STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
CLASS C SHARES
PROSPECTUS
The Class C Shares offered by this prospectus represent interests in an
open-end, diversified management investment company (a mutual fund) known as
Stock and Bond Fund, Inc. (the "Fund").
The investment objectives of the Fund are to provide relative safety of capital
with the possibility of long-term growth of capital and income. Consideration is
also given to current income. The Fund pursues these objectives by investing in
a professionally managed, diversified portfolio of common and preferred stocks
and other equity securities, bonds, notes, and short-term obligations.
This prospectus contains the information you should read and know before you
invest in Class C Shares of the Fund. Keep this prospectus for future reference.
THE CLASS C 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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares and Class C Shares dated December 31, 1993, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference in this prospectus. You may
request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS--CLASS C SHARES 2
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GENERAL INFORMATION 3
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LIBERTY FAMILY OF FUNDS 3
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Liberty Family Retirement Program 4
INVESTMENT INFORMATION 4
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Investment Objectives 4
Investment Policies 5
Acceptable Investments 5
Common Stocks 5
Convertible Securities 5
Investment-Grade Bonds 5
U.S. Government Securities 5
Foreign Issuers 6
Temporary Investments 6
Repurchase Agreements 6
Restricted and Illiquid Securities 7
Lending of Portfolio Securities 7
When-Issued and Delayed Delivery
Transactions 7
Investment Limitations 7
FUND INFORMATION 8
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Management of the Fund 8
Board of Directors 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Class C Shares 9
Distribution Plan 9
Other Payments to Financial Institutions 9
Administration of the Fund 10
Administrative Services 10
Shareholder Services Plan 10
Custodian
Transfer Agent and Dividend
Disbursing Agent 10
Legal Counsel 10
Independent Auditors 10
Brokerage Transactions 10
Expenses of the Fund and Class C Shares 11
NET ASSET VALUE 11
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INVESTING IN CLASS C SHARES 11
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Share Purchases 11
Through a Financial Institution 12
Directly from the Distributor 12
Minimum Investment Required 12
What Shares Cost 12
Systematic Investment Program 13
Certificates and Confirmations 13
Dividends 13
Capital Gains 13
Retirement Plans 13
EXCHANGE PRIVILEGE 13
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Requirements for Exchange 14
Tax Consequences 14
Making an Exchange 14
Telephone Instructions 14
REDEEMING CLASS C SHARES 15
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Through a Financial Institution 15
Directly from the Fund 15
By Telephone 15
By Mail 16
Signatures 16
Contingent Deferred Sales Load 16
Redemption Before Purchase
Instruments Clear 17
Systematic Withdrawal Program 17
Accounts with Low Balances 17
SHAREHOLDER INFORMATION 18
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Voting Rights 18
TAX INFORMATION 18
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Federal Income Tax 18
Pennsylvania Corporate and Personal
Property Taxes 18
PERFORMANCE INFORMATION 19
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OTHER CLASSES OF SHARES 19
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FINANCIAL HIGHLIGHTS--CLASS A SHARES 20
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FINANCIAL STATEMENTS 21
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INDEPENDENT AUDITORS' REPORT 33
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ADDRESSES Inside Back Cover
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)........................ 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)................ None
Exchange Fee...................................................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(2).................................................. 0.55%
12b-1 Fee......................................................................... 0.75%
Total Other Expenses.............................................................. 0.74%
Shareholder Servicing Fee..................................................... 0.25%
Total Class C Shares Operating Expenses(3)................................. 2.04%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the original
purchase price or the net asset value of Shares redeemed within one year of
their purchase date. For a more complete description, see "Redeeming Class C
Shares."
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.55% of
average daily net assets plus 4.5% of gross income, excluding capital gains or
losses.
(3) The Total Class C Shares Operating Expenses would have been 2.24% absent the
voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS C SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS C SHARES" AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
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<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period.......... $ 31 $64
You would pay the following expenses on the same investment assuming
no redemption................................................................... $ 21 $64
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Class C Shares of the Fund. The Fund also offers another class of shares called
Class A Shares. Class C Shares and Class A Shares are subject to certain of the
same expenses; however, Class A Shares are not subject to a 12b-1 fee, a
shareholder servicing fee, or a contingent deferred sales charge. See "Other
Classes of Shares."
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
FINANCIAL HIGHLIGHTS--CLASS C SHARES
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(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Independent Auditors' Report on page 33.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1993*
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.18
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.38
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Net realized and unrealized gain (loss) on investments 0.48
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Total from investment operations 0.86
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LESS DISTRIBUTIONS
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Dividends to shareholders from net investment income (0.20)
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NET ASSET VALUE, END OF PERIOD $16.84
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TOTAL RETURN** 5.54%(a)
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RATIOS TO AVERAGE NET ASSETS
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Expenses 2.04%(b)
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Net investment income 2.01%(b)
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Expense adjustment (c) 0.20%(b)
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $96
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Portfolio turnover rate*** 51%
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</TABLE>
* Reflects operations for the period from April 19, 1993 (start of performance)
to
October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
*** Represents portfolio turnover for the entire Fund.
<TABLE>
<S> <C>
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This expense decrease is reflected in both the expense and net investment income ratios
shown above (Note 4).
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated October 31, 1993, which can be obtained free of charge.
GENERAL INFORMATION
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The Fund was incorporated under the laws of the State of Maryland on October 31,
1934. On April 16, 1993, the shareholders of the Fund voted to (1) change the
name of the Fund from Federated Stock and Bond Fund, Inc., to Stock and Bond
Fund, Inc., and (2) amend the Fund's Articles of Incorporation to permit the
Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors ("Directors") has established two classes of shares known
as Class A Shares and Class C Shares. This prospectus relates only to Class C
Shares ("Shares") of the Fund.
Shares of the Fund are designed for investors as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
common and preferred stocks and other equity securities, bonds, notes, and
short-term obligations. A minimum initial investment of $1,500 is required,
unless the investment is in a retirement account, in which case the minimum
initial investment is $50.
Shares are sold at net asset value. A contingent deferred sales charge of 1.00%
will be charged on assets redeemed within the first 12 months following
purchase.
The Share's current net asset value and offering price can be found in the
mutual funds section of local newspapers under "Liberty Family Funds."
LIBERTY FAMILY OF FUNDS
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The Shares of the Fund are a member of a family of mutual funds, collectively
known as the Liberty Family of Funds. The other funds in the Family are:
AMERICAN LEADERS FUND, INC., providing growth of capital and income through
high-quality stocks;
CAPITAL GROWTH FUND (CLASS A SHARES AND CLASS C SHARES), providing
appreciation of capital primarily through equity securities;
FUND FOR U.S. GOVERNMENT SECURITIES, INC., providing current income through
long-term U.S. government securities;
INTERNATIONAL EQUITY FUND, providing long-term capital growth and income
through international securities;
INTERNATIONAL INCOME FUND, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
LIBERTY EQUITY INCOME FUND, INC., providing above-average income and
capital appreciation through income-producing equity securities;
LIBERTY HIGH INCOME BOND FUND, INC., providing high current income through
high yielding, lower-rated corporate bonds;
LIBERTY MUNICIPAL SECURITIES FUND, INC., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST, providing current income
consistent with stability of principal through high-quality U.S. government
securities;
LIBERTY UTILITY FUND, INC., providing current income and long-term growth
of income, primarily through electric, gas, and communication utilities;
and
TAX-FREE INSTRUMENTS TRUST, providing current income consistent with
stability of principal and exempt from federal income tax through
high-quality, short-term municipal securities.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of a proven, professional investment adviser.
LIBERTY FAMILY RETIREMENT PROGRAM
The Fund is also a member of the Liberty Family Retirement Program ("Program"),
an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit and
savings plans. Under the Program, employers or plan trustees may select a group
of investment options to be offered in a plan which also uses the Program for
recordkeeping and administrative services. Additional fees are charged to
participating plans for these services. As part of the Program, exchanges may
readily be made between investment options selected by the employer or a plan
trustee.
The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc., Capital Growth Fund (Class A Shares and Class C
Shares), Fund for U.S. Government Securities, Inc., International Equity Fund,
International Income Fund, Liberty Equity Income Fund, Inc., Liberty High Income
Bond Fund, Inc., Liberty Utility Fund, Inc., and Prime Cash Series. Plans with
over $1 million invested in funds available in the Program may purchase Class A
Shares without a sales load.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVES
The investment objectives of the Fund are to provide relative safety of capital
with the possibility of long-term growth of capital and income. Consideration is
also given to current income. The Fund pursues these investment objectives by
investing in a professionally managed, diversified portfolio of common and
preferred stocks and other equity securities, bonds, notes, and short-term
obligations. While there is no assurance that the Fund will achieve its
investment objectives, it endeavors to do so by following the investment
policies described in this prospectus. The investment objectives and the
policies and limitations described below cannot be changed without approval of
shareholders, unless otherwise noted.
INVESTMENT POLICIES
As a matter of investment policy, which may be changed without shareholder
approval, under normal circumstances, the Fund will invest at least 65% of its
total assets in stocks and bonds.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a diversified portfolio
of common stocks, bonds, convertible securities, and preferred stocks which
provide characteristics of stability and relative safety, and marketable
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Fund anticipates that it will experience characteristics
of stability and relative safety by investing primarily in securities of larger,
well-established companies which have a history of lower volatility in earnings
and price fluctuations.
COMMON STOCKS. The common stocks in which the Fund invests are selected by
the Fund's investment adviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects
and of the risk and volatility of the company's industry. However, other
factors, such as product position, market share, or profitability, will
also be considered by the Fund's investment adviser.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the
issuer's underlying common stock at the option of the holder during a
specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants, or a combination of the features
of several of these securities. The investment characteristics of each
convertible security vary widely, which allows convertible securities to be
employed for different investment objectives. In selecting convertible
securities for the Fund, the Fund's investment adviser evaluates the
investment potential of the underlying security for capital appreciation.
The convertible securities in which the Fund invests will be rated
"investment grade" or of comparable quality at the time of purchase. See
"Investment--Grade Bonds."
INVESTMENT-GRADE BONDS. The bonds in which the Fund invests will be rated
investment grade (i.e., rated Baa or better by Moody's Investors Service,
Inc., or BBB or better by Standard & Poor's Corporation or Fitch Investors
Service, Inc., or, if unrated, deemed to be of comparable quality by the
Fund's investment adviser). Bonds rated BBB by Standard and Poor's
Corporation or Fitch Investors Service, Inc., or Baa by Moody's Investors
Service, Inc., have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments than higher rated bonds.
If a security's rating is reduced below the required minimum after the Fund
has purchased it, the Fund is not required to sell the security but may
consider doing so. A description of the rating categories is contained in
the Appendix to the Combined Statement of Additional Information. (The Fund
intends to restrict investments to securities rated investment grade in the
current fiscal year. However, the Fund reserves the right to, in the
future, invest in securities rated below investment grade. The Fund will
notify shareholders of such a change in investment policy prior to its
implementation.)
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the
Fund invests are either issued or guaranteed by the U.S. government, its
agencies or instrumentalities. These securities include, but are not
limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities such as Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Banks for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, Student Loan Marketing Association, Federal Home
Loan Mortgage Corporation, or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and credit of the
U.S. Treasury. Others for which no assurances can be given that the U.S.
government will provide financial support to the agencies or
instrumentalities, since it is not obligated to do so, are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
FOREIGN ISSUERS. The Fund may invest in the securities of foreign issuers
which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of depository receipts. The Fund will
limit its investments in non-ADR foreign obligations to less than 5% of its
assets. Securities of a foreign issuer may present greater risks in the
form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, prevailing market conditions warrant, the Fund may, for
temporary defensive purposes, invest in:
- short-term money market instruments;
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities; and
- repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's adviser to be creditworthy.
RESTRICTED AND ILLIQUID SECURITIES. As a matter of investment policy, which may
be changed without shareholder approval, the Fund may invest up to 10% of its
total assets in restricted securities. This restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objectives and policies, but which are subject to
restriction on resale under federal securities law. The Fund will limit
investments in illiquid securities, including certain restricted securities not
determined by the Directors to be liquid, non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the investment adviser has determined are creditworthy under
guidelines established by the Fund's Directors and will receive collateral in
the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The Fund engages in when-issued and delayed delivery transactions
only for the purpose of acquiring portfolio securities consistent with the
Fund's investment objectives and policies, not for investment leverage. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for at least
a percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund may borrow up to one-
third of the value of its net assets;
- invest more than 5% of its total assets in securities of one issuer
(except U.S. government securities);
- invest in more than 10% of the voting securities of one issuer;
- invest in more than 10% of any class of securities of one issuer;
- invest more than 5% of its total assets in securities of issuers that
have records of less than three years of continuous operations; or
- invest more than 5% of its assets in warrants, except under certain
circumstances.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the
Directors. The adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to 0.55 of 1% of the Fund's average daily net assets, plus 4.5%
of the Fund's annual gross income, excluding any capital gains or losses.
Gross income includes interest accrued, including discount earned on U.S.
Treasury bills and agency discount notes, interest received or receivable
on all interest-bearing obligations, and dividend income. The adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The adviser can terminate this voluntary waiver
of its advisory fee at any time at its sole discretion. This does not
include reimbursement to the Fund of any expenses incurred by shareholders
who use the transfer agent's subaccounting facilities. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial services industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Robert J. Ostrowski has been the Fund's co-portfolio manager since April,
1990. Mr. Ostrowski joined Federated Investors in 1987 and has been a Vice
President of the Fund's investment adviser since 1993. Mr. Ostrowski served
as an Assistant Vice President of the investment adviser from 1990 until
1992, and from 1987 until 1990 he acted as an investment analyst. Mr.
Ostrowski is a Chartered Financial Analyst and received his M.S. in
Industrial Administration from Carnegie Mellon University.
Michael P. Donnelly has been the Fund's co-portfolio manager since
February, 1993. Mr. Donnelly joined Federated Investors in 1989 and has
been an Assistant Vice President of the Fund's investment adviser since
1992. From 1989 until 1991, Mr. Donnelly acted as an investment analyst for
the investment adviser. Mr. Donnelly was a Fixed Income Associate at
Donaldson, Lufkin & Jenrette from 1987 until 1989. Mr. Donnelly is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Virginia.
DISTRIBUTION OF CLASS C SHARES
Federated Securities Corp. is the principal distributor for Shares. Federated
Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Plan"), Shares will pay an amount computed at an annual rate of 0.75 of 1%
of the average daily net asset value of Shares to finance any activity which is
principally intended to result in the sale of Shares.
The distributor may select financial institutions (such as a broker/dealer or
bank) to provide sales support services as agents for their clients or customers
who beneficially own Shares. Financial institutions will receive fees from the
distributor based upon Shares owned by their clients or customers. The schedules
of such fees and the basis upon which such fees will be paid will be determined
from time to time by the distributor.
The Fund's Plan is a compensation type Plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying, or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from the interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state laws.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Plan, Federated Securities Corp. will pay
financial institutions an amount equal to l% of the net asset value of Shares
purchased by their clients or customers at the time of purchase (except for
participants in the Liberty Family Retirement Program). Furthermore, certain
financial institutions may be compensated by the adviser or its affiliates for
the continuing investment of customers' assets in
certain funds, including the Fund, advised by those entities. These payments
will be made directly by the distributor or adviser from their assets, and will
not be made from the assets of the Fund or by the assessment of a sales charge
on Shares. Financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services necessary to operate the Fund and the
separate classes. Such services include shareholder servicing and certain legal
and accounting services. Federated Administrative Services, Inc., provides these
at approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to Shares. Under the Services Plan, financial
institutions will enter into shareholder service agreements with the Fund to
provide administrative support services to their customers who from time to time
may be owners of record or beneficial owners of Shares. In return for providing
these support services, a financial institution may receive payments from the
Fund at a rate not exceeding 0.25 of 1% of the average daily net assets of the
Shares beneficially owned by the financial institution's customers for whom it
is holder of record or with whom it has a servicing relationship. These
administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations and
addresses; and providing such other services as the Fund reasonably requests.
CUSTODIAN. State Street Bank and Trust Company, P. O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania 15222-3779, is transfer agent for the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110-1617.
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. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. 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 Federated Securities
Corp. The adviser makes decisions on portfolio transactions and selects brokers
and dealers subject to review by the Directors.
EXPENSES OF THE FUND AND CLASS C SHARES
Holders of each class of shares pay their allocable portion of Fund and
portfolio expenses.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Fund and continuing
its existence; registering the Fund with federal and state securities
authorities; Directors' fees; auditors' fees; the cost of meetings of Directors;
legal fees of the Fund; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Shares each pay their allocable
portion include, but are not limited to: registering the portfolio and Shares of
the portfolio; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as a
class are expenses under the Fund's Shareholder Services Plan and Distribution
Plan. However, the Directors reserve the right to allocate certain expenses to
holders of Shares as it deems appropriate ("Class Expenses"). In any case, Class
Expenses would be limited to: distribution fees; transfer agent fees as
identified by the transfer agent as attributable to holders of Shares; fees
under the Fund's Shareholder Services Plan, if any; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses, and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Directors' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Class C
Shares is determined by adding the interest of the Class C Shares in the market
value of all securities and other assets of the Fund, subtracting the interest
of the Class C Shares in the liabilities of the Fund and those attributable to
Class C Shares, and dividing the remainder by the total number of Class C Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class C Shares 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.
INVESTING IN CLASS C SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the
distributor, Federated Securities Corp., once an account has been established.
In connection with the sale of Shares, Federated Securities Corp. may from time
to time offer certain items of nominal value to any shareholder or investor. The
Fund reserves the right to reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank
or an investment dealer) to place an order to purchase Shares. Orders through a
financial institution are considered received when the Fund is notified of the
purchase order. Purchase orders through a registered broker/dealer must be
received by the broker before 4:00 p.m. (Boston time) and must be transmitted by
the broker to the Fund before 5:00 p.m. (Boston time) in order for Shares to be
purchased at that day's price. Purchase orders through other financial
institutions must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Boston time) in order for Shares to be purchased at
that day's price. It is the financial institution's responsibility to transmit
orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor once an account has been established. To do
so:
- complete and sign the new account form available from the Fund;
- enclose a check made payable to Stock and Bond Fund, Inc.--Class C
Shares; and
- mail both to Stock and Bond Fund, Inc., P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
State Street Bank and Trust Company ("State Street Bank") into federal funds.
This is generally the next business day after State Street Bank receives the
check.
To purchase Shares directly from the distributor by wire once an account has
been established, call the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: State Street Bank and
Trust Company, Boston, Massachusetts 02105; Attention: EDGEWIRE; For Credit to:
Stock and Bond Fund, Inc.--Class C Shares; Title or Name of Account; and Wire
Order Number and/or Account Number. Shares cannot be purchased by wire on
Columbus Day, Veterans' Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500 unless the investment is by
a retirement plan, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement plans, which must be in amounts of at least $50. (Other minimum
investment requirements may apply to investments through the Liberty Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received.
The net asset value is determined at 4:00 p.m. (Boston time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the transfer agent. A shareholder may apply for participation in
this program through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends are automatically reinvested in additional
Shares on payment dates at the ex-dividend date net asset value without a sales
charge, unless shareholders request cash payments on the new account form or by
writing to the transfer agent. All shareholders on the record date are entitled
to the dividend. If Shares are redeemed or exchanged prior to the record date or
purchased after the record date, those Shares are not entitled to that quarter's
dividend.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Class C shareholders may exchange all or some of their
Shares for Class C Shares in other funds in the
Liberty Family of Funds at net asset value without a contingent deferred sales
charge. Participants in a plan under the Liberty Family Retirement Program may
exchange some or all of their Shares for Class C Shares of other funds offered
under their plan at net asset value without a contingent deferred sales charge.
Any contingent deferred sales charge charged at the time exchanged-for shares
are redeemed is calculated as if the shareholder had held the shares from the
date on which he or she became a shareholder of the exchanged-from Shares. For
more information, see "Contingent Deferred Sales Load."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. The exchange privilege may be
modified or terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Boston Financial Data Services,
Inc., Attention: Federated Division, Two Heritage Drive, North Quincy,
Massachusetts 02171.
Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund's transfer agent. If the instructions are given by a
broker, a telephone authorization form completed by the broker must be on file
with the Fund's transfer agent. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the Fund's transfer agent and deposited to the shareholder's
account before being exchanged. Telephone exchange instructions are recorded and
will be binding upon the shareholder. Such instructions will be processed as of
4:00 p.m. (Boston time) and must be received by the Fund's transfer agent before
that time for Shares to be exchanged the same day. Shareholders exchanging into
a Fund will not receive any dividend that is payable to shareholders of record
on that date. This privilege may be modified or terminated at any time.
REDEEMING CLASS C SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge, next determined after State Street Bank receives the
redemption request. Redemptions will be made on days on which the Fund computes
its net asset value. Redemptions can be made through a financial institution or
directly from the Fund. Redemptions requests must be received in proper form.
Redemptions of Shares held through the Liberty Family Retirement Program will be
governed by the requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value, less any applicable contingent deferred sales charge,
next determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Boston time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Boston time) in order
for Shares to be redeemed at that day's net asset value. Redemption requests
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Boston time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The proceeds will
be mailed to the shareholder's address of record or wire transferred to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event longer
than seven days after the request. The minimum amount for a wire transfer is
$1,000. If at any time the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund's transfer agent to accept telephone
requests must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as redeeming by mail, should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to the
Fund. The written request should include the shareholder's name, the Fund name
and class of shares name, the account number, and the Share or dollar amount
requested, and should be signed exactly as the Shares are registered.
If Share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest or Pacific Stock
Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES LOAD
Shareholders who purchased Shares will be charged a contingent deferred sales
charge by Federated Securities Corp. of 1.00% for redemptions of those Shares
made within one year from the date of purchase. To the extent that a shareholder
exchanges between or among Class C Shares in other funds in the Liberty Family
of Funds, the time for which the exchanged-for shares were held will be added or
"tacked" to the time for which the exchanged-from Shares were held for purposes
of satisfying the one-year holding period. The contingent deferred sales charge
will be calculated based upon the lesser of
the original purchase price of the Shares or the net asset value of the shares
when redeemed. For additional information, see "Other Payments to Financial
Institutions."
The contingent deferred sales charge will not be imposed on Shares acquired
through reinvestment of dividends or distributions of short-term or long-term
capital gains. Redemptions are deemed to have occurred in the following order:
(i) Shares acquired through the reinvestment of dividends and long-term capital
gains, (ii) purchases of Shares occurring more than one year before the date of
redemption, and (iii) purchases of Shares within the previous year.
The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account after the beneficial owner
attains age 59 1/2; or (iii) from the death or permanent and total disability of
the beneficial owner. The exemption from the contingent deferred sales charge
for qualified plans, an IRA, Keogh Plan, or a custodial account does not extend
to account transfers, rollovers, and other redemptions made for purposes of
reinvestment.
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class C Shares in other Liberty Family Retirement
Program funds or in connection with redemptions by the Fund of accounts with low
balances. No contingent deferred sales charge will be charged for redemptions
from the Liberty Family Retirement Program. For additional information, see
"Other Payments to Financial Institutions."
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check or through the Automated Clearing House
("ACH"), the proceeds from the redemption of those Shares are not available, and
the Shares may not be exchanged, until the Fund or its agents are reasonably
certain that the purchase check has cleared, which could take up to ten calendar
days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement accounts, and pay the proceeds
to the shareholder if the account balance
falls below a required minimum value of $250 due to shareholder redemptions.
This requirement does not apply, however, if the balance falls below $250
because of changes in the Fund's net asset value. Before Shares are redeemed to
close an account, the shareholder is notified in writing and allowed 30 days to
purchase additional Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that only shares of that
particular portfolio or class are entitled to vote in matters affecting that
portfolio or class.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a majority vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 25% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of the Fund, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- the Fund is subject to the Pennsylvania corporate franchise tax; and
- Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the total return and yield for Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as a contingent deferred sales charge, which, if excluded, would increase the
total return and yield.
Total return and yield will be calculated separately for Class C Shares and
Class A Shares. Because Class C Shares are subject to a Rule 12b-1 fee and a
shareholder services fee, the total return and yield for Class A Shares, for the
same period, will exceed that of Class C Shares.
From time to time, the Fund may advertise the performance of Class C Shares
using certain reporting services and/or compare the performance of Class C
Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund does not presently offer Class B Shares. Class A Shares, the other
class of shares offered by the Fund, are sold to customers of financial
institutions without a sales charge. Investments in Class A Shares are subject
to a minimum initial investment of $25,000. Class A Shares are not subject to a
distribution plan pursuant to Rule 12b-1, a shareholder services fee, or a
contingent deferred sales charge. Additionally, Class A Shares are not a member
of the Liberty Family of Funds.
The amount of dividends payable to Class A Shares will generally exceed that
payable to Class C Shares by the difference between Class Expenses borne by
shares of each respective class.
The stated advisory fee is the same for both classes of shares.
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------- -----------------------------------------------------------------------
1993 1992 1991 1990* 1989 1988 1987 1986 1985 1984 1983
-------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING
OF PERIOD $ 15.91 $ 15.74 $ 13.60 $ 15.11 $ 14.94 $ 14.89 $ 15.34 $ 15.24 $ 13.60 $ 12.82 $ 11.33
- ----------
INCOME
FROM
INVESTMENT
OPERATIONS
- ----------
Net
investment
income 0.55 0.65 0.74 1.37 0.91 0.85 0.81 0.85 0.90 0.91 0.87
- ----------
Net
realized
and
unrealized
gain
(loss) on
investments 1.58 0.39 2.17 (2.22) 0.91 0.52 (0.24) 1.17 2.18 0.77 1.48
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
Total
from
investment
operations 2.13 1.04 2.91 (0.85) 1.82 1.37 0.57 2.02 3.08 1.68 2.35
- ----------
LESS
DISTRIBUTIONS
- ----------
Dividends
to
shareholders
from net
investment
income (0.56) (0.68) (0.77) (0.66) (0.94) (0.86) (0.79) (0.86) (0.90) (0.90) (0.86)
- ----------
Distributions
to
shareholders
from net
realized
gain on
investments (0.61) (0.19) -- -- (0.71) (0.46) (0.23) (1.06) (0.54) -- --
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
Total
distributions (1.17) (0.87) (0.77) (0.66) (1.65) (1.32) (1.02) (1.92) (1.44) (0.90) (0.86)
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
NET ASSET
VALUE,
END OF
PERIOD $ 16.87 $ 15.91 $ 15.74 $ 13.60 $ 15.11 $ 14.94 $ 14.89 $ 15.34 $ 15.24 $ 13.60 $ 12.82
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
TOTAL
RETURN** 14.10% 7.94% 21.78% (5.90%)(a) 12.46% 9.28% 3.58% 13.77% 24.09% 13.81% 21.26%
- ----------
RATIOS TO
AVERAGE
NET ASSETS
- ----------
Expenses 1.04% 1.04% 1.01% 1.01%(b) 1.01% 1.00% 1.00% 1.00% 1.30% 1.52% 1.51%
- ----------
Net
investment
income 3.49% 4.15% 4.91% 5.77%(b) 5.82% 5.53% 5.07% 5.43% 6.42% 7.08% 7.04%
- ----------
Expense
adjustment
(c) 0.20% 0.21% 0.45% 0.54%(b) 0.51% 0.39% 0.22% 0.30% 0.27% -- --
- ----------
SUPPLEMENTAL
DATA
- ----------
Net
assets,
end of
period
(000
omitted) $124,583 $ 95,387 $ 88,534 $ 79,003 $ 88,367 $ 90,504 $ 92,105 $ 75,441 $37,792 $23,167 $28,489
- ----------
Portfolio
turnover
rate*** 51% 43% 72% 49% 26% 131% 110% 40% 42% 49% 33%
- ----------
</TABLE>
* For the ten months ended October 31, 1990.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
*** Represents portfolio turnover for the entire Fund.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated October 31, 1993, which can be obtained free of charge.
STOCK AND BOND FUND, INC.
(FORMERLY FEDERATED STOCK AND BOND FUND, INC,)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--45.6%
- -----------------------------------------------------------------------------------
BASIC INDUSTRY--3.1%
-----------------------------------------------------------------
10,500 Aluminum Co. of America $ 714,000
-----------------------------------------------------------------
23,000 + FMC Corp. 1,129,875
-----------------------------------------------------------------
32,000 Lubrizol Corp. 1,112,000
-----------------------------------------------------------------
20,000 Phelps Dodge Corp. 852,500
----------------------------------------------------------------- ------------
Total 3,808,375
----------------------------------------------------------------- ------------
CONSUMER DURABLES--2.6%
-----------------------------------------------------------------
26,000 Eastman Kodak Co. 1,638,000
-----------------------------------------------------------------
34,000 General Motors Corp. 1,619,250
----------------------------------------------------------------- ------------
Total 3,257,250
----------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--2.8%
-----------------------------------------------------------------
21,000 Nike, Inc., Class B 1,015,875
-----------------------------------------------------------------
27,000 Philip Morris Cos., Inc. 1,451,250
-----------------------------------------------------------------
35,000 Reebok International, Ltd. 1,067,500
----------------------------------------------------------------- ------------
Total 3,534,625
----------------------------------------------------------------- ------------
CONSUMER SERVICES--5.2%
-----------------------------------------------------------------
26,000 American Stores Co. 1,053,000
-----------------------------------------------------------------
12,000 Dun & Bradstreet Corp. 804,000
-----------------------------------------------------------------
20,000 McKesson Corp. 1,067,500
-----------------------------------------------------------------
37,700 Sears, Roebuck & Co. 2,163,037
-----------------------------------------------------------------
45,000 + Tele-Communications, Inc. 1,372,500
----------------------------------------------------------------- ------------
Total 6,460,037
----------------------------------------------------------------- ------------
ENERGY--4.3%
-----------------------------------------------------------------
9,000 Atlantic Richfield Co. 992,250
-----------------------------------------------------------------
38,500 Baker Hughes, Inc. 866,250
-----------------------------------------------------------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
ENERGY--CONTINUED
-----------------------------------------------------------------
14,000 Chevron Corp. $ 1,358,000
-----------------------------------------------------------------
14,000 Exxon Corp. 915,250
-----------------------------------------------------------------
20,000 Mapco, Inc. 1,190,000
----------------------------------------------------------------- ------------
Total 5,321,750
----------------------------------------------------------------- ------------
FINANCE--7.4%
-----------------------------------------------------------------
39,000 American General Corp. 1,145,625
-----------------------------------------------------------------
15,000 CIGNA Corp. 1,006,875
-----------------------------------------------------------------
14,714 Dean Witter, Discover & Co. 605,113
-----------------------------------------------------------------
12,000 Federal National Mortgage Association 934,500
-----------------------------------------------------------------
44,000 National City Corp. 1,144,000
-----------------------------------------------------------------
24,000 PNC Financial Corp. 690,000
-----------------------------------------------------------------
42,666 Primerica Corp. 1,882,637
-----------------------------------------------------------------
23,000 TIG Holdings, Inc. 549,125
-----------------------------------------------------------------
22,000 Transamerica Corp. 1,254,000
----------------------------------------------------------------- ------------
Total 9,211,875
----------------------------------------------------------------- ------------
HEALTHCARE--5.4%
-----------------------------------------------------------------
25,300 American Home Products Corp. 1,581,250
-----------------------------------------------------------------
3,100 Becton, Dickinson Corp. 117,800
-----------------------------------------------------------------
22,500 Bristol-Myers Squibb Co. 1,321,875
-----------------------------------------------------------------
30,900 Marion Merrell Dow, Inc. 606,412
-----------------------------------------------------------------
16,500 Schering Plough Corp. 1,122,000
-----------------------------------------------------------------
22,000 U.S. Healthcare, Inc. 1,020,250
-----------------------------------------------------------------
14,000 Warner Lambert Co. 973,000
----------------------------------------------------------------- ------------
Total 6,742,587
----------------------------------------------------------------- ------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------- -------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
INDUSTRIAL/MANUFACTURING--5.8%
-----------------------------------------------------------------
12,000 Dover Corp. $ 690,000
-----------------------------------------------------------------
17,000 General Electric Co. 1,649,000
-----------------------------------------------------------------
14,000 ITT Corp. 1,303,750
-----------------------------------------------------------------
19,800 Loews Corp. 1,853,775
-----------------------------------------------------------------
31,000 Textron Inc. 1,732,125
----------------------------------------------------------------- ------------
Total 7,228,650
----------------------------------------------------------------- ------------
TECHNOLOGY--4.7%
-----------------------------------------------------------------
9,000 + Computer Sciences Corp. 826,875
-----------------------------------------------------------------
17,000 E Systems, Inc. 771,375
-----------------------------------------------------------------
5,000 General Dynamics Corp. 478,750
-----------------------------------------------------------------
25,000 Harris Corp. 1,156,250
-----------------------------------------------------------------
26,000 Raytheon Co. 1,582,750
-----------------------------------------------------------------
26,000 Tandy Corp. 1,062,750
----------------------------------------------------------------- ------------
Total 5,878,750
----------------------------------------------------------------- ------------
TRANSPORTATION--1.0%
-----------------------------------------------------------------
44,000 Ryder Systems, Inc. 1,248,500
----------------------------------------------------------------- ------------
UTILITIES--3.3%
-----------------------------------------------------------------
14,900 American Telephone & Telegraph Co. 858,613
-----------------------------------------------------------------
40,000 MCI Communications Corp. 1,140,000
-----------------------------------------------------------------
33,000 Nipsco Industries, Inc. 1,122,000
-----------------------------------------------------------------
50,000 Portland General Corp. 1,081,250
----------------------------------------------------------------- ------------
Total 4,201,863
----------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $46,106,553) 56,894,262
----------------------------------------------------------------- ------------
PREFERRED STOCKS--1.5%
- -----------------------------------------------------------------------------------
CONSUMER DURABLE--1.2%
-----------------------------------------------------------------
14,000 Ford Motor Co., Cumulative Conv. Pfd., Series A, 8.40% 1,466,500
----------------------------------------------------------------- ------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
PREFERRED STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
TECHNOLOGY--.3%
-----------------------------------------------------------------
13,000 Tandy Corp., Conv. Pfd., Series C $458,250
----------------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $1,374,269) 1,924,750
----------------------------------------------------------------- ------------
CORPORATE BONDS--3.9%
- -----------------------------------------------------------------------------------
ENERGY--.9%
-----------------------------------------------------------------
$1,000,0000 Exxon Capital Corp., Note 7.875%, 4/15/96 1,078,460
----------------------------------------------------------------- ------------
FINANCE--.8%
-----------------------------------------------------------------
1,000,000 IBM Credit Corp., Note 7.20%, 2/19/94 1,008,740
----------------------------------------------------------------- ------------
INDUSTRIAL/MANUFACTURING--.8%
-----------------------------------------------------------------
1,000,000 General Electric Co., Note 7.875%, 5/1/96 1,073,460
----------------------------------------------------------------- ------------
UTILITIES--1.4%
-----------------------------------------------------------------
500,000 Chesapeake & Potomac Bell Telephone Co., Note 7.875%, 1/15/2022 576,085
-----------------------------------------------------------------
1,000,000 Michigan Bell Telephone Co., Note 7.85%, 1/15/2022 1,150,990
----------------------------------------------------------------- ------------
Total 1,727,075
----------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $4,476,138) 4,887,735
----------------------------------------------------------------- ------------
GOVERNMENT OBLIGATIONS--45.0%
- -----------------------------------------------------------------------------------
GOVERNMENT AGENCY SECURITIES--3.5%
-----------------------------------------------------------------
1,000,000 Federal Farm Credit Bank, 4.25%, 3/24/98 1,002,940
-----------------------------------------------------------------
500,000 Federal Home Loan Bank, 3.49%, 1/15/98 498,280
-----------------------------------------------------------------
1,500,000 Federal Home Loan Mortgage Corp., Deb., 3.15%, 3/25/96 1,492,965
-----------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 4.03%, 3/25/96 1,002,160
-----------------------------------------------------------------
350,000 Federal National Mortgage Association, 4.22%, 6/1/98 349,517
----------------------------------------------------------------- ------------
Total 4,345,862
----------------------------------------------------------------- ------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
GOVERNMENT OBLIGATIONS--CONTINUED
- -----------------------------------------------------------------------------------
MORTGAGE PASS-THROUGH SECURITIES--4.9%
-----------------------------------------------------------------
$ 1,180,000 Federal National Mortgage Association MPT, 7.00%, 1/1/2001 $ 1,220,557
-----------------------------------------------------------------
1,170,000 Federal National Mortgage Association MPT, 7.50%, 1/1/2001 1,215,700
-----------------------------------------------------------------
1,150,000 Federal National Mortgage Association MPT, 9.00%,1/1/2001 1,224,750
-----------------------------------------------------------------
1,170,000 Government National Mortgage Association MPT, 7.50%, 1/1/2001 1,224,475
-----------------------------------------------------------------
1,130,000 Government National Mortgage Association MPT, 9.50%, 9/15/2020 1,218,276
----------------------------------------------------------------- ------------
Total 6,103,758
----------------------------------------------------------------- ------------
TREASURY SECURITIES--36.6%
-----------------------------------------------------------------
14,470,000 United States Treasury Bonds, 7.25%--9.375%,
2/15/2006--11/15/2021 18,253,889
-----------------------------------------------------------------
27,200,000 United States Treasury Notes, 3.875--5.375%, 1/31/94--3/31/95 27,370,429
----------------------------------------------------------------- ------------
Total 45,624,318
----------------------------------------------------------------- ------------
TOTAL GOVERNMENT OBLIGATIONS (IDENTIFIED COST, $52,374,359) 56,073,938
----------------------------------------------------------------- ------------
*REPURCHASE AGREEMENT--2.7%
- -----------------------------------------------------------------------------------
3,420,000 J.P. Morgan Securities, Inc., 2.99%, dated 10/29/93, due 11/01/93
(at amortized cost)(Note 2B) 3,420,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $107,751,319) $123,200,685++
----------------------------------------------------------------- ------------
</TABLE>
Note: The categories of investments are shown as a percentage of net assets
($124,678,928) at October 31, 1993.
+ Non-income producing.
++ The cost for federal income tax purposes amounts to $107,751,319. The net
unrealized appreciation of investments on a federal income tax basis amounts
to $15,449,366 which is comprised of $16,471,892 appreciation and $1,022,526
depreciation at October 31, 1993.
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations. The investment in the repurchase agreement was through
participation in a joint account with other Federated funds.
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified and tax cost $107,751,319) $123,200,685
- --------------------------------------------------------------------------------
Cash 6,268
- --------------------------------------------------------------------------------
Receivable for investments sold 6,735,816
- --------------------------------------------------------------------------------
Dividends and interest receivable 1,150,946
- --------------------------------------------------------------------------------
Receivable for capital stock sold 71,525
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 12,320
- -------------------------------------------------------------------------------- ------------
Total assets 131,177,560
- --------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------
Payable for investments purchased $6,247,722
- -------------------------------------------------------------------
Payable for capital stock redeemed 197,471
- -------------------------------------------------------------------
Accrued expenses and other liabilities 53,439
- ------------------------------------------------------------------- ----------
Total liabilities 6,498,632
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 7,392,081 shares of capital stock outstanding $124,678,928
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $107,195,285
- --------------------------------------------------------------------------------
Unrealized appreciation of investments 15,449,366
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (648,826)
- --------------------------------------------------------------------------------
Undistributed net investment income 2,683,103
- -------------------------------------------------------------------------------- ------------
Total $124,678,928
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
Class A; ($124,582,763 / 7,386,371 shares of capital stock outstanding) $16.87
- -------------------------------------------------------------------------------- ------------
Class C; ($96,165 / 5,710 shares of capital stock outstanding) $16.84
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $ 3,342,987
- ---------------------------------------------------------------------------------
Dividends 1,679,201
- --------------------------------------------------------------------------------- -----------
Total investment income (Note 2G) 5,022,188
- --------------------------------------------------------------------------------- -----------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 834,842
- --------------------------------------------------------------------
Directors' fees 10,127
- --------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 291,137
- --------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 126,534
- --------------------------------------------------------------------
Capital stock registration fees 27,020
- --------------------------------------------------------------------
Auditing fees 21,046
- --------------------------------------------------------------------
Legal fees 14,385
- --------------------------------------------------------------------
Insurance 9,125
- --------------------------------------------------------------------
Printing and postage 25,474
- --------------------------------------------------------------------
Taxes 14,615
- --------------------------------------------------------------------
Miscellaneous 2,157
- -------------------------------------------------------------------- ----------
Total expenses 1,376,462
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 222,090
- -------------------------------------------------------------------- ----------
Net expenses 1,154,372
- --------------------------------------------------------------------------------- -----------
Net investment income 3,867,816
- --------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized loss on investments (identified cost basis) (648,826)
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 11,161,979
- --------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 10,513,153
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $14,380,969
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1993 1992
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 3,867,816 $ 3,856,185
- --------------------------------------------------------------
Net realized gain (loss) on investment transactions ($648,826
net loss, and $3,676,954 net gain, respectively, as computed
for federal income tax purposes) (648,826) 3,676,954
- --------------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments 11,161,979 (545,343)
- -------------------------------------------------------------- ------------ ------------
Change in net assets from operations 14,380,969 6,987,796
- -------------------------------------------------------------- ------------ ------------
NET EQUALIZATION CREDITS (NOTE 2D)-- 129,581 61,076
- -------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2G)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A Shares (3,755,624) (3,947,981)
- --------------------------------------------------------------
Class C Shares (38) --
- --------------------------------------------------------------
Dividends to shareholders from net realized gain on investment
transactions Class A Shares (3,675,092) (1,912,566)
- -------------------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions to
shareholders (7,430,754) (5,860,547)
- -------------------------------------------------------------- ------------ ------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)
(EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME)--
- --------------------------------------------------------------
Net proceeds from sale of shares 38,398,216 24,185,605
- --------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock 5,226,747 3,719,313
- --------------------------------------------------------------
Cost of shares redeemed (21,412,900) (22,240,017)
- -------------------------------------------------------------- ------------ ------------
Change in net assets from capital stock transactions 22,212,063 5,664,901
- -------------------------------------------------------------- ------------ ------------
Change in net assets 29,291,859 6,853,226
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 95,387,069 88,533,843
- -------------------------------------------------------------- ------------ ------------
End of period (including undistributed net investment income
of $2,683,103 and $1,451,859 respectively) $124,678,928 $ 95,387,069
- -------------------------------------------------------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Stock and Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
Effective April 17, 1993, the Fund provides two classes of shares ("Class A
Shares" and "Class C Shares"). Class C Shares are identical in all respects to
Class A Shares except that Class C Shares will be sold pursuant to a
distribution plan ("Plan") adopted in accordance with Rule 12b-1 of the
investment Company Act of 1940, as amended. Under the Plan, the Fund may pay
Federated Securities Corp. (the "distributor") a fee at an annual rate up to
0.75 of 1% of the average net asset value of Class C Shares to finance any
activity which is principally intended to result in the sale of Class C Shares.
In addition, Class C Shares are subject to a shareholder services fee of 0.25 of
1% of the Class C Shares' average daily net assets. Class C Shares may be
subject to a contingent deferred sales charge of 1.00%.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Listed equity securities are valued at last sale prices reported
on national securities exchanges. Unlisted securities or listed securities in which there
were no sales are valued at the mean between bid and asked prices. Bonds and other fixed
income securities are valued at the last sale price on a national securities exchange, if
available. Otherwise, they are valued on the basis of prices furnished by independent
pricing services. Short-term obligations are ordinarily valued at the mean between bid
and asked prices as furnished by an independent pricing service. However, short-term
obligations with maturities of sixty days or less are valued at amortized cost, which
approximates value. All other securities are appraised at fair value as determined in
good faith by the Board of Directors.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's underlying securities to ensure the existence of a proper level of
collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy
</TABLE>
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
pursuant to guidelines established by the Board of Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the sale of
collateral securities.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to investment companies and to distribute to shareholders each
year all of its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal tax is necessary. At October 31, 1993 the Fund, for
federal tax purposes had a capital loss carryforward of $648,826 which will expire in
2001, which will reduce the Fund's taxable income arising from future net realized gain
on investments, if any, to the extent permitted by the Internal Revenue Code, and thus
will reduce the amount of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax.
D. EQUALIZATION--The Fund follows the accounting practice known as equalization by which a
portion of the proceeds from sales and costs of redemptions of capital stock equivalent,
on a per share basis, to the amount of undistributed net investment income on the date of
the transaction is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
redemptions of capital stock.
E. RECLASSIFICATIONS--During the current period, the Fund adopted Statement of Position 93-2
Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. Accordingly, permanent book
and tax basis differences relating to shareholder distributions have been reclassified to
paid-in-capital. As of November 1, 1992, the cumulative effect of such differences,
totaling $6,066,544 was reclassified from accumulated undistributed net realized gain on
investments and undistributed net investment income to paid-in capital. Net investment
income, net realized gains, and net assets were not affected by this change.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of Class C
Shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method through April
1998.
G. OTHER--Investment transactions are accounted for on the date of the transaction. Dividend
income is recorded on the ex-dividend date and interest income is recorded on the accrual
basis. Dividends to shareholders and capital gain distributions are recorded on the
ex-dividend date.
</TABLE>
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
(3) CAPITAL STOCK
At October 31, 1993, there were 2,000,000,000 shares par value $0.001 per share
of capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED 10/31/93 YEAR ENDED 10/31/92
-------------------------- --------------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 5,996,334 $ 78,993,303 5,623,862 $ 73,328,402
- ------------------------------------------
Shares sold 2,386,696 38,303,285 1,552,653 24,185,605
- ------------------------------------------
Shares issued to shareholders electing
to receive payment of distributions
in capital stock 334,836 5,226,710 245,024 3,719,313
- ------------------------------------------
Shares redeemed (1,331,495) (21,412,848) (1,425,205) (22,240,017)
- ------------------------------------------ ---------- ------------ ---------- ------------
Shares outstanding, end of period 7,386,371 $101,110,450 5,996,334 $ 78,993,303
- ------------------------------------------ ---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 10/31/93*
--------------------
CLASS C SHARES SHARES DOLLARS
- --------------------------------------------------------------------- ------ -------
<S> <C> <C>
Shares outstanding, beginning of period -- $ --
- ---------------------------------------------------------------------
Shares sold 5,711 94,931
- ---------------------------------------------------------------------
Shares issued to shareholders electing to receive
payment of dividends in capital stock 2 37
- ---------------------------------------------------------------------
Shares redeemed (3 ) (52)
- --------------------------------------------------------------------- ----- -------
Shares outstanding, end of period 5,710 $94,916
- --------------------------------------------------------------------- ----- -------
</TABLE>
* For the period from April 17, 1993 (date of initial public offering) to
October 31, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .55% of the Fund's
average daily net assets, plus 4.5% of the Fund's gross income, excluding
capital gains or losses. Adviser has voluntarily agreed to waive all or a
portion of its fee. The Adviser can terminate this voluntary waiver of expenses
at any time at its sole discretion. For the fiscal year ended October 31, 1993,
the investment advisory fee amounted to $834,842 of which $222,090 was
voluntarily waived by Adviser in accordance with the above undertaking.
With respect to Class C, the Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Fund will
compensate Federated Securities Corp., ("FSC"), the principal distributor, from
the assets of the Fund, for fees it paid which relate to the
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
distribution and administration of the Fund's Class C Shares. The Plan provides
that the Fund may incur distribution expenses up to 0.75 of 1% of the average
daily net assets of the Class C Shares. During the period ended October 31,
1993, FSC earned $73 in distribution services fees for Class C Shares.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain of the Officers and Directors of
the Fund are Officers and Directors of the above corporations.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
year ended October 31, 1993, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES-- $74,767,500
- ------------------------------------------------------------------------------- -----------
SALES-- $53,156,627
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
STOCK AND BOND FUND, INC.:
(formerly Federated Stock and Bond Fund, Inc.)
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Stock and Bond Fund, Inc. (formerly Federated
Stock and Bond Fund, Inc.) as of October 31, 1993, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended October 31, 1993 and 1992, and the financial highlights (see
pages 2 and 20 of the prospectus) for each of the years in the three-year period
ended October 31, 1993, the ten-month period ended October 31, 1990 and each of
the years in the seven-year period ended December 31, 1989. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1993 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Stock and Bond Fund,
Inc. as of October 31, 1993, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
December 17, 1993
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Stock and Bond Fund, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ----------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ----------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ----------------------------------------------------------------------------------------------------
</TABLE>
STOCK AND BOND FUND, INC.
CLASS C SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8012905A-C (12/93)
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
CLASS A SHARES
PROSPECTUS
The Class A Shares offered by this prospectus represent interests in an
open-end, diversified management investment company (a mutual fund) known as
Stock and Bond Fund, Inc. (the "Fund").
The investment objectives of the Fund are to provide relative safety of capital
with the possibility of long-term growth of capital and income. Consideration is
also given to current income. The Fund pursues these objectives by investing in
a professionally managed, diversified portfolio of common and preferred stocks
and other equity securities, bonds, notes, and short-term obligations.
This prospectus contains the information you should read and know before you
invest in Class A Shares of the Fund. Keep this prospectus for future reference.
THE CLASS A 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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares and Class C Shares dated December 31, 1993, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference in this prospectus. You may
request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact the Fund at the address listed in the back of
this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 31, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY RETIREMENT PROGRAM 3
- ------------------------------------------------------
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objectives 4
Investment Policies 4
Acceptable Investments 4
Common Stocks 4
Convertible Securities 4
Investment-Grade Bonds 5
U.S. Government Securities 5
Foreign Issuers 5
Temporary Investments 6
Repurchase Agreements 6
Restricted and Illiquid Securities 6
Lending of Portfolio Securities 6
When-Issued and Delayed Delivery
Transactions 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Board of Directors 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 8
Distribution of Class A Shares 8
Other Payments to Financial Institutions 8
Administration of the Fund 8
Administrative Services 8
Administrative Arrangements 9
Custodian 9
Transfer Agent and Dividend
Disbursing Agent 9
Legal Counsel 9
Independent Auditors 9
Brokerage Transactions 9
Expenses of the Fund and Class A Shares 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN CLASS A SHARES 10
- ------------------------------------------------------
Share Purchases 10
By Wire 11
By Mail 11
Minimum Investment Required 11
What Shares Cost 11
Subaccounting Services 11
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Retirement Plans 12
REDEEMING CLASS A SHARES 12
- ------------------------------------------------------
Telephone Redemption 12
Written Requests 13
Signatures 13
Redemption Before Purchase
Instruments Clear 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
Pennsylvania Corporate and Personal
Property Taxes 14
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 29
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).................. None
Exchange Fee........................................................................ None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1).................................................... 0.55%
12b-1 Fee........................................................................... None
Other Expenses...................................................................... 0.49%
Total Class A Shares Operating Expenses(2)..................................... 1.04%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.55% of
average daily net assets plus 4.5% of gross income, excluding capital gains or
losses.
(2) The Total Class A Shares Operating Expenses would have been 1.24% absent the
voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE " INVESTING IN CLASS A SHARES" AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment assuming (1) 5% annual return and (2) redemption at
the end of each time period. As noted in the table
above, the Fund charges no redemption fees for Class A
Shares.................................................. $ 11 $33 $57 $127
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Class A Shares of the Fund. The Fund also offers another class of shares
called Class C Shares. Class A Shares and Class C Shares are subject to certain
of the same expenses; however, Class C Shares are subject to a 12b-1 fee of
0.75%, a shareholder servicing fee of 0.25%, and a contingent deferred sales
charge of 1.00%. See "Other Classes of Shares."
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------- -----------------------------------------------------------------------
1993 1992 1991 1990* 1989 1988 1987 1986 1985 1984 1983
-------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING
OF PERIOD $ 15.91 $ 15.74 $ 13.60 $ 15.11 $ 14.94 $ 14.89 $ 15.34 $ 15.24 $ 13.60 $ 12.82 $ 11.33
- ----------
INCOME
FROM
INVESTMENT
OPERATIONS
- ----------
Net
investment
income 0.55 0.65 0.74 1.37 0.91 0.85 0.81 0.85 0.90 0.91 0.87
- ----------
Net
realized
and
unrealized
gain
(loss) on
investments 1.58 0.39 2.17 (2.22) 0.91 0.52 (0.24) 1.17 2.18 0.77 1.48
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
Total
from
investment
operations 2.13 1.04 2.91 (0.85) 1.82 1.37 0.57 2.02 3.08 1.68 2.35
- ----------
LESS
DISTRIBUTIONS
- ----------
Dividends
to
shareholders
from net
investment
income (0.56) (0.68) (0.77) (0.66) (0.94) (0.86) (0.79) (0.86) (0.90) (0.90) (0.86)
- ----------
Distributions
to
shareholders
from net
realized
gain on
investments (0.61) (0.19) -- -- (0.71) (0.46) (0.23) (1.06) (0.54) -- --
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
Total
distributions (1.17) (0.87) (0.77) (0.66) (1.65) (1.32) (1.02) (1.92) (1.44) (0.90) (0.86)
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
NET ASSET
VALUE,
END OF
PERIOD $ 16.87 $ 15.91 $ 15.74 $ 13.60 $ 15.11 $ 14.94 $ 14.89 $ 15.34 $ 15.24 $ 13.60 $ 12.82
- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
TOTAL
RETURN** 14.10% 7.94% 21.78% (5.90%)(a) 12.46% 9.28% 3.58% 13.77% 24.09% 13.81% 21.26%
- ----------
RATIOS TO
AVERAGE
NET ASSETS
- ----------
Expenses 1.04% 1.04% 1.01% 1.01%(b) 1.01% 1.00% 1.00% 1.00% 1.30% 1.52% 1.51%
- ----------
Net
investment
income 3.49% 4.15% 4.91% 5.77%(b) 5.82% 5.53% 5.07% 5.43% 6.42% 7.08% 7.04%
- ----------
Expense
adjustment
(c) 0.20% 0.21% 0.45% 0.54%(b) 0.51% 0.39% 0.22% 0.30% 0.27% -- --
- ----------
SUPPLEMENTAL
DATA
- ----------
Net
assets,
end of
period
(000
omitted) $124,583 $ 95,387 $ 88,534 $ 79,003 $ 88,367 $ 90,504 $ 92,105 $ 75,441 $37,792 $23,167 $28,489
- ----------
Portfolio
turnover
rate*** 51% 43% 72% 49% 26% 131% 110% 40% 42% 49% 33%
- ----------
</TABLE>
* For the ten months ended October 31, 1990.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
*** Represents portfolio turnover for the entire Fund.
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated October 31, 1993, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on October 31,
1934. On April 16, 1993, the shareholders of the Fund voted to (1) change the
name of the Fund from Federated Stock and Bond Fund, Inc., to Stock and Bond
Fund, Inc., and (2) amend the Fund's Articles of Incorporation to permit the
Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors ("Directors") has established two classes of shares known
as Class A Shares and Class C Shares. This prospectus relates only to Class A
Shares ("Shares") of the Fund.
Shares of the Fund are designed for institutions, pension plans, and individuals
as a convenient means of accumulating an interest in a professionally managed,
diversified portfolio of common and preferred stocks and other equity
securities, bonds, notes, and short-term obligations. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
LIBERTY FAMILY RETIREMENT PROGRAM
- --------------------------------------------------------------------------------
The Fund is a member of the Liberty Family Retirement Program ("Program"), an
integrated program of investment options, plan recordkeeping, and consultation
services for 401(k) and other participant-directed benefit and savings plans.
Under the Program, employers or plan trustees may select a group of investment
options to be offered in a plan which also uses the Program for recordkeeping
and administrative services. Additional fees are charged to participating plans
for these services. Plans with over $1 million invested in funds participating
in the Program may purchase Class A Shares without a sales load. As part of the
Program, exchanges may readily be made between investment options selected by
the employer or a plan trustee. The other funds participating in the Program
are:
AMERICAN LEADERS FUND, INC., providing growth of capital and income through
high-quality stocks;
CAPITAL GROWTH FUND (CLASS A SHARES AND CLASS C SHARES), providing
appreciation of capital primarily through equity securities;
FUND FOR U.S. GOVERNMENT SECURITIES, INC., providing current income through
long-term U.S. government securities;
INTERNATIONAL EQUITY FUND, providing long-term capital growth and income
through international securities;
INTERNATIONAL INCOME FUND, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
LIBERTY EQUITY INCOME FUND, INC., providing above-average income and
capital appreciation through income-producing equity securities;
LIBERTY HIGH INCOME BOND FUND, INC., providing high current income through
high-yielding, lower-rated, corporate bonds;
LIBERTY UTILITY FUND, INC., providing current income and long-term growth
of income, primarily through electric, gas, and communication utilities;
and
PRIME CASH SERIES, providing current income consistent with stability of
principal and liquidity through money market instruments maturing in
thirteen months or less.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
The investment objectives of the Fund are to provide relative safety of capital
with the possibility of long-term growth of capital and income. Consideration is
also given to current income. The Fund pursues these investment objectives by
investing in a professionally managed, diversified portfolio of common and
preferred stocks and other equity securities, bonds, notes, and short-term
obligations. While there is no assurance that the Fund will achieve its
investment objectives, it endeavors to do so by following the investment
policies described in this prospectus. The investment objectives and the
policies and limitations described below cannot be changed without approval of
shareholders, unless otherwise noted.
INVESTMENT POLICIES
As a matter of investment policy, which may be changed without shareholder
approval, under normal circumstances, the Fund will invest at least 65% of its
total assets in stocks and bonds.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a diversified portfolio
of common stocks, bonds, convertible securities, and preferred stocks which
provide characteristics of stability and relative safety, and marketable
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The Fund anticipates that it will experience characteristics
of stability and relative safety by investing primarily in securities of larger,
well-established companies which have a history of lower volatility in earnings
and price fluctuations.
COMMON STOCKS. The common stocks in which the Fund invests are selected by
the Fund's investment adviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects
and of the risk and volatility of the company's industry. However, other
factors, such as product position, market share, or profitability, will
also be considered by the Fund's investment adviser.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the
issuer's underlying common stock at the option of the holder during a
specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants, or a combination of the features
of several of these securities. The investment characteristics of each
convertible security vary widely, which allows convertible securities to be
employed for different investment objectives. In selecting convertible
securities for the Fund, the Fund's investment adviser evaluates the
investment potential of the underlying security for capital appreciation.
The convertible securities in which the Fund invests will be rated
"investment grade" or of comparable quality at the time of purchase. See
"Investment-Grade Bonds."
INVESTMENT-GRADE BONDS. The bonds in which the Fund invests will be rated
investment grade (i.e., rated Baa or better by Moody's Investors Service,
Inc., or BBB or better by Standard & Poor's Corporation or Fitch Investors
Service, Inc., or, if unrated, deemed to be of comparable quality by the
Fund's investment adviser). Bonds rated BBB by Standard and Poor's
Corporation or Fitch Investors Service, Inc., or Baa by Moody's Investors
Service, Inc., have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments than higher rated bonds.
If a security's rating is reduced below the required minimum after the Fund
has purchased it, the Fund is not required to sell the security but may
consider doing so. A description of the rating categories is contained in
the Appendix to the Combined Statement of Additional Information. (The Fund
intends to restrict investments to securities rated investment grade in the
current fiscal year. However, the Fund reserves the right to, in the
future, invest in securities rated below investment grade. The Fund will
notify shareholders of such a change in investment policy prior to its
implementation.)
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the
Fund invests are either issued or guaranteed by the U.S. government, its
agencies or instrumentalities. These securities include, but are not
limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities such as Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Banks for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, Student Loan Marketing Association, Federal Home
Loan Mortgage Corporation, or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and credit of the
U.S. Treasury. Others for which no assurances can be given that the U.S.
government will provide financial support to the agencies or
instrumentalities, since it is not obligated to do so, are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
FOREIGN ISSUERS. The Fund may invest in the securities of foreign issuers
which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of depository receipts. The Fund will
limit its investments in non-ADR foreign obligations to less than 5% of its
assets. Securities of a foreign issuer may present greater risks in the
form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, prevailing market conditions warrant, the Fund may, for
temporary defensive purposes, invest in:
- short-term money market instruments;
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities; and
- repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's adviser to be creditworthy.
RESTRICTED AND ILLIQUID SECURITIES. As a matter of investment policy, which may
be changed without shareholder approval, the Fund may invest up to 10% of its
total assets in restricted securities. This restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objectives and policies, but which are subject to
restriction on resale under federal securities law. The Fund will limit
investments in illiquid securities, including certain restricted securities not
determined by the Directors to be liquid, non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the investment adviser has determined are creditworthy under
guidelines established by the Fund's Directors and will receive collateral in
the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The Fund engages in when-issued
and delayed delivery transactions only for the purpose of acquiring portfolio
securities consistent with the Fund's investment objectives and policies, not
for investment leverage. In when-issued and delayed delivery transactions, the
Fund relies on the seller to complete the transaction. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for at least
a percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund may borrow up to one-
third of the value of its net assets;
- invest more than 5% of its total assets in securities of one issuer
(except U.S. government securities);
- invest in more than 10% of the voting securities of one issuer;
- invest in more than 10% of any class of securities of one issuer;
- invest more than 5% of its total assets in securities of issuers that
have records of less than three years of continuous operations; or
- invest more than 5% of its assets in warrants, except under certain
circumstances.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the
Directors. The adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to 0.55 of 1% of the Fund's average daily net assets, plus 4.5%
of the Fund's annual gross income, excluding any capital gains or losses.
Gross income includes interest accrued, including discount earned on U.S.
Treasury bills and agency discount notes, interest received or receivable
on all interest-bearing obligations, and dividend income. The adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The adviser can terminate this voluntary waiver
of its advisory fee at any time at its sole discretion. This does not
include reimbursement to the Fund of any expenses incurred by shareholders
who use the transfer agent's subaccounting facilities. The adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial services industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Robert J. Ostrowski has been the Fund's co-portfolio manager since April,
1990. Mr. Ostrowski joined Federated Investors in 1987 and has been a Vice
President of the Fund's investment adviser since 1993. Mr. Ostrowski served
as an Assistant Vice President of the investment adviser from 1990 until
1992, and from 1987 and 1990 he acted as an investment analyst. Mr.
Ostrowski is a Chartered Financial Analyst and received his M.S. in
Industrial Administration from Carnegie Mellon University.
Michael P. Donnelly has been the Fund's co-portfolio manager since
February, 1993. Mr. Donnelly joined Federated Investors in 1989 and has
been an Assistant Vice President of the Fund's investment adviser since
1992. From 1989 until 1991, Mr. Donnelly acted as an investment analyst for
the investment adviser. Mr. Donnelly was a Fixed Income Associate at
Donaldson, Lufkin & Jenrette from 1987 until 1989. Mr. Donnelly is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Virginia.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares. Federated
Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp. will pay
financial institutions, at the time of purchase, an amount equal to 0.50 of 1%
of the net asset value of Shares purchased by their clients or customers under
the Liberty Family Retirement Program or by certain qualified plans as approved
by Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the Program within 12 months after
purchase.) These payments will be made directly by the distributor from its
assets and will not be made from the assets of the Fund or by the assessment of
a sales charge on Shares.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services
8
necessary to operate the Fund and the separate classes. Such services include
shareholder servicing and certain legal and accounting services. Federated
Administrative Services, Inc., provides these at approximate cost.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include, but are not limited to, distributing
prospectuses and other information, providing accounting assistance, and
communicating or facilitating purchases and redemptions of Shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon Shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. The current annual rate of such fees is 0.25 of 1%. Any fees paid for
these services by the distributor will be reimbursed by the adviser.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from the interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state laws.
CUSTODIAN. State Street Bank and Trust Company, P. O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania 15222-3779, is transfer agent for the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110-1617.
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. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. 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 Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of each class of shares pay their allocable portion of Fund and
portfolio expenses.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Fund and continuing
its existence; registering the Fund with federal and state securities
authorities; Directors' fees; auditors' fees; the cost of meetings of Directors;
legal fees of the Fund; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Shares each pay their allocable
portion include, but are not limited to: registering the portfolio and Shares of
the portfolio; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, no expenses are allocated specifically to Shares as a class.
However, the Directors reserve the right to allocate certain other expenses to
holders of Shares as they deem appropriate ("Class Expenses"). In any case,
Class Expenses would be limited to: distribution fees; transfer agent fees as
identified by the transfer agent as attributable to holders of Shares; fees
under the Fund's Shareholder Services Plan, if any; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses, and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Directors' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Class A
Shares is determined by adding the interest of the Class A Shares in the market
value of all securities and other assets of the Fund, subtracting the interest
of the Class A Shares in the liabilities of the Fund and those attributable to
Class A Shares, and dividing the remainder by the number of Class A Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class C Shares 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.
INVESTING IN CLASS A SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
BY WIRE. To purchase Shares by Federal Reserve Wire, call the Fund to
place an order. The order is considered received immediately. Payment by
federal funds must be received before 3:00 p.m. (Boston time) on the next
business day following the order. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Stock and Bond Fund, Inc.--Class A Shares; Fund
Number (this number can be found on the account statement or by contacting
the Fund); Group Number or Order Number; Nominee or Institution Name; and
ABA #011000028. Shares cannot be purchased by wire on Columbus Day,
Veterans' Day, or Martin Luther King Day.
BY MAIL. To purchase Shares by mail, send a check made payable to Stock
and Bond Fund, Inc.--Class A Shares, State Street Bank and Trust Company,
P.O. Box 8604, Boston, Massachusetts 02266-8604. Orders by mail are
considered received after payment by check is converted by State Street
Bank into federal funds. This is normally the next business day after State
Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any non-affiliated bank
or broker's fee, if applicable. However, an account may be opened with a smaller
amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Fund. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum investment.
(Other minimum investment requirements may apply to investments through the
Liberty Family Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Boston time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions 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 provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Transfer agent.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing to
the Fund, dividends are automatically reinvested in additional Shares on payment
dates at the ex-dividend date net asset value without a sales charge. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that quarter's dividend.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every twelve months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
the Fund and consult a tax adviser.
REDEEMING CLASS A SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
Redemptions of Shares held through the Liberty Family Retirement Program will be
governed by the requirements of the respective plans.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Boston time). The proceeds will normally be wired the following business day,
but in no event more than seven days, to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. If at any time,
the Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the Transfer agent or the Fund to accept
telephone requests must first be completed. Authorization forms and information
on this service are available from Federated Securities Corp. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, the class of shares,
his account number, and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest or Pacific Stock
Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, the proceeds from the redemption of those
Shares are not available, and the Shares may not be exchanged, until the Fund or
its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $250 due to shareholder
redemptions. This requirement does not apply, however, if the balance falls
below $250 because of changes in the Fund's net asset value. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
13
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that only shares of that
particular portfolio or class are entitled to vote in matters affecting that
portfolio or class.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a majority vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 25% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of the Fund, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- the Fund is subject to the Pennsylvania corporate franchise tax; and
- Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the total return and yield for Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
The Class A Shares are sold without a sales load or other similar non-recurring
charges.
Total return and yield will be calculated separately for Class A Shares and
Class C Shares. Because Class C Shares are subject to a Rule 12b-1 fee and a
shareholder services fee, the total return and yield for Class A Shares, for the
same period, will exceed that of Class C Shares.
From time to time, the Fund may advertise the performance of Class A Shares
using certain reporting services and/or compare the performance of Class A
Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund does not presently offer Class B Shares. Class C Shares, the other
class of shares offered by the Fund, are sold primarily to customers of
financial institutions at net asset value with no initial sales charge. Class C
Shares are distributed pursuant to a Rule 12b-1 Plan adopted by the Fund whereby
the distributor is paid a fee of up to 0.75 of 1% in addition to a shareholder
services fee of 0.25 of 1% of the Class C Shares' average daily net assets.
Class C Shares may be subject to a contingent deferred sales charge. Investments
in Class C Shares are subject to a minimum initial investment of $1,500, unless
the investment is in a retirement account, in which case the minimum investment
is $50.
The amount of dividends payable to Class A Shares will generally exceed that of
Class C Shares by the difference between Class Expenses borne by shares of each
respective class.
The stated advisory fee is the same for both classes of shares.
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Independent Auditors' Report on page 29.
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1993*
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.18
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.38
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.48
-----
- --------------------------------------------------------------------------
Total from investment operations 0.86
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.20)
- --------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.84
-----
- --------------------------------------------------------------------------
TOTAL RETURN** 5.54%(a)
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 2.04%(b)
- --------------------------------------------------------------------------
Net investment income 2.01%(b)
- --------------------------------------------------------------------------
Expense adjustment (c) 0.20%(b)
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $96
- --------------------------------------------------------------------------
Portfolio turnover rate*** 51%
- --------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 19, 1993 (start of performance)
to
October 31, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
*** Represents portfolio turnover for the entire Fund.
<TABLE>
<S> <C>
(a) Cumulative total return.
(b) Computed on an annualized basis.
(c) This expense decrease is reflected in both the expense and net investment income ratios
shown above (Note 4).
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated October 31, 1993, which can be obtained free of charge.
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
<S> <C> <C> <C>
COMMON STOCKS--45.6%
- -----------------------------------------------------------------------------------
BASIC INDUSTRY--3.1%
-----------------------------------------------------------------
10,500 Aluminum Co. of America $ 714,000
-----------------------------------------------------------------
23,000 + FMC Corp. 1,129,875
-----------------------------------------------------------------
32,000 Lubrizol Corp. 1,112,000
-----------------------------------------------------------------
20,000 Phelps Dodge Corp. 852,500
----------------------------------------------------------------- ------------
Total 3,808,375
----------------------------------------------------------------- ------------
CONSUMER DURABLES--2.6%
-----------------------------------------------------------------
26,000 Eastman Kodak Co. 1,638,000
-----------------------------------------------------------------
34,000 General Motors Corp. 1,619,250
----------------------------------------------------------------- ------------
Total 3,257,250
----------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--2.8%
-----------------------------------------------------------------
21,000 Nike, Inc., Class B 1,015,875
-----------------------------------------------------------------
27,000 Philip Morris Cos., Inc. 1,451,250
-----------------------------------------------------------------
35,000 Reebok International, Ltd. 1,067,500
----------------------------------------------------------------- ------------
Total 3,534,625
----------------------------------------------------------------- ------------
CONSUMER SERVICES--5.2%
-----------------------------------------------------------------
26,000 American Stores Co. 1,053,000
-----------------------------------------------------------------
12,000 Dun & Bradstreet Corp. 804,000
-----------------------------------------------------------------
20,000 McKesson Corp. 1,067,500
-----------------------------------------------------------------
37,700 Sears, Roebuck & Co. 2,163,037
-----------------------------------------------------------------
45,000 + Tele-Communications, Inc. 1,372,500
----------------------------------------------------------------- ------------
Total 6,460,037
----------------------------------------------------------------- ------------
ENERGY--4.3%
-----------------------------------------------------------------
9,000 Atlantic Richfield Co. 992,250
-----------------------------------------------------------------
38,500 Baker Hughes, Inc. 866,250
-----------------------------------------------------------------
14,000 Chevron Corp. 1,358,000
-----------------------------------------------------------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
<S> <C> <C> <C> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
ENERGY--CONTINUED
-----------------------------------------------------------------
14,000 Exxon Corp. $ 915,250
-----------------------------------------------------------------
20,000 Mapco, Inc. 1,190,000
----------------------------------------------------------------- ------------
Total 5,321,750
----------------------------------------------------------------- ------------
FINANCE--7.4%
-----------------------------------------------------------------
39,000 American General Corp. 1,145,625
-----------------------------------------------------------------
15,000 CIGNA Corp. 1,006,875
-----------------------------------------------------------------
14,714 Dean Witter, Discover & Co. 605,113
-----------------------------------------------------------------
12,000 Federal National Mortgage Association 934,500
-----------------------------------------------------------------
44,000 National City Corp. 1,144,000
-----------------------------------------------------------------
24,000 PNC Financial Corp. 690,000
-----------------------------------------------------------------
42,666 Primerica Corp. 1,882,637
-----------------------------------------------------------------
23,000 TIG Holdings, Inc. 549,125
-----------------------------------------------------------------
22,000 Transamerica Corp. 1,254,000
----------------------------------------------------------------- ------------
Total 9,211,875
----------------------------------------------------------------- ------------
HEALTHCARE--5.4%
-----------------------------------------------------------------
25,300 American Home Products Corp. 1,581,250
-----------------------------------------------------------------
3,100 Becton, Dickinson Corp. 117,800
-----------------------------------------------------------------
22,500 Bristol-Myers Squibb Co. 1,321,875
-----------------------------------------------------------------
30,900 Marion Merrell Dow, Inc. 606,412
-----------------------------------------------------------------
16,500 Schering Plough Corp. 1,122,000
-----------------------------------------------------------------
22,000 U.S. Healthcare, Inc. 1,020,250
-----------------------------------------------------------------
14,000 Warner Lambert Co. 973,000
----------------------------------------------------------------- ------------
Total 6,742,587
----------------------------------------------------------------- ------------
INDUSTRIAL/MANUFACTURING--5.8%
-----------------------------------------------------------------
12,000 Dover Corp. 690,000
-----------------------------------------------------------------
17,000 General Electric Co. 1,649,000
-----------------------------------------------------------------
14,000 ITT Corp. 1,303,750
-----------------------------------------------------------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL/MANUFACTURING--CONTINUED
-----------------------------------------------------------------
19,800 Loews Corp. $ 1,853,775
-----------------------------------------------------------------
31,000 Textron Inc. 1,732,125
----------------------------------------------------------------- ------------
Total 7,228,650
----------------------------------------------------------------- ------------
TECHNOLOGY--4.7%
-----------------------------------------------------------------
9,000 + Computer Sciences Corp. 826,875
-----------------------------------------------------------------
17,000 E Systems, Inc. 771,375
-----------------------------------------------------------------
5,000 General Dynamics Corp. 478,750
-----------------------------------------------------------------
25,000 Harris Corp. 1,156,250
-----------------------------------------------------------------
26,000 Raytheon Co. 1,582,750
-----------------------------------------------------------------
26,000 Tandy Corp. 1,062,750
----------------------------------------------------------------- ------------
Total 5,878,750
----------------------------------------------------------------- ------------
TRANSPORTATION--1.0%
-----------------------------------------------------------------
44,000 Ryder Systems, Inc. 1,248,500
----------------------------------------------------------------- ------------
UTILITIES--3.3%
-----------------------------------------------------------------
14,900 American Telephone & Telegraph Co. 858,613
-----------------------------------------------------------------
40,000 MCI Communications Corp. 1,140,000
-----------------------------------------------------------------
33,000 Nipsco Industries, Inc. 1,122,000
-----------------------------------------------------------------
50,000 Portland General Corp. 1,081,250
----------------------------------------------------------------- ------------
Total 4,201,863
----------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $46,106,553) 56,894,262
----------------------------------------------------------------- ------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--CONTINUED
-----------------------------------------------------------------
PREFERRED STOCKS--1.5%
- -----------------------------------------------------------------------------------
CONSUMER DURABLE--1.2%
-----------------------------------------------------------------
14,000 Ford Motor Co., Cumulative Conv. Pfd., Series A, 8.40% 1,466,500
----------------------------------------------------------------- ------------
TECHNOLOGY--.3%
-----------------------------------------------------------------
13,000 Tandy Corp., Conv. Pfd., Series C 458,250
----------------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $1,374,269) 1,924,750
----------------------------------------------------------------- ------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ----------
CORPORATE BONDS--3.9%
- -----------------------------------------------------------------------------------
<S> <C> <C>
ENERGY--.9%
-----------------------------------------------------------------
$1,000,0000 Exxon Capital Corp., Note 7.875%, 4/15/96 $ 1,078,460
----------------------------------------------------------------- ------------
FINANCE--.8%
-----------------------------------------------------------------
1,000,000 IBM Credit Corp., Note 7.20%, 2/19/94 1,008,740
----------------------------------------------------------------- ------------
INDUSTRIAL/MANUFACTURING--.8%
-----------------------------------------------------------------
1,000,000 General Electric Co., Note 7.875%, 5/1/96 1,073,460
----------------------------------------------------------------- ------------
UTILITIES--1.4%
-----------------------------------------------------------------
500,000 Chesapeake & Potomac Bell Telephone Co., Note 7.875%, 1/15/2022 576,085
-----------------------------------------------------------------
1,000,000 Michigan Bell Telephone Co., Note 7.85%, 1/15/2022 1,150,990
----------------------------------------------------------------- ------------
Total 1,727,075
----------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $4,476,138) 4,887,735
----------------------------------------------------------------- ------------
GOVERNMENT OBLIGATIONS--45.0%
- -----------------------------------------------------------------------------------
GOVERNMENT AGENCY SECURITIES--3.5%
-----------------------------------------------------------------
1,000,000 Federal Farm Credit Bank, 4.25%, 3/24/98 1,002,940
-----------------------------------------------------------------
500,000 Federal Home Loan Bank, 3.49%, 1/15/98 498,280
-----------------------------------------------------------------
1,500,000 Federal Home Loan Mortgage Corp., Deb., 3.15%, 3/25/96 1,492,965
-----------------------------------------------------------------
1,000,000 Federal National Mortgage Association, 4.03%, 3/25/96 1,002,160
-----------------------------------------------------------------
350,000 Federal National Mortgage Association, 4.22%, 6/1/98 349,517
----------------------------------------------------------------- ------------
Total 4,345,862
----------------------------------------------------------------- ------------
MORTGAGE PASS-THROUGH SECURITIES--4.9%
-----------------------------------------------------------------
1,180,000 Federal National Mortgage Association MPT, 7.00%, 1/1/2001 1,220,557
-----------------------------------------------------------------
1,170,000 Federal National Mortgage Association MPT, 7.50%, 1/1/2001 1,215,700
-----------------------------------------------------------------
1,150,000 Federal National Mortgage Association MPT, 9.00%,1/1/2001 1,224,750
-----------------------------------------------------------------
1,170,000 Government National Mortgage Association MPT, 7.50%, 1/1/2001 1,224,475
-----------------------------------------------------------------
1,130,000 Government National Mortgage Association MPT, 9.50%, 9/15/2020 1,218,276
----------------------------------------------------------------- ------------
Total 6,103,758
----------------------------------------------------------------- ------------
</TABLE>
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
GOVERNMENT OBLIGATIONS--CONTINUED
- -----------------------------------------------------------------------------------
<S> <C> <C>
TREASURY SECURITIES--36.6%
-----------------------------------------------------------------
$14,470,000 United States Treasury Bonds, 7.25%--9.375%,
2/15/2006--11/15/2021 $ 18,253,889
-----------------------------------------------------------------
27,200,000 United States Treasury Notes, 3.875--5.375%, 1/31/94--3/31/95 27,370,429
----------------------------------------------------------------- ------------
Total 45,624,318
----------------------------------------------------------------- ------------
TOTAL GOVERNMENT OBLIGATIONS (IDENTIFIED COST, $52,374,359) 56,073,938
----------------------------------------------------------------- ------------
*REPURCHASE AGREEMENT--2.7%
- -----------------------------------------------------------------------------------
3,420,000 J.P. Morgan Securities, Inc., 2.99%, dated 10/29/93, due 11/01/93
(at amortized cost)(Note 2B) 3,420,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $107,751,319) $123,200,685++
----------------------------------------------------------------- ------------
</TABLE>
Note: The categories of investments are shown as a percentage of net assets
($124,678,928) at October 31, 1993.
+ Non-income producing.
++ The cost for federal income tax purposes amounts to $107,751,319. The net
unrealized appreciation of investments on a federal income tax basis amounts
to $15,449,366 which is comprised of $16,471,892 appreciation and $1,022,526
depreciation at October 31, 1993.
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations. The investment in the repurchase agreement was through
participation in a joint account with other Federated funds.
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified and tax cost $107,751,319) $123,200,685
- --------------------------------------------------------------------------------
Cash 6,268
- --------------------------------------------------------------------------------
Receivable for investments sold 6,735,816
- --------------------------------------------------------------------------------
Dividends and interest receivable 1,150,946
- --------------------------------------------------------------------------------
Receivable for capital stock sold 71,525
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 12,320
- -------------------------------------------------------------------------------- ------------
Total assets 131,177,560
- --------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------
Payable for investments purchased $6,247,722
- -------------------------------------------------------------------
Payable for capital stock redeemed 197,471
- -------------------------------------------------------------------
Accrued expenses and other liabilities 53,439
- ------------------------------------------------------------------- ----------
Total liabilities 6,498,632
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 7,392,081 shares of capital stock outstanding $124,678,928
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $107,195,285
- --------------------------------------------------------------------------------
Unrealized appreciation of investments 15,449,366
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (648,826)
- --------------------------------------------------------------------------------
Undistributed net investment income 2,683,103
- -------------------------------------------------------------------------------- ------------
Total $124,678,928
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
Class A; ($124,582,763 / 7,386,371 shares of capital stock outstanding) $16.87
- -------------------------------------------------------------------------------- ------------
Class C; ($96,165 / 5,710 shares of capital stock outstanding) $16.84
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $ 3,342,987
- ---------------------------------------------------------------------------------
Dividends 1,679,201
- --------------------------------------------------------------------------------- -----------
Total investment income (Note 2G) 5,022,188
- --------------------------------------------------------------------------------- -----------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 834,842
- --------------------------------------------------------------------
Directors' fees 10,127
- --------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 291,137
- --------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 126,534
- --------------------------------------------------------------------
Capital stock registration fees 27,020
- --------------------------------------------------------------------
Auditing fees 21,046
- --------------------------------------------------------------------
Legal fees 14,385
- --------------------------------------------------------------------
Insurance 9,125
- --------------------------------------------------------------------
Printing and postage 25,474
- --------------------------------------------------------------------
Taxes 14,615
- --------------------------------------------------------------------
Miscellaneous 2,157
- -------------------------------------------------------------------- ----------
Total expenses 1,376,462
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 222,090
- -------------------------------------------------------------------- ----------
Net expenses 1,154,372
- --------------------------------------------------------------------------------- -----------
Net investment income 3,867,816
- --------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized loss on investments (identified cost basis) (648,826)
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 11,161,979
- --------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 10,513,153
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $14,380,969
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1993 1992
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 3,867,816 $ 3,856,185
- --------------------------------------------------------------
Net realized gain (loss) on investment transactions ($648,826
net loss, and $3,676,954 net gain, respectively, as computed
for federal income tax purposes) (648,826) 3,676,954
- --------------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments 11,161,979 (545,343)
- -------------------------------------------------------------- ------------ ------------
Change in net assets from operations 14,380,969 6,987,796
- -------------------------------------------------------------- ------------ ------------
NET EQUALIZATION CREDITS (NOTE 2D)-- 129,581 61,076
- -------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2G)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A Shares (3,755,624) (3,947,981)
- --------------------------------------------------------------
Class C Shares (38) --
- --------------------------------------------------------------
Dividends to shareholders from net realized gain on investment
transactions Class A Shares (3,675,092) (1,912,566)
- -------------------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions to
shareholders (7,430,754) (5,860,547)
- -------------------------------------------------------------- ------------ ------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)
(EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME)--
- --------------------------------------------------------------
Net proceeds from sale of shares 38,398,216 24,185,605
- --------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock 5,226,747 3,719,313
- --------------------------------------------------------------
Cost of shares redeemed (21,412,900) (22,240,017)
- -------------------------------------------------------------- ------------ ------------
Change in net assets from capital stock transactions 22,212,063 5,664,901
- -------------------------------------------------------------- ------------ ------------
Change in net assets 29,291,859 6,853,226
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 95,387,069 88,533,843
- -------------------------------------------------------------- ------------ ------------
End of period (including undistributed net investment income
of $2,683,103 and $1,451,859 respectively) $124,678,928 $ 95,387,069
- -------------------------------------------------------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STOCK AND BOND FUND, INC.
(FORMERLY, FEDERATED STOCK AND BOND FUND, INC.)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Stock and Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
Effective April 17, 1993, the Fund provides two classes of shares ("Class A
Shares" and "Class C Shares"). Class C Shares are identical in all respects to
Class A Shares except that Class C Shares will be sold pursuant to a
distribution plan ("Plan") adopted in accordance with Rule 12b-1 of the
Investment Company Act of 1940, as amended. Under the Plan, the Fund may pay
Federated Securities Corp. (the "distributor") a fee at an annual rate up to
0.75 of 1% of the average net asset value of Class C Shares to finance any
activity which is principally intended to result in the sale of Class C Shares.
In addition, Class C Shares are subject to a shareholder service fee of 0.25 of
1% of the Class C Shares' average daily net assets. Class C Shares may be
subject to a contingent deferred sales charge of 1.00%
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Listed equity securities are valued at last sale prices reported
on national securities exchanges. Unlisted securities or listed securities in which there
were no sales are valued at the mean between bid and asked prices. Bonds and other fixed
income securities are valued at the last sale price on a national securities exchange, if
available. Otherwise, they are valued on the basis of prices furnished by independent
pricing services. Short-term obligations are ordinarily valued at the mean between bid
and asked prices as furnished by an independent pricing service. However, short-term
obligations with maturities of sixty days or less are valued at amortized cost, which
approximates value. All other securities are appraised at fair value as determined in
good faith by the Board of Directors.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's underlying securities to ensure the existence of a proper level of
collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy
</TABLE>
27
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
pursuant to guidelines established by the Board of Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the sale of
collateral securities.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code applicable to investment companies and to distribute to shareholders each
year all of its taxable income, including any net realized gain on investments.
Accordingly, no provision for federal tax is necessary. At October 31, 1993 the Fund, for
federal tax purposes had a capital loss carryforward of $648,826 which will expire in
2001, which will reduce the Fund's taxable income arising from future net realized gain
on investments, if any, to the extent permitted by the Internal Revenue Code, and thus
will reduce the amount of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax.
D. EQUALIZATION--The Fund follows the accounting practice known as equalization by which a
portion of the proceeds from sales and costs of redemptions of capital stock equivalent,
on a per share basis, to the amount of undistributed net investment income on the date of
the transaction is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
redemptions of capital stock.
E. RECLASSIFICATIONS--During the current period, the Fund adopted Statement of Position 93-2
Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. Accordingly, permanent book
and tax basis differences relating to shareholder distributions have been reclassified to
paid-in-capital. As of November 1, 1992, the cumulative effect of such differences,
totaling $6,066,544 was reclassified from accumulated undistributed net realized gain on
investments and undistributed net investment income to paid-in capital. Net investment
income, net realized gains, and net assets were not affected by this change.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of Class C
Shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method through April
1998.
G. OTHER--Investment transactions are accounted for on the date of the transaction. Dividend
income is recorded on the ex-dividend date and interest income is recorded on the accrual
basis. Dividends to shareholders and capital gain distributions are recorded on the
ex-dividend date.
</TABLE>
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
(3) CAPITAL STOCK
At October 31, 1993, there were 2,000,000,000 shares par value $0.001 per share
of capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED 10/31/93 YEAR ENDED 10/31/92
-------------------------- --------------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 5,996,334 $ 78,993,303 5,623,862 $ 73,328,402
- ------------------------------------------
Shares sold 2,386,696 38,303,285 1,552,653 24,185,605
- ------------------------------------------
Shares issued to shareholders electing
to receive payment of distributions
in capital stock 334,836 5,226,710 245,024 3,719,313
- ------------------------------------------
Shares redeemed (1,331,495) (21,412,848) (1,425,205) (22,240,017)
- ------------------------------------------ ---------- ------------ ---------- ------------
Shares outstanding, end of period 7,386,371 $101,110,450 5,996,334 $ 78,993,303
- ------------------------------------------ ---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 10/31/93*
--------------------
CLASS C SHARES SHARES DOLLARS
- --------------------------------------------------------------------- ------ -------
<S> <C> <C>
Shares outstanding, beginning of period -- $ --
- ---------------------------------------------------------------------
Shares sold 5,711 94,931
- ---------------------------------------------------------------------
Shares issued to shareholders electing to receive
payment of dividends in capital stock 2 37
- ---------------------------------------------------------------------
Shares redeemed (3 ) (52)
- --------------------------------------------------------------------- ----- -------
Shares outstanding, end of period 5,710 $94,916
- --------------------------------------------------------------------- ----- -------
</TABLE>
* For the period from April 17, 1993 (date of initial public offering) to
October 31, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Fund's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .55% of the Fund's
average daily net assets, plus 4.5% of the Fund's gross income, excluding
capital gains or losses. Adviser has voluntarily agreed to waive all or a
portion of its fee. The Adviser can terminate this voluntary waiver of expenses
at any time at its sole discretion. For the fiscal year ended October 31, 1993,
the investment advisory fee amounted to $834,842 of which $222,090 was
voluntarily waived by Adviser in accordance with the above undertaking.
With respect to Class C, the Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the assets of the Fund, for fees it paid which relate to the
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
distribution and administration of the Fund's Class C Shares. The Plan provides
that the Fund may incur distribution expenses up to 0.75 of 1% of the average
daily net assets of the Class C Shares. During the period ended October 31,
1993, FSC earned $73 in distribution services fees for Class C Shares.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Certain of the Officers and Directors of
the Fund are Officers and Directors of the above corporations.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
year ended October 31, 1993, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES-- $74,767,500
- ------------------------------------------------------------------------------- -----------
SALES-- $53,156,627
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
STOCK AND BOND FUND, INC.:
(formerly Federated Stock and Bond Fund, Inc.)
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Stock and Bond Fund, Inc. (formerly Federated
Stock and Bond Fund, Inc.) as of October 31, 1993, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended October 31, 1993 and 1992, and the financial highlights (see
pages 2 and 16 of the prospectus) for each of the years in the three-year period
ended October 31, 1993, the ten-month period ended October 31, 1990 and each of
the years in the seven-year period ended December 31, 1989. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1993 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Stock and Bond Fund,
Inc. as of October 31, 1993, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
December 17, 1993
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Stock and Bond Fund, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ----------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ----------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ----------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ----------------------------------------------------------------------------------------------------
</TABLE>
STOCK AND BOND FUND, INC.
CLASS A SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8012905A-A (12/93)
STOCK AND BOND FUND, INC.
[FORMERLY, FEDERATED STOCK AND BOND FUND, INC.]
CLASS A SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
respective prospectus for Class A Shares and Class C Shares of Stock and Bond
Fund, Inc. (the "Fund"), dated December 31, 1993. This Combined Statement is not
a prospectus itself. To receive a copy of either prospectus, write or call the
Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1993
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Obligations of Foreign Issuers 1
Temporary Investments 1
When-Issued and Delayed Delivery Transactions 1
Lending Portfolio Securities 1
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Portfolio Turnover 2
INVESTMENT LIMITATIONS 2
- ---------------------------------------------------------------
FUND MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Directors 4
The Funds 6
Fund Ownership 6
INVESTMENT ADVISORY SERVICES 6
- ---------------------------------------------------------------
Adviser to the Fund 6
Advisory Fees 7
Other Related Services 7
SHAREHOLDER SERVICE PLAN (CLASS C SHARES ONLY) 7
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
ADMINISTRATIVE ARRANGEMENTS (CLASS A SHARES) 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
Distribution Plan (Class C Shares) 8
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Determining Market Value of Securities 9
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
Shareholders' Tax Status 9
TOTAL RETURN 10
- ---------------------------------------------------------------
YIELD 10
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 10
- ---------------------------------------------------------------
Duration 11
APPENDIX 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on October 31,
1934. The name of the Fund was Boston Foundation Fund Incorporated prior to
January 11, 1985. On April 16, 1993, the shareholders voted to change the name
of the Fund from Federated Stock and Bond Fund, Inc., to Stock and Bond Fund,
Inc., and to permit the Fund to offer separate series and classes of shares.
Shares of the Fund are offered in two classes, Class A Shares and Class C Shares
(individually and collectively referred to as "Shares" as the context may
require). The Fund does not presently offer Class B Shares. This Combined
Statement of Additional Information relates to both classes of the
above-mentioned Shares.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objectives are to provide relative safety of capital with
the possibility of long-term growth of capital and income. Consideration is also
given to current income. The investment objectives cannot be changed without
approval of shareholders.
As a matter of investment policy, under normal circumstances, the Fund will
invest at least 65% of its total assets in stocks and bonds.
TYPES OF INVESTMENTS
The Fund invests primarily in a diversified portfolio of common and preferred
stocks and other equity securities, bonds, notes, U.S. government securities,
repurchase agreements, short-term obligations and instruments secured by any of
these obligations.
OBLIGATIONS OF FOREIGN ISSUERS
Obligations of a foreign issuer may present greater risks than investments in
U.S. securities, including higher transaction costs as well as the imposition of
additional taxes by foreign governments. In addition, investments in foreign
issuers may include additional risks associated with less complete financial
information about the issuers, less market liquidity, and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions might adversely affect the payment
of principal and interest on obligations of foreign issuers. As a matter of
practice, the Fund will not invest in the obligations of a foreign issuer if any
such risk appears to the Fund's adviser to be substantial.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments such as:
- instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000, or
if the principal amount of the instrument is federally insured; or
- commercial paper rated A-1 by Standard and Poor's Corporation, Prime-1
by Moody's Investors Service, Inc., or F-1 by Fitch Investors Service,
Inc.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for securities to
be purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
LENDING PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
- --------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements under certain
circumstances. This transaction is similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a nonexclusive safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under the Rule. The Fund
believes that the Staff of the SEC has left the question of determining the
liquidity of all restricted securities to the Directors. The Directors may
consider the following criteria in determining the liquidity of certain
restricted securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
PORTFOLIO TURNOVER
The Fund normally holds or disposes of portfolio securities in order to work
toward its investment objectives. Securities held by the Fund are selected
because they are considered to represent real value and will be held or disposed
of accordingly. The Fund's investment adviser will not generally seek profits
through short-term trading.
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. For the fiscal years ended October 31, 1993,
and 1992, the portfolio turnover rates were 51% and 43%, respectively.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as permitted by its
investment objective and policies, and except that the Fund may enter
into reverse repurchase agreements and otherwise borrow up to one-third
of the value of its net assets including the amount borrowed, as a
temporary, extraordinary or emergency measure or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests when
the liquidation of portfolio instruments would be inconvenient or
disadvantageous. This practice is not for investment leverage. The Fund
will not purchase any portfolio instruments while any borrowings
(including reverse repurchase agreements) are outstanding.
- --------------------------------------------------------------------------------
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its total assets in
the securities of any one issuer, except U.S. government securities;
invest in more than 10% of the voting securities of one issuer; or invest
in more than 10% of any class of securities of one issuer.
ACQUIRING SECURITIES
The Fund will not invest in securities issued by any other investment
company or investment trust except in regular open-market transactions or
as part of a plan of merger or consolidation. It will not invest in
securities of a company for the purpose of exercising control or
management.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE FUND
The Fund will not purchase or retain the securities of any issuer in
which the officers and Directors of the Fund or its investment adviser
own a substantial financial interest.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts, or real
estate.
UNDERWRITING
The Fund will not engage in underwriting or agency distribution of
securities issued by others.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. The
purchase of corporate or government bonds, debentures, notes or other
evidences of indebtedness shall not be considered a loan for purposes of
this limitation.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total assets
in securities of companies in any one industry.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on recognized stock exchanges to
2% of its total assets. (If state restrictions change, this latter
restriction may be revised without notice to shareholders.) For purposes
of this investment restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for commercial paper issued under Section 4(2) of the Securities
Act of 1933 and certain other restricted securities which meet the
criteria for liquidity as established by the Directors. To comply with
certain state restrictions, the Fund will limit these transactions to 5%
of its total assets. (If state restrictions change, this latter
restriction may be revised without shareholder approval or notification.)
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements providing for settlement more
than seven days after notice and certain restricted securities not
determined by the Directors to be liquid. To comply with certain state
restrictions, the Fund will limit these transactions to 10% of its net
assets. (If state restrictions change, this latter restriction may be
revised without shareholder approval or notification.)
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 restriction.
The Fund did not borrow money or lend portfolio securities in excess of 5% of
the value of its net assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.
- --------------------------------------------------------------------------------
In addition, to comply with certain state restrictions, the Fund will not invest
in oil, gas, or other mineral leases, nor will it invest in real estate limited
partnerships. If state restrictions change, these limitations may be revised
without notice to shareholders.
FUND MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Administrative
Services, Inc., or the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Donahue+* President and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Director Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General
Associates, Inc., Realtors Partner of the Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
- ------------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Director Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Pittsburgh, PA Homes, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- ------------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Director Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Director Consultant; State Representative, Commonwealth of Massachusetts; Trustee,
225 Franklin Street Lahey Clinic Foundation, Inc.; Director, Trustee, or Managing General
Boston MA Partner of the Funds; formerly President, State Street Bank and Trust
Company and State Street Boston Corporation and Trustee, Lahey Clinic
Foundation, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, National Advisory Council
University of Pittsburgh for Environmental Policy and Technology; Chairman, Czecho Slovak Management
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy and Technology.
- ------------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- ------------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services, Inc.; President or Vice President of the
Pittsburgh, PA Funds; Director, Trustee, or Managing General Partner of some of the Funds.
Mr. Donahue is the son of John F. Donahue, President and Director of the
Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- ------------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Executive Vice President,
Pittsburgh, PA Secretary, and Director, Federated Administrative Services, Inc.; Director
and Executive Vice President, Federated Securities Corp.; Vice President and
Secretary of the Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Director is deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
+ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
- --------------------------------------------------------------------------------
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999;
Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S.
Treasury Obligations.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of November 29, 1993, the following shareholder of record owned 5% or more of
the outstanding Class A Shares of the Fund: Systematics, Inc., Denver, Colorado,
owned approximately 682,560 Class A Shares (9.2%).
As of November 29, 1993, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Donaldson Lufkin Jenrette Securities
Corporation Inc., Jersey City, New Jersey, owned approximately 477 Class C
Shares (7.1%); State Street Bank and Trust Company, as custodian for the
rollover IRA of Sandra N. Hartley, Worwick, Rhode Island, owned approximately
496 Class C Shares (7.3%); Edward D. Jones & Co., as custodian for the account
of Charles S. Inkster, Jr., owned approximately 536 Class C Shares (7.9%);
Edward D. Jones & Co., as custodian for the account of William G. Bensberg,
Maryland Heights, Missouri, owned approximately 599 Class C Shares (8.9%);
Edward D. Jones & Co., for the account of Geneva M. Waithall and Durwin Ursery,
Maryland Heights, Missouri, owned approximately 656 Class C Shares (9.7%);
Edward D. Jones & Co., as custodian for the account of J. W. Carney M.D., P.A.,
Employees Retirement Plan, Maryland Heights, Missouri, owned approximately 789
Class C Shares (11.07%); and State Street Bank and Trust Company, as custodian
for the IRA of Thomas J. Masso, North Providence, Rhode Island, owned
approximately 1,488 Class C Shares (22.0%).
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife, and his son, J.
Christopher Donahue. John F. Donahue is Chairman and Trustee of Federated
Management; Chairman and Trustee, Federated Investors; and President and
Director of the Fund. John A. Staley, IV, is President of Federated Management;
Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Securities Corp.; and Vice President of the Fund. J. Christopher
Donahue is Trustee of Federated Management; President and Trustee, Federated
Investors; President and Director, Federated Administrative Services, Inc.; and
Vice President of the Fund. John W. McGonigle is Trustee of Federated
Management; Trustee, Vice President, Secretary, and General Counsel, Federated
Investors; Director, Executive Vice President, and Secretary, Federated
Administrative Services, Inc.; Executive Vice President and Director, Federated
Securities Corp.; and Vice President and Secretary of the Fund.
The adviser shall not be liable to the Fund or any 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.
- --------------------------------------------------------------------------------
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
October 31, 1993, 1992, and 1991, the Fund's adviser earned $834,842, $726,717,
and $704,002, respectively, of which $222,090, $196,556, and $383,665,
respectively, was voluntarily waived because of undertakings to limit the Fund's
expenses. All advisory fees were computed on the same basis as described in the
prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes and extraordinary expenses) exceed
2 1/2% per year of the first $30 million of average net assets, 2% per
year of the next $70 million of average net assets, and 1 1/2% per year
of the remaining average net assets, the adviser will reimburse the Fund
for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
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 shares of funds offered by Federated Securities Corp.
SHAREHOLDER SERVICES PLAN (CLASS C SHARES ONLY)
- --------------------------------------------------------------------------------
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to Class C Shares of the Fund. Pursuant to the Services Plan, financial
institutions will enter into shareholder service agreements with the Fund to
provide administrative support services to their customers who from time to time
may be owners of record or beneficial owners of Class C Shares of the Fund. In
return for providing these support services, a financial institution may receive
payments from Class C Shares at a rate not exceeding 0.25% of the average daily
net assets of Class C Shares beneficially owned by the financial institution's
customers for whom it is holder of record or with whom it has a servicing
relationship. The Services Plan is designed to stimulate financial institutions
to render administrative support services to the Fund and its shareholders.
These administrative support services include, but are not limited to, the
following functions: providing office space, equipment, telephone facilities,
and various personnel, including clerical, supervisory, and computer, as is
necessary or beneficial to establish and maintain shareholders' accounts and
records, processing purchase and redemption transactions and automatic
investments to client account cash balances, answering routine client inquiries
regarding Class C Shares, assisting clients in changing dividend options,
account designations, and addresses, and providing such other services as the
Fund may reasonably request.
Among the benefits the directors expect to achieve in adopting the Services Plan
are the following: (1) an efficient and effective administrative system; (2) a
more efficient use of shareholder assets by having them rapidly invested in
Class C Shares, through an automatic transfer of funds from a demand deposit
account to an investment account, with a minimum of delay and administrative
detail; and (3) an efficient and reliable shareholder records system and prompt
responses to shareholder requests and inquiries concerning their accounts.
In addition to receiving payments under the Services Plan, financial
institutions may be compensated by the investment adviser and/or the
administrator, or affiliates thereto, for providing administrative support
services to holders of Class C Shares of the Fund. These payments will be made
directly by the investment adviser and/or the administrator and will not be made
from the assets of the Class C Shares of the Fund.
During the period from April 17, 1993 (date of initial public offering) to
October 31, 1993, Class C Shares incurred shareholder service fees under the
Services Plan (all of which was received by the distributor) in the amount of
$24.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred
costs for administrative services of $291,137, $229,879, and $340,071,
respectively. John A. Staley, IV, an officer of the Fund, and Dr. Henry J.
Gailliot, an officer of Federated Management, the adviser to the Fund, hold
- --------------------------------------------------------------------------------
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as Directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative
Services, Inc., paid approximately $165,431, $189,741, and $187,677,
respectively, for services provided by Commercial Data Services, Inc.
ADMINISTRATIVE ARRANGEMENTS (CLASS A SHARES)
- --------------------------------------------------------------------------------
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and 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.
The adviser and its affiliates exercise reasonable business judgment in
selecting 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.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund paid
$69,262, $44,963, and $54,357, respectively, in brokerage commissions on
brokerage transactions.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing Shares is
explained in the respective prospectus under "Investing in Class A Shares" and
"Investing in Class C Shares."
DISTRIBUTION PLAN (CLASS C SHARES)
With respect to the Class C Shares, the Fund has adopted a distribution plan
pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940 (the "Plan"). The Plan
provides for payment of fees to Federated Securities Corp. to finance any
activity which is principally intended to result in the sale of the Fund's
Shares subject to the Plan. Such activities may include the advertising and
marketing of Shares of the Fund; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the Plan,
Federated Securities Corp. may pay fees to financial institutions, fiduciaries,
custodians for public funds, investment advisers, and brokers for distribution
and administrative services and to administrators for administrative services
provided as to Shares. The administrative services are provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals, and include, but are not limited to: communicating account openings;
communicating account closings; entering purchase transactions; entering
redemption transactions; providing or arranging to provide accounting support
for all transactions; wiring funds and receiving funds for Share purchases and
redemptions; confirming and reconciling all transactions; reviewing the activity
in Fund accounts and providing training and supervision of broker personnel;
posting and reinvesting dividends to Fund accounts or arranging for this service
to be performed by the Fund's transfer agent; and maintaining and distributing
current copies of prospectuses and shareholder reports to the beneficial owners
of Shares and prospective shareholders.
- --------------------------------------------------------------------------------
The Board of Directors expect that the adoption of the Plan will result in the
sale of a sufficient number of Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objectives.
CONVERSION TO FEDERAL FUNDS
The Fund's transfer agent acts as the shareholder's agent in depositing checks
and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
- - for equity securities, according to the last sale price on a national
securities exchange, if available;
- - in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
- - for bonds and other fixed income securities, at the last sale price on a
national securities exchange if available, otherwise as determined by an
independent pricing service;
- - for short-term obligations, according to the mean between the bid and asked
prices as furnished by an independent pricing service; or
- - for all other securities, at fair value as determined in good faith by the
Board of Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures and any fees are
explained in the respective prospectus under "Redeeming Class A Shares" and
"Redeeming Class C Shares." Although the Fund's transfer agent does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Fund is obligated to redeem Shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Board of
Directors determines that payments should be in kind. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way that net asset value is determined. The
portfolio instruments will be selected in a manner that the Board of Directors
deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
- --------------------------------------------------------------------------------
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held the
Shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
Prior to the creation of separate classes of Shares, the Fund's average annual
total returns for the one-year, five-year, and ten-year periods ended October
31, 1992, were 7.94%, 8.84% and 12.35%, respectively. The total return for Class
A, for the year ended October 31, 1993, was 14.10% and Class C, for the period
from April 19, 1993 to October 31, 1993 was 4.54%.
The average annual total return for both classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
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 maximum offering price 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 $1,000, adjusted
over the period by any additional Shares, assuming the quarterly reinvestment of
all dividends and distributions.
YIELD
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The Fund's yield for Class A Shares for the thirty-day period ended October 31,
1993, was 2.56%. The yield for Class C Shares was 1.56% for the same period.
The yield for both classes of Shares of the Fund is determined by dividing the
net investment income per share (as defined by the Securities and Exchange
Commission) earned by either class of Shares over a thirty-day period by the
maximum offering price per share by either class of Shares on the last day of
the period. This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a twelve-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS
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The performance of both classes of Shares depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in the Fund's or either class of Share's expenses; and
- - various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.
From time to time the Fund may advertise the performance of both classes of
Shares compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
- - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS is a composite
index of common stocks in industry, transportation, and financial and public
utility companies, compares total returns of funds whose portfolios are
invested primarily in common stocks. In addition, Standard and Poor's index
assumes reinvestment of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included nor are brokerage or
other fees calculated in Standard & Poor's figures.
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- - SALOMON BROTHERS AAA-AA CORPORATES calculates total returns of approximately
775 issues, which include long-term, high-grade domestic corporate taxable
bonds, rated AAA-AA, with maturities of twelve years or more. It also includes
companies in industry, public utilities, and finance.
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various 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 advertising and
sales literature.
- - SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) is comprised of approximately
5,000 issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine years. Tracked
by Shearson Lehman Brothers, Inc., the index calculates total returns for
one-month, three-month, twelve-month, and ten-year periods and year-to-date.
- - S&P 500/SHEARSON LEHMAN GOVERNMENT/CORPORATE (WEIGHTED INDEX) AND THE S&P
500/SHEARSON LEHMAN GOVERNMENT (WEIGHTED INDEX) combine the components of a
stock-oriented index and a bond-oriented index to obtain results which can be
compared to the performance of a managed fund. The indices' total returns will
be assigned various weights depending upon the Fund's current asset
allocation.
- - 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.
Investors may also consult the fund evaluation consulting universe listed below.
Consulting universes may be composed of pension, profit-sharing, commingled,
endowment/foundation and mutual funds.
- - SEI BALANCED UNIVERSE is composed of 916 portfolios managed by 390 managers
representing $86 billion in assets. To be included in the universe, a
portfolio must contain a 5% minimum commitment in both equity and fixed-income
securities.
Investors may use indices and reporting services in addition to either class of
Share's prospectus to obtain a more complete view of the Share's performance
before investing. Of course, when comparing performance of either class of
Shares to any index, conditions such as composition of the index and prevailing
market conditions should be considered in assessing the significance of such
comparisons.
When comparing funds using reporting services, or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio compositions and methods used to value portfolio
securities and compute the offering price.
Advertisements and other sales literature for both classes of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
either class of Shares based on quarterly reinvestment of dividends over a
specified period of time.
DURATION
Duration is a commonly used measure of the potential volatility in the price of
a bond, other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and the level of market yields of similar fixed-income
securities. Generally, bonds with lower coupons or longer maturities will be
more volatile than bonds with higher coupons or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum of the present values of the cash flows.
When the Fund invests in mortgage pass-through securities, its duration will be
calculated in a manner which requires assumptions to be made regarding future
capital prepayments. A more complete description of this calculation is
available upon request from the Fund.
APPENDIX
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STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic ranking
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
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STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures 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.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory 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.
FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1+--(Very Strong Credit Quality). Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the F-1+ and F-1 categories.
8012905B (12/93)
