
employed by the Fund's principal underwriter, Federated Securities Corp.
-------------------------------------------------------------------------

INDEPENDENT DIRECTORS BACKGROUND AND COMPENSATION

Name Total
Birth Date Aggregate Compensation
Address --------------------------------- Compensation From Fund and
Positions Held with Principal Occupation(s) for Past From Fund Federated Fund
Fund Five Years, Other Directorships (past Complex
Date Service Began Held and Previous Position(s) fiscal year) (past calendar
year)
Principal Occupation: Director $2,713.74 $163,350
Thomas G. Bigley or Trustee of the Federated Fund
Birth Date: Complex.
February 3, 1934
15 Old Timber Trail Other Directorships Held:
Pittsburgh, PA Director, Member of Executive
DIRECTOR Committee, Children's Hospital
Began serving: of Pittsburgh; Director,
November 1994 University of Pittsburgh.

Previous Position: Senior
Partner, Ernst & Young LLP.

Principal Occupations: Director $2,713.74 $163,350
John T. Conroy, Jr. or Trustee of the Federated Fund
Birth Date: June Complex; Chairman of the Board,
23, 1937 Investment Properties
Grubb & Corporation; Partner or Trustee
Ellis/Investment in private real estate ventures
Properties in Southwest Florida.
Corporation
3838 North Tamiami Previous Positions: President,
Trail Investment Properties
Suite 402 Corporation; Senior Vice
Naples, FL President, John R. Wood and
DIRECTOR Associates, Inc., Realtors;
Began serving: President, Naples Property
August 1991 Management, Inc. and Northgate
Village Development Corporation.

Principal Occupation: Director $2,713.74 $163,350
Nicholas P. or Trustee of the Federated Fund
Constantakis Complex.
Birth Date:
September 3, 1939 Other Directorships Held:
175 Woodshire Drive Director and Member of the Audit
Pittsburgh, PA Committee, Michael Baker
DIRECTOR Corporation (engineering and
Began serving: energy services worldwide).
October1999
Previous Position: Partner,
Anderson Worldwide SC.

Principal Occupation: Director $2,467.03 $148,500
John F. Cunningham or Trustee of the Federated Fund
Birth Date: March Complex.
5, 1943
353 El Brillo Way Other Directorships Held:
Palm Beach, FL Chairman, President and Chief
DIRECTOR Executive Officer, Cunningham
Began serving: & Co., Inc. (strategic
April 1999 business consulting); Trustee
Associate, Boston College.

Previous Positions: Director,
Redgate Communications and EMC
Corporation (computer storage
systems); Chairman of the Board
and Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief Operating
Officer, Wang Laboratories;
Director, First National Bank of
Boston; Director, Apollo
Computer, Inc.

Principal Occupation: Director $2,467.03 $148,500
Peter E. Madden or Trustee of the Federated Fund
Birth Date: March Complex; Management Consultant.
16, 1942
One Royal Palm Way Other Directorships Held: Board
100 Royal Palm Way of Overseers, Babson College.
Palm Beach, FL
DIRECTOR Previous Positions:
Began serving: Representative, Commonwealth of
August 1991 Massachusetts General Court;
President, State Street Bank and
Trust Company and State Street
Corporation (retired); Director,
VISA USA and VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust Corporation;
Director, The Boston Stock
Exchange.

Principal Occupations: Director $2,713.74 $163,350
Charles F. or Trustee of the Federated Fund
Mansfield, Jr. Complex; Management Consultant;
Birth Date: April Executive Vice President, DVC
10, 1945 Group, Inc. (marketing,
80 South Road communications and technology)
Westhampton Beach, (prior to 9/1/00).
NY
DIRECTOR Previous Positions: Chief
Began serving: Executive Officer, PBTC
April 1999 International Bank; Partner,
Arthur Young & Company (now
Ernst & Young LLP); Chief
Financial Officer of Retail
Banking Sector, Chase Manhattan
Bank; Senior Vice President,
HSBC Bank USA (formerly, Marine
Midland Bank); Vice President,
Citibank; Assistant Professor of
Banking and Finance, Frank G.
Zarb School of Business, Hofstra
University.

Principal Occupations: Director $2,960.44 $178,200
John E. Murray, or Trustee of the Federated Fund
Jr., J.D., S.J.D. Complex; Chancellor and Law
Birth Date: Professor, Duquesne University;
December 20, 1932 Partner, Murray, Hogue &
Chancellor, Lannis.
Duquesne University
Pittsburgh, PA Other Directorships Held:
DIRECTOR Director, Michael Baker Corp.
Began serving: (engineering, construction,
February 1995 operations and technical
services).

Previous Positions: President,
Duquesne University; Dean and
Professor of Law, University of
Pittsburgh School of Law; Dean
and Professor of Law, Villanova
University School of Law.

Principal Occupations: Director $2,467.03 $148,500
Marjorie P. Smuts or Trustee of the Federated Fund
Birth Date: June Complex; Public Relations/
21, 1935 Marketing Consultant/Conference
4905 Bayard Street Coordinator.
Pittsburgh, PA
DIRECTOR Previous Positions: National
Began serving: Spokesperson, Aluminum Company
February 1984 of America; television producer;
President, Marj Palmer Assoc.;
Owner, Scandia Bord.

Principal Occupations: Director $2,467.03 $148,500
John S. Walsh or Trustee of the Federated Fund
Birth Date: Complex; President and Director,
November 28, 1957 Heat Wagon, Inc. (manufacturer
2604 William Drive of construction temporary
Valparaiso, IN heaters); President and
DIRECTOR Director, Manufacturers
Began serving: Products, Inc. (distributor of
April 1999 portable construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products, Inc.

Previous Position: Vice
President, Walsh & Kelly,
Inc.

OFFICERS**
-------------------------------------------------------------------------

Name
Birth Date
Address
Positions Held with Fund
----------------------------- Principal Occupation(s) and Previous Position(s)
Date Service Began

Principal Occupations: Executive Vice President and
John W. McGonigle Secretary of the Federated Fund Complex; Executive Vice
Birth Date: October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE PRESIDENT AND Inc.
SECRETARY
Began serving: May 1969 Previous Positions: Trustee, Federated Investment
Management Company and Federated Investment Counseling;
Director, Federated Global Investment Management Corp.,
Federated Services Company and Federated Securities
Corp.

Principal Occupations: Principal Financial Officer and
Richard J. Thomas Treasurer of the Federated Fund Complex; Senior Vice
Birth Date: June 17, 1954 President, Federated Administrative Services.
TREASURER
Began serving: November 1998 Previous Positions: Vice President, Federated
Administrative Services; held various management
positions within Funds Financial Services Division of
Federated Investors, Inc.

Principal Occupations: Vice Chairman or Vice President
Richard B. Fisher of some of the Funds in the Federated Fund Complex;
Birth Date: May 17, 1923 Vice Chairman, Federated Investors, Inc.; Chairman,
VICE PRESIDENT Federated Securities Corp.
Began serving: May 1976
Previous Positions: President and Director or Trustee
of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc. and
Director and Chief Executive Officer, Federated
Securities Corp.

Principal Occupations: Chief Investment Officer of this
Stephen F. Auth Fund and various other Funds in the Federated Fund
Birth Date: September 3, Complex; Executive Vice President, Federated Investment
1956 Counseling, Federated Global Investment Management
CHIEF INVESTMENT OFFICER Corp., Federated Equity Management Company of
Began serving: November 2002 Pennsylvania and Passport Research II, Ltd.

Previous Positions: Executive Vice President, Federated
Investment Management Company, and Passport Research,
Ltd.; Senior Vice President, Global Portfolio
Management Services Division; Senior Vice President,
Federated Investment Management Company and Passport
Research, Ltd.; Senior Managing Director and Portfolio
Manager, Prudential Investments.

** Officers do not receive any compensation from the Fund.
-------------------------------------------------------------------------

Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer
and Assistant Secretary of Federated and an officer of its various
advisory and underwriting subsidiaries, has served as a Term Member on
the Board of Directors of Duquesne University, Pittsburgh,
Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an
Independent Director of the Fund, served as President of Duquesne from
1988 until his retirement from that position in 2001, and became
Chancellor of Duquesne on August 15, 2001. It should be noted that
Mr. Donahue abstains on any matter that comes before Duquesne''s Board
that affects Mr. Murray personally.

COMMITTEES OF THE BOARD
Meetings
Board Committee Held
Committee Members Committee Functions During
Last
Fiscal
Year
Executive In between meetings of the full Board, One
John F. Donahue the Executive Committee generally may
John E. Murray, exercise all the powers of the full Board
Jr., J.D., S.J.D. in the management and direction of the
business and conduct of the affairs of
the Corporation in such manner as the
Executive Committee shall deem to be in
the best interests of the Corporation.
However, the Executive Committee cannot
elect or remove Board members, increase
or decrease the number of Directors,
elect or remove any Officer, declare
dividends, issue shares or recommend to
shareholders any action requiring
shareholder approval.

Audit The Audit Committee reviews and Four
Thomas G. Bigley recommends to the full Board the
John T. Conroy, independent auditors to be selected to
Jr. audit the Fund'`s financial statements;
Nicholas P. meets with the independent auditors
Constantakis periodically to review the results of the
Charles F. audits and reports the results to the
Mansfield, Jr. full Board; evaluates the independence of
the auditors, reviews legal and
regulatory matters that may have a
material effect on the financial
statements, related compliance policies
and programs, and the related reports
received from regulators; reviews the
Fund' `s internal audit function; reviews
compliance with the Fund'`s code of
conduct/ethics; reviews valuation issues;
monitors inter-fund lending transactions;
reviews custody services and issues and
investigates any matters brought to the
Committee's attention that are within the
scope of its duties.

BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF
INVESTMENT COMPANIES AS OF DECEMBER 31, 2003
----------------------------------------------------------------------------------------
Aggregate
Dollar Range of
Dollar Range of Shares Owned in
Interested Shares Owned Federated Family of
Board Member Name in Fund[s] Investment Companies
John F. Donahue Over $100,000 Over $100,000
J. Christopher Donahue None Over $100,000
Lawrence D. Ellis, M.D. $10,001 - $50,000 Over $100,000

Independent
Board Member Name
Thomas G. Bigley None Over $100,000
John T. Conroy, Jr. None Over $100,000
Nicholas P. Constantakis None Over $100,000
John F. Cunningham None Over $100,000
Peter E. Madden None Over $100,000
Charles F. Mansfield, Jr. None $50,001 - $100,000
John E. Murray, Jr., J.D., S.J.D. None Over $100,000
Marjorie P. Smuts Over $100,000 Over $100,000
John S. Walsh None Over $100,000
</R>
---------------------------------------------------------------------------------------

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions
for the Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of
any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties imposed upon it by its contract
with the Fund.

As required by the 1940 Act, the Fund's Board has reviewed the Fund's
investment advisory contract. The Board's decision to approve the
contract reflects the exercise of its business judgment on whether to
continue the existing arrangements. During its review of the contract,
the Board considers many factors, among the most material of which are:
the Fund's investment objectives and long term performance; the
Adviser's management philosophy, personnel, and processes; the
preferences and expectations of Fund shareholders and their relative
sophistication; the continuing state of competition in the mutual fund
industry; comparable fees in the mutual fund industry; the range and
quality of services provided to the Fund and its shareholders by the
Federated organization in addition to investment advisory services; and
the Fund's relationship to the Federated funds.

In assessing the Adviser's performance of its obligations, the Board
also considers whether there has occurred a circumstance or event that
would constitute a reason for it to not renew an advisory contract. In
this regard, the Board is mindful of the potential disruptions of the
Fund's operations and various risks, uncertainties and other effects
that could occur as a result of a decision to terminate or not renew an
advisory contract. In particular, the Board recognizes that most
shareholders have invested in the Fund on the strength of the Adviser's
industry standing and reputation and in the expectation that the
Adviser will have a continuing role in providing advisory services to
the Fund.

The Board also considers the compensation and benefits received by the
Adviser . This includes fees received for services provided to the Fund
by other entities in the Federated organization and research services
received by the Adviser from brokers that execute fund trades, as well
as advisory fees. In this regard, the Board is aware that various
courts have interpreted provisions of the 1940 Act and have indicated
in their decisions that the following factors may be relevant to an
Adviser's compensation: the nature and quality of the services
provided by the Adviser, including the performance of the Fund; the
Adviser''s cost of providing the services; the extent to which the
Adviser may realize "economies of scale" as the Fund grows larger; any
indirect benefits that may accrue to the Adviser and its affiliates as
a result of the Adviser''s relationship with the Fund; performance and
expenses of comparable funds; and the extent to which the independent
Board members are fully informed about all facts bearing on the
Adviser''s service and fee. The Fund's Board is aware of these factors
and takes them into account in its review of the Fund's advisory
contract.

The Board considers and weighs these circumstances in light of its
substantial accumulated experience in governing the Fund and working
with Federated on matters relating to the Federated funds, and is
assisted in its deliberations by the advice of independent legal
counsel. In this regard, the Board requests and receives a significant
amount of information about the Fund and the Federated organization.
Federated provides much of this information at each regular meeting of
the Board, and furnishes additional reports in connection with the
particular meeting at which the Board's formal review of the advisory
contracts occurs. In between regularly scheduled meetings, the Board
may receive information on particular matters as the need arises.
Thus, the Board's evaluation of an advisory contract is informed by
reports covering such matters as: the Adviser's investment philosophy,
personnel, and processes; the Fund's short- and long-term performance
(in absolute terms as well as in relationship to its particular
investment program and certain competitor or "peer group" funds), and
comments on the reasons for performance; the Fund's expenses (including
the advisory fee itself and the overall expense structure of the Fund,
both in absolute terms and relative to similar and/or competing funds,
with due regard for contractual or voluntary expense limitations); the
use and allocation of brokerage commissions derived from trading the
Fund's portfolio securities; the nature and extent of the advisory and
other services provided to the Fund by the Adviser and its affiliates;
compliance and audit reports concerning the Federated funds and the
Federated companies that service them; and relevant developments in the
mutual fund industry and how the Federated funds and/or Federated are
responding to them.

The Board also receives financial information about Federated,
including reports on the compensation and benefits Federated derives
from its relationships with the Federated funds. These reports cover
not only the fees under the advisory contracts, but also fees received
by Federated's subsidiaries for providing other services to the
Federated funds under separate contracts (e.g., for serving as the
Federated funds' administrator and transfer agent). The reports also
discuss any indirect benefit Federated may derive from its receipt of
research services from brokers who execute Federated fund trades.

<R>

The Board bases its decision to approve an advisory contract on the
totality of the circumstances and relevant factors, and with a view to
past and future long-term considerations. Not all of the factors and
considerations identified above are relevant to every Federated fund,
nor does the Board consider any one of them to be determinative.
Because the totality of circumstances includes considering the
relationship of each Federated fund, the Board does not approach
consideration of every Federated fund's advisory contract as if that
were the only Federated fund.

Services Agreement
Federated Advisory Services Company, an affiliate of the Adviser,
provides research, quantitative analysis, equity trading and
transaction settlement and certain support services to the Adviser.
The fee for these services is paid by the Adviser and not by the Fund.

</R>

Other Related Services
Affiliates of the Adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order
to facilitate the purchase of Fund Shares offered by the Distributor.

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

As required by SEC rules, the Fund, its Adviser, and its Distributor
have adopted codes of ethics. These codes govern securities trading
activities of investment personnel, Fund Directors, and certain other
employees. Although they do permit these people to trade in
securities, including those that the Fund could buy, they also contain
significant safeguards designed to protect the Fund and its
shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.

<R>

VOTING PROXIES ON FUND PORTFOLIO SECURITIES
The Board has delegated to the Adviser authority to vote proxies on the
securities held in the Fund's portfolio. The Board has also approved
the Adviser's policies and procedures for voting the proxies, which are
described below.

Proxy Voting Policies
The Adviser's general policy is to cast proxy votes in favor of
proposals that the Adviser anticipates will enhance the long-term value
of the securities being voted. Generally, this will mean voting for
proposals that the Adviser believes will: improve the management of a
company; increase the rights or preferences of the voted securities;
and/or increase the chance that a premium offer would be made for the
company or for the voted securities.

The following examples illustrate how these general policies may apply
to proposals submitted by a company's board of directors. However,
whether the Adviser supports or opposes a proposal will always depend
on the specific circumstances described in the proxy statement and
other available information.

On matters of corporate governance, generally the Adviser will vote for
proposals to: require independent tabulation of proxies and/or
confidential voting by shareholders; reorganize in another jurisdiction
(unless it would reduce the rights or preferences of the securities
being voted); and repeal a shareholder rights plan (also known as a
"poison pill"). The Adviser will generally vote against the adoption of
such a plan (unless the plan is designed to facilitate, rather than
prevent, unsolicited offers for the company).

On matters of capital structure, generally the Adviser will vote:
against proposals to authorize or issue shares that are senior in
priority or voting rights to the securities being voted; for proposals
to grant preemptive rights to the securities being voted; and against
proposals to eliminate such preemptive rights.

On matters relating to management compensation, generally the Adviser
will vote: for stock incentive plans that align the recipients'
interests with the interests of shareholders without creating undue
dilution; and against proposals that would permit the amendment or
replacement of outstanding stock incentives with new stock incentives
having more favorable terms.

On matters relating to corporate transactions, the Adviser will vote
proxies relating to proposed mergers, capital reorganizations, and
similar transactions in accordance with the general policy, based upon
its analysis of the proposed transaction. The Adviser will vote
proxies in contested elections of directors in accordance with the
general policy, based upon its analysis of the opposing slates and
their respective proposed business strategies. Some transactions may
also involve proposed changes to the company's corporate governance,
capital structure or management compensation. The Adviser will vote on
such changes based on its evaluation of the proposed transaction or
contested election. In these circumstances, the Adviser may vote in a
manner contrary to the general practice for similar proposals made
outside the context of such a proposed transaction or change in the
board. For example, if the Adviser decides to vote against a proposed
transaction, it may vote for anti-takeover measures reasonably designed
to prevent the transaction, even though the Adviser typically votes
against such measures in other contexts.
The Adviser generally votes against proposals submitted by shareholders
without the favorable recommendation of a company's board. The Adviser
believes that a company's board should manage its business and
policies, and that shareholders who seek specific changes should strive
to convince the board of their merits or seek direct representation on
the board.

In addition, the Adviser will not vote if it determines that the
consequences or costs outweigh the potential benefit of voting. For
example, if a foreign market requires shareholders casting proxies to
retain the voted shares until the meeting date (thereby rendering the
shares "illiquid" for some period of time), the Adviser will not vote
proxies for such shares.

Proxy Voting Procedures
The Adviser has established a Proxy Voting Committee (Proxy Committee),
to exercise all voting discretion granted to the Adviser by the Board
in accordance with the proxy voting policies. The Adviser has hired
Investor Responsibility Research Center (IRRC) to obtain, vote, and
record proxies in accordance with the Proxy Committee's directions.
The Proxy Committee directs IRRC by means of Proxy Voting Guidelines,
and IRRC may vote any proxy as directed in the Proxy Voting Guidelines
without further direction from the Proxy Committee (and may make any
determinations required to implement the Proxy Voting Guidelines).
However, if the Proxy Voting Guidelines require case-by-case direction
for a proposal, IRRC will provide the Proxy Committee with all
information that it has obtained regarding the proposal and the Proxy
Committee will provide specific direction to IRRC. The Adviser's proxy
voting procedures generally permit the Proxy Committee to amend the
Proxy Voting Guidelines, or override the directions provided in such
Guidelines, whenever necessary to comply with the proxy voting
policies.

Conflicts of Interest
The Adviser has adopted procedures to address situations where a matter
on which a proxy is sought may present a potential conflict between the
interests of the Fund (and its shareholders) and those of the Adviser
or Distributor. This may occur where a significant business
relationship exists between the Adviser (or its affiliates) and a
company involved with a proxy vote. A company that is a proponent,
opponent, or the subject of a proxy vote, and which to the knowledge of
the Proxy Committee has this type of significant business relationship,
is referred to as an "Interested Company."

The Adviser has implemented the following procedures in order to avoid
concerns that the conflicting interests of the Adviser have influenced
proxy votes. Any employee of the Adviser who is contacted by an
Interested Company regarding proxies to be voted by the Adviser must
refer the Interested Company to a member of the Proxy Committee, and
must inform the Interested Company that the Proxy Committee has
exclusive authority to determine how the Adviser will vote. Any Proxy
Committee member contacted by an Interested Company must report it to
the full Proxy Committee and provide a written summary of the
communication. Under no circumstances will the Proxy Committee or any
member of the Proxy Committee make a commitment to an Interested
Company regarding the voting of proxies or disclose to an Interested
Company how the Proxy Committee has directed such proxies to be voted.
If the Proxy Voting Guidelines already provide specific direction on
the proposal in question, the Proxy Committee shall not alter or amend
such directions. If the Proxy Voting Guidelines require the Proxy
Committee to provide further direction, the Proxy Committee shall do so
in accordance with the proxy voting policies, without regard for the
interests of the Adviser with respect to the Interested Company. If
the Proxy Committee provides any direction as to the voting of proxies
relating to a proposal affecting an Interested Company, it must
disclose to the Fund's Board information regarding: the significant
business relationship; any material communication with the Interested
Company; the matter(s) voted on; and how, and why, the Adviser voted as
it did.

If the Fund holds shares of another investment company for which the
Adviser (or an affiliate) acts as an investment adviser, the Proxy
Committee will vote the Fund's proxies in the same proportion as the
votes cast by shareholders who are not clients of the Adviser at any
shareholders' meeting called by such investment company, unless
otherwise directed by the Board.

</R>

BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. The Adviser will generally use those who
are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The
Adviser may select brokers and dealers based on whether they also offer
research services (as described below). In selecting among firms
believed to meet these criteria, the Adviser may give consideration to
those firms which have sold or are selling Shares of the Fund and other
funds distributed by the Distributor and its affiliates. The Adviser
may also direct certain portfolio trades to a broker that, in turn,
pays a portion of the Fund''s operating expenses. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.

Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. Except as noted below, when the
Fund and one or more of those accounts invests in, or disposes of, the
same security, available investments or opportunities for sales will be
allocated among the Fund and the account(s) in a manner believed by the
Adviser to be equitable. While the coordination and ability to
participate in volume transactions may benefit the Fund, it is possible
that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund. Investments
for Federated Kaufmann Fund and other accounts managed by that fund's
portfolio managers in initial public offerings ("IPO") are made
independently from any other accounts, and much of their non-IPO
trading may also be conducted independently from other accounts.

<R>

On March 31, 2004, the Fund owned securities of the following regular
broker/dealers: Bear Stearns Cos., Inc, $37,079,872, Citigroup, Inc.
$112,995,520, Goldman Saschs Group Inc, $37,200,775, J.P. Morgan Chase
& CO. $98,934,880 and Morgan Stanley $61,162,020.

</R>

Research Services
Research services may include advice as to the advisability of
investing in securities; security analysis and reports; economic
studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services may be used by the
Adviser or by affiliates of Federated in advising other accounts. To
the extent that receipt of these services may replace services for
which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer
brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons
are reasonable in relationship to the value of the brokerage and
research services provided.

<R>

For the fiscal year ended, March 31, 2004, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $1,058,365,978 for
which the Fund paid $1,402,441 in brokerage commissions.

ADMINISTRATOR
Federated Administrative Services (FAS), a subsidiary of Federated,
provides administrative personnel and services (including certain legal
and financial reporting services) necessary to operate the Fund. FAS
provides these at the following annual rate of the average aggregate
daily net assets of all Federated funds as specified below:

Average Aggregate Daily
Maximum Net Assets of the
Administrative Fee Federated Funds
0.150 of 1% on the first $5 billion
0.125 of 1% on the next $5 billion
0.100 of 1% on the next $10 billion
0.075 of 1% on assets over $20 billion
The administrative fee received during any fiscal year shall be at
least $150,000 per portfolio and $40,000 per each additional class of
Shares. FAS may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
-------------------------------------------------------------------------

FAS also provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments for a fee based on Fund
assets plus out-of-pocket expenses.

</R>

CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
<R>

Federated Services Company, through its registered transfer agent
subsidiary, FSSC, maintains all necessary shareholder records. The Fund
pays the transfer agent a fee based on the size, type and number of
accounts and transactions made by shareholders.

</R>

INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP,
conducts its audits in accordance with auditing standards generally
accepted in the United States of America, which require it to plan and
perform its audits to provide reasonable assurance about whether the
Fund's financial statements and financial highlights are free of
material misstatement.

FEES PAID BY THE FUND FOR SERVICES

------------------------ ------------ ---------- ----------
For the Year Ended 2004 2003 2002
March 31
Advisory Fee Earned $16,770,358 $16,943,091 $21,316,527
Advisory Fee Reduction $0 $10,143 $7,695
Advisory Fee $3,469 $0 $0
Reimbursement
Brokerage Commissions $1,897,203 $2,697,226 $3,055,053
Administrative Fee $1,937,414 $1,948,626 $2,529,246
12b-1 Fee:
Class B Shares $7,258,294 -- --
Class C Shares $903,958 -- --
Class K Shares $6,197 -- --
Shareholder Services
Fee:
Class A Shares $3,510,151 -- --
Class B Shares $2,419,431 -- --
Class C Shares $301,319 -- --
Class F Shares $169,435 -- --
</R>
-------------------------------------------------------------------------

Fees are allocated among classes based on their pro rata share of Fund
assets, except for marketing (Rule 12b-1) fees and shareholder services
fees, which are borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the SEC's standard
methods for calculating performance applicable to all mutual funds. The
SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Share performance reflects the effect of non-recurring charges, such as
maximum sales charges, which, if excluded, would increase the total
return and yield. The performance of Shares depends upon such variables
as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences
in the Fund's or any class of Shares'' expenses; and various other
factors.

Share performance fluctuates on a daily basis largely because net
earnings and/or the value of portfolio holdings fluctuate daily. Both
net earnings and offering price per Share are factors in the
computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD
<R>

Total returns are given for the one-year, five-year, ten-year or Start
of Performance periods ended March 31, 2004.

Yield is given for the 30-day period ended March 31, 2004.

30-Day 1 Year 5 Years 10 Years
Period
Class A Shares:
Total Return
Before Taxes NA 30.69% (0.10)% 10.19%
After Taxes on NA 30.18% (0.74)% 8.50%
Distributions
After Taxes on
Distributions and ------------ 19.92% (0.41)% 8.09%
Sale of Shares NA
Yield 0.85% NA NA NA
-----------------------------------------------------------------

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

Start of
--- --- ---------- Performance
-------------------- ------------ ------- on
30-Day 1 Year 5 Years 7/26/1994
Period
Class B Shares:
Total Return
Before Taxes NA 31.69% (0.10)% 10.08%
After Taxes on NA 31.66% (0.44)% 8.60%
Distributions
After Taxes on
Distributions and ------------ 20.60% (0.22)% 8.15%
Sale of Shares NA
Yield 0.09% NA NA NA
---------------------------------------------------------------------

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

30-Day 1 Year 5 Years 10 Years
Period
Class C Shares:
Total Return
Before Taxes NA 34.93% 0.08% 9.89%
After Taxes on NA 34.92% (0.25)% 8.53%
Distributions
After Taxes on
Distributions and ------------ 22.70% (0.06)% 8.07%
Sale of Shares NA
Yield 0.11% NA NA NA
---------------------------------------------------------------------

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

30-Day 1 Year 5 Years 10 Years
Period
Class F Shares:
Total Return
Before Taxes NA 35.95% 0.83% 10.69%
After Taxes on NA 35.40% 0.18% 8.99%
Distributions
After Taxes on
Distributions and ------------ 23.33% 0.38% 8.54%
Sale of Shares NA
Yield 0.89% NA NA NA
---------------------------------------------------------------------

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

30-Day 1 Year 5 Years 10 Years
Period
Class K Shares:
Total Return
Before Taxes NA 37.72% 0.56% 10.29%
After Taxes on NA 37.40% 0.10% 8.82%
Distributions
After Taxes on
Distributions and ------------ 24.50% 0.26% 8.35%
Sale of Shares NA
Yield 0.46% NA NA NA
---------------------------------------------------------------------
</R>
-------------------------------------------------------------------------

TOTAL RETURN
Total return represents the change (expressed as a percentage) in the
value of Shares over a specific period of time, and includes the
investment of income and capital gains distributions.

The average annual total return for Shares is the average compounded
rate of return for a given period that would equate a $10,000 initial
investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of Shares
owned at the end of the period by the NAV per Share at the end of the
period. The number of Shares owned at the end of the period is based on
the number of Shares purchased at the beginning of the period with
$10,000, less any applicable sales charge, adjusted over the period by
any additional Shares, assuming the annual reinvestment of all
dividends and distributions. Total returns after taxes are calculated
in a similar manner, but reflect additional standard assumptions
required by the SEC.

YIELD
The yield of Shares is calculated by dividing: (i) the net investment
income per Share earned by the Shares over a 30-day period; by (ii) the
maximum offering price per Share on the last day of the period. This
number is then annualized using semi-annual compounding. This means
that the amount of income generated during the 30-day period is assumed
to be generated each month over a 12-month period and is reinvested
every six months. The yield does not necessarily reflect income
actually earned by Shares because of certain adjustments required by
the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in Shares, the Share performance is lower for shareholders paying those
fees.

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

o references to ratings, rankings, and financial publications
and/or performance comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or
returns in general, that demonstrate investment concepts such as
tax-deferred compounding, dollar-cost averaging and systematic
investment;

o discussions of economic, financial and political developments and
their impact on the securities market, including the portfolio
manager's views on how such developments could impact the Fund; and

o information about the mutual fund industry from sources such as
the Investment Company Institute.

The Fund may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments,
including federally insured bank products such as bank savings
accounts, certificates of deposit, and Treasury bills.

The Fund may quote information from reliable sources regarding
individual countries and regions, world stock exchanges, and economic
and demographic statistics.

You may use financial publications and/or indices to obtain a more
complete view of Share performance. When comparing performance, you
should consider all relevant factors such as the composition of the
index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the
Fund uses in advertising may include:

Lipper, Inc.
Ranks funds in various fund categories by making comparative
calculations using total return. Total return assumes the reinvestment
of all capital gains distributions and income dividends and takes into
account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the growth
and income funds category in advertising and sales literature.

S&P 500 Index
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.

S&P 500/Barra Value Index
A market capitalization-weighted index of the stocks in the Standard
& Poor's 500 Index having the lowest price to book ratios. The
index consists of approximately half of the S&P 500 on a market
capitalization basis.

Morningstar, Inc.
An independent rating service, is the publisher of the bi-weekly Mutual
Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed
mutual funds of all types, according to their risk- adjusted returns.
The maximum rating is five stars, and ratings are effective for two
weeks.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have
gained the confidence of thousands of financial institutions and
individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At
Federated, success in investment management does not depend solely on
the skill of a single portfolio manager. It is a fusion of individual
talents and state-of-the-art industry tools and resources. Federated's
investment process involves teams of portfolio managers and analysts,
and investment decisions are executed by traders who are dedicated to
specific market sectors and who handle trillions of dollars in annual
trading volume.

FEDERATED FUNDS OVERVIEW

Municipal Funds
<R>

In the municipal sector, as of December 31, 2003, Federated managed 14
bond funds with approximately $3.8 billion in assets and 22 money
market funds with approximately $23.0 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Funds may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding
the tax obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 32 years' experience. As
of December 31, 2003, Federated managed 36 equity funds totaling
approximately $25.6 billion in assets across growth, value, equity
income, international, index and sector (i.e. utility) styles.
Federated's value-oriented management style combines quantitative and
qualitative analysis and features a structured, computer-assisted
composite modeling system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 2003, Federated
managed 11 money market funds and 4 bond funds with assets
approximating $61.7 billion and $3.4 billion, respectively.
Federated's corporate bond decision making--based on intensive, diligent
credit analysis--is backed by over 30 years of experience in the
corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset backed securities
market, a market totaling more than $209 billion.

Government Funds
In the government sector, as of December 31, 2003, Federated managed 7
mortgage backed, 3 multi-sector government funds, 4 government/agency
and 19 government money market mutual funds, with assets approximating
$4.9 billion, $0.9 billion, $2.9 billion and $56.2 billion,
respectively. Federated trades approximately $90.4 billion in U.S.
government and mortgage backed securities daily and places
approximately $35 billion in repurchase agreements each day. Federated
introduced the first U.S. government fund to invest in U.S.
government bond securities in 1969. Federated has been a major force in
the short- and intermediate-term government markets since 1982 and
currently manages approximately $50 billion in government funds within
these maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money
market fund shares. Other innovations include the first institutional
tax-free money market fund. As of December 31, 2003, Federated managed
$136.2 billion in assets across 52 money market funds, including 19
government, 10 prime, 22 municipal and 1 euro-denominated with assets
approximating $56.2 billion, $59.4 billion, $20.6 billion and
$173.9 million, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: Global Equity - Stephen F.
Auth is responsible for overseeing the management of Federated's
domestic and international equity products; Global Fixed Income -
William D. Dawson III is responsible for overseeing the management of
Federated's domestic and international fixed income and high yield
products.

MUTUAL FUND MARKET
Forty-nine percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $6.2 trillion to the approximately
8,300 funds available, according to the Investment Company Institute.

</R>

FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a
variety of investment purposes. Specific markets include:

Institutional Clients
<R>

Federated meets the needs of approximately 3,035 institutional clients
nationwide by managing and servicing separate accounts and mutual funds
for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax exempt
entities, foundations/ endowments, insurance companies, and investment
and financial advisers

Bank Marketing
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients' portfolios.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage
firms nationwide--Federated has over 2,000 broker/ dealer and bank
broker/dealer relationships across the country--supported by more
wholesalers than any other mutual fund distributor. Federated's service
to financial professionals and institutions has earned it high ratings
in several surveys performed by DALBAR, Inc. DALBAR is recognized as
the industry benchmark for service quality measurement.

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended March
31, 2004 are incorporated herein by reference to the Annual Report to
Shareholders of Federated American Leaders Fund, Inc. dated March 31,
2004.

</R>

INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
<R>

AAA--Highest credit quality. 'AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
AA--Very high credit quality. 'AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity for
timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.

A--High credit quality. 'A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.

BBB--Good credit quality. 'BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but adverse
changes in circumstances and in economic conditions are more likely to
impair this capacity. This is the lowest investment-grade category.

BB--Speculative. 'BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.

B--Highly speculative. 'B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.

CCC, CC, C--High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon sustained,
favourable business or economic developments. A 'CC' rating indicates
that default of some kind appears probable. 'C' ratings signal imminent
default.

MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
Prime-1--Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics: leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structure with moderate reliance on debt and ample asset
protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, and well-established access
to a range of financial markets and assured sources of alternate
liquidity.

Prime-2--Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-- A short-term obligation rated 'A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is strong. Within this category,
certain obligations are designated with a plus sign (+). This indicates
that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.

A-2-- A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However, the
obligor's capacity to meet its financial commitment on the obligation
is satisfactory.

FITCH RATINGS COMMERCIAL PAPER RATING DEFINITIONS
F-1--Indicates the strongest capacity for timely payment of financial
commitments relative to other issuers or issues in the same country.
Under their national rating scale, this rating is assigned to the
"best" credit risk relative to all others in the same country and is
normally assigned to all financial commitments issued or guaranteed by
the sovereign state. Where the credit risk is particularly strong, a
"+" is added to the assigned rating.

F-2-- Indicates a satisfactory capacity for timely payment of financial
commitments relative to other issuers or issues in the same country.
However, the margin of safety is not as great as in the case of the
higher ratings.

</R>

ADDRESSES

FEDERATED AMERICAN LEADERS FUND, INC.

Class A Shares

Class B Shares

Class C Shares

Class F Shares

Class K Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Investment Adviser
<R>

Federated Equity Management Company of Pennsylvania
</R>

Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

PART C. OTHER INFORMATION.

Item 23. Exhibits:

(a) (i) Conformed copy of Articles of Incorporation of
the Registrant as restated; (4)
(ii) Conformed copy of Amendment 9 to the Articles of
Incorporation of the Registrant as restated; (4)
(iii) Conformed copy of Amendment 10 to the Articles
of Incorporation of the Registrant as restated;
(11)
(iv) Conformed copy of Amendment 11 to the Articles
of Incorporation of the Registrant as restated;
(11)
(v) Conformed copy of Amendment 12 to the Articles of Incorporation of the
Registrant as restated; (11)
(vi) Conformed copy of Amendment 13 to the Articles of Incorporation of the
Registrant as restated; +
(b) (i) Copy of Amended and Restated By-Laws of the
Registrant; (4)
(ii) Copy of Amendment No. 12 to the By-Laws of the
Registrant; (8)
(iii) Copy of Amendment No. 13 to the By-Laws of the
Registrant; (8)
(iv) Copy of Amendment No. 14 to the By-Laws of the
Registrant; (8)
(v) Copy of Amendment No. 15 to the By-Laws of the Registrant; (12)
(vi) Copy of Amendment No. 16 to the By-Laws of the Registrant; +
(c) Copy of Specimen Certificate for Shares of
Capital Stock of the Registrant; (1)
(d) (i) Conformed copy of Investment Advisory Contract
of the Registrant; (4)
(ii) Conformed copy of Amendment to the Investment Advisory Contract of the
Registrant; (11)
(iii) Conformed copy of Assignment to the Investment Advisory Contract; +
(e) (i) Conformed copy of Distributor's Contract of the
Registrant including Exhibits A, B and C; (3)
(ii) Conformed copy of Exhibit D to the Distributor's
Contract of the Registrant; (4)
(iii) Conformed copy of Exhibit E to the Distributor's
Contract of the Registrant; (13)
(iv) Conformed copy of Amendment to the Distributor's
Contract of the Registrant; (11)
(v) Conformed copy of Distributor's Contract (Class
B Shares); (7)
(vi) Conformed copy of Amendment to Distributor's
Contract (Class B Shares); (11)
(vii) 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);
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the
Registrant; (4)
(ii) Conformed copy of Custodian Fee Schedule; (7)
(iii) Conformed copy of Amendment to the Custodian
Agreement of the Registrant; (12)
(h) (i) Conformed copy of Amended and Restated Agreement
for Fund Accounting Services, Administrative
Services, Transfer Agency Services, and Custody
Services Procurement; (8)
(ii) Conformed copy of Amendment to Agreement for
Fund Accounting Services, Administrative
Services, Transfer Agency Services, and Custody
Services Procurement; (12)
(iii) Conformed copy of Principal Shareholder Services
Agreement (Class B Shares); (7)
(iv) Conformed copy of Shareholder Services Agreement
(Class B Shares); (7)
(v) The responses described in Item 23(e)(vi) are
hereby incorporated by reference;
(vi) The Registrant hereby incorporates the conformed
copy of the Second Amended and Restated Services
Agreement from Item (h)(v) of the Investment
Series Funds, Inc. Registration Statement on
Form N-1A filed with the Commission on
January 23, 2002. (File Nos. 33-48847 and
811-07021);
(vii) The Registrant hereby incorporates by reference the conformed copy of the
Agreement for Administrative Services from Item
23 (h) (vix) of the Federated Index Trust
Registration Statement on Form N-1A, filed with
the Commission on December 30, 2003. (File Nos.
33-33852 and 811-8161).
(viii) The Registrant hereby incorporates by reference the conformed copy of the
Financial Administration and Accounting Services
Agreement from Item 23 (h) (v) of the Federated
Limited Duration Government Fund, Inc.
Registration Statement on Form N-1A, filed with
the Commission on April 26, 2004. (File Nos.
33-41004 and 811-6307).
(i) Conformed copy of Opinion of Consent of Counsel
as to legality of shares being registered; (1)
(j) Conformed Copy of Consent of Independent Public
Accountants; +
(k) Not applicable;
(l) Conformed copy of Initial Capital Understanding;
(1)
(m) (i) Conformed copy of Rule 12b-1 Plan of the
Registrant; (3)
(ii) Conformed copy of Exhibit A to the Rule 12b-1
Plan of the Registrant; (4)
(iii) Conformed copy of Exhibit C to the Rule 12b-1
Plan of the Registrant; (13)
(iv) Conformed Copy of Exhibit 1 and Schedule A to the 12b-1 Distribution Plan
(Class B Shares) of the Registrant; (7)
(v) Conformed copy of Distribution Plan of the Registrant; +
(vi) The responses described in Item 23(e)(vi) are
hereby incorporated by reference;
(n) The Registrant hereby incorporates the conformed
copy of the Multiple Class Plan from Item (n) of
the Federated GNMA Trust Registration Statement
on Form N-1A, filed with the Commission on March
29, 2004. (File Nos. 2-45670 and 811-3375).
(o) (i) Conformed copy of Power of Attorney of the
Registrant; (10)
(ii) Conformed copy of Power of Attorney of Director
of the Registrant; (9)
(iii) Conformed copy of Power of Attorney of Chairman
and President of the Registrant; (12)
(iv) Conformed copy of Power of Attorney of Chief
Investment Officer of the Registrant; (12)
(p) The Registrant hereby incorporates the conformed
copy of the Code of Ethics for Access Persons
from Item 23(p) of the Money Market Obligations
Trust Registration Statement on Form N-1A filed
with the Commission on February 26, 2004. (File
Nos. 33.31602 and 811-5950).

--------------------------------------------------------------------------------
+ All exhibits have been filed electronically.
1. 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.)
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 47 on Form N-1A filed July 26, 1989. (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. 60 on Form N-1A filed May 25, 1995. (File Nos. 2-29786 and
811-1704)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 64 on Form N-1A filed May 28, 1998. (File Nos. 2-29786 and
811-1704)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 65 on Form N-1A filed March 30, 1999. (File Nos. 2-29786
and 811-1704)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 66 on Form N-1A filed May 27, 1999. (File Nos. 2-29786 and
811-1704)
10. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 67 on Form N-1A filed May 25, 2000. (File Nos. 2-29786 and
811-1704)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 69 on Form N-1A filed May 29, 2002. (File Nos. 2-29786 and
811-1704)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment 70 on form N-1A filed February 7, 2003. (File Nos. 2-29786 and
811-1704)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment 71 on form N-1A filed March 31, 2003. (File Nos. 2-29786 and
811-1704)

Item 24. Persons Controlled by or Under Common Control with the Fund:

None.

Item 25. Indemnification: (2)

Item 26. Business and Other Connections of Investment Adviser:

For a description of the other business of the investment adviser, see
the section entitled "Who Manages the Fund?" in Part A. The
affiliations with the Registrant of four of the Trustees and one of
the Officers of the investment adviser are included in Part B of this
Registration Statement under "Who Manages and Provides Services to the
Fund?" The remaining Trustees of the investment adviser and, in
parentheses, their principal occupations are: Thomas R. Donahue,
(Chief Financial Officer, Federated Investors, Inc.), 1001 Liberty
Avenue, Pittsburgh, PA, 15222-3779 and Mark D. Olson (a principal of
the firm, Mark D. Olson & Company, L.L.C. and Partner, Wilson,
Halbrook & Bayard, P.A.), 800 Delaware Avenue, P.O. Box 2305,
Wilmington, DE 19899-2305.

The remaining Officers of the investment adviser are:

President/ Chief Executive Officer
and Trustee: Keith M. Schappert

Executive Vice President: Stephen F. Auth

Senior Vice Presidents: Linda A. Duessel
James E. Grefenstette

Vice Presidents: G. Andrew Bonnewell
David P. Gilmore
John W. Harris
Steven Lehman
Kevin McClosky
John L. Nichol

Assistant Vice Presidents: Angela A. Kohler
Dana Meissner
Michael R. Tucker

Secretary: G. Andrew Bonnewell

Treasurer: Thomas R. Donahue

Assistant Secretary: Jay S. Neuman

Assistant Treasurer: Denis McAuley, III

The business address of each of the Officers of the investment adviser is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779. These individuals are also officers of a majority of the
investment advisers to the investment companies in the Federated Fund
Complex described in Part B of this Registration Statement.

Item 27. Principal Underwriters:

(a) Federated Securities Corp. the Distributor for shares of the Registrant,
acts as principal underwriter for the following open-end investment
companies, including the Registrant:

Cash Trust Series, Inc.; Cash Trust Series II; Federated Adjustable Rate
Securities Fund; Federated American Leaders Fund, Inc.; Federated Core
Trust; Federated Core Trust II, L.P.; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fixed Income Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
International Series, Inc.; Federated Investment Series Funds, Inc.;
Federated Limited Duration Government Fund, Inc.; Federated Managed
Allocation Portfolios; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Securities
Income Trust; Federated Premier Intermediate Municipal Income Fund;
Federated Premier Municipal Income Fund; Federated Short-Term Municipal
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Total Return Government Bond Fund; Federated Total Return Series,
Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5
Years; Federated World Investment Series, Inc.; Intermediate Municipal
Trust; Edward Jones Money Market Fund; Money Market Obligations Trust;
Regions Morgan Keegan Select Funds and SouthTrust Funds.

(b)

(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
_____________________ _________________ ______________________

Chairman: Richard B. Fisher Vice President

President-Institutional
Sales and Director: John B. Fisher

Executive Vice
Vice President, Assistant
Secretary and Director: Thomas R. Donahue

President-Broker/Dealer
And Director: James F. Getz

Senior Vice Presidents: Mark W. Bloss
Richard W. Boyd
Laura M. Deger
Peter W. Eisenbrandt
Theodore Fadool, Jr.
Christopher Fives
James S. Hamilton
James M. Heaton
H. Joseph Kennedy
Amy Michaliszyn
Keith Nixon
Solon A. Person, IV
Ronald M. Petnuch
Thomas E. Territ
Robert F. Tousignant
Paul Uhlman

Vice Presidents: Irving Anderson
Dan Berry
John B. Bohnet
Edward R. Bozek
Jane E. Broeren-Lambesis
Brian Burke
Craig Burness
Vice Presidents: David J. Callahan
Mark Carroll
Dan Casey
Scott Charlton
Steven R. Cohen
Mary J. Combs
James Conely
R. Edmond Connell, Jr.
Kevin J. Crenny
Daniel T. Culbertson
G. Michael Cullen
Beth C. Dell
Robert J. Deuberry
Ron Dorman
William C. Doyle
Donald C. Edwards
Lee England
Timothy Franklin
Peter J. Germain
James F. Getz, Jr.
Joseph D. Gibbons
J. Todd Glickson
G. Tad Gullickson
Scott Gundersen
Dayna C. Haferkamp
Raymond J. Hanley
Vincent L. Harper, Jr.
Bruce E. Hastings
Teresa M. Johnson
Christopher L. Johnston
William Kastroll
Stephen Kittel
Michael W. Koenig
Ed Koontz
Theodore J. Kravits, Jr.
Christopher A. Layton
Michael H. Liss
Michael R. Manning
Martin J. McCaffrey
Mary A. McCaffrey
Richard C. Mihm
Chris Milliken
Vincent T. Morrow
Alec H. Neilly
Rebecca Nelson
James E. Ostrowski
Thomas A. Peter III
Raleigh Peters
Robert F. Phillips
Josh Rasmussen
Richard A. Recker
Christopher Renwick
Brian S. Ronayne
Timothy A. Rosewicz
Thomas S. Schinabeck
Edward J. Segura
Peter Siconolfi
Edward L. Smith
David W. Spears
John A. Staley
Colin B. Starks
Jeffrey A. Stewart
Kevin Stutz
William C. Tustin
G. Walter Whalen
Stephen White
Patrick M. Wiethorn
Edward J. Wojnarowski
Michael P. Wolff

Assistant Vice Presidents: Lisa A. Toma
Robert W. Bauman
Charles L. Davis, Jr.
Brian F. Paluso

Assistant Vice Presidents: William Rose

Treasurer: Denis McAuley, III

Secretary: Stephen A. Keen

Assistant Secretary: Thomas R. Donahue
Peter J. Germain

The business address of each of the Officers of Federated Securities Corp. is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779.

Item 28. Location of Accounts and Records:

All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:

Registrant Reed Smith LLP
Investment Management Group (IMG)
Federated Investors Tower
12th Floor
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent for Service
at the above address)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
("Transfer Agent and Dividend
Disbursing Agent")

Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Federated Investment Federated Investors Tower
Management Company 1001 Liberty Avenue
("Adviser") Pittsburgh, PA 15222-3779

State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
("Custodian")

Item 29. Management Services: Not applicable.

Item 30. Undertakings:

Registrant hereby undertakes to comply with the provisions of Section 16(c) of
the 1940 Act with respect to the removal of Directors and the calling of special
shareholder meetings by shareholders.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED AMERICAN LEADERS FUND,
INC., certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 1st day of June,
2004.

FEDERATED AMERICAN LEADERS FUND, INC.

BY: /s/ Nelson W. Winter
Nelson W. Winter Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE

By: /s/ Nelson W. Winter Attorney In Fact June 1, 2004
Nelson W. Winter For the Persons
ASSISTANT SECRETARY Listed Below

NAME TITLE

John F. Donahue* Chairman and Director

J. Christopher Donahue* President and Director
(Principal Executive Officer)

Richard J. Thomas* Treasurer
(Principal Financial Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

Nicholas P. Constantakis* Director

John F. Cunningham* Director

Lawrence D. Ellis, M.D.* Director

Peter E. Madden* Director

Charles F. Mansfield, Jr.* Director

John E. Murray, Jr.* Director

Marjorie P. Smuts* Director

John S. Walsh* Director

*By Power of Attorney