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STOCK AND BOND FUND, INC.
PROSPECTUS
The 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 Stock and Bond Fund, Inc. Keep this prospectus for future reference.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED 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 Statement of Additional Information dated December 31,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus if you have received your prospectus
electronically, 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, 1995
TABLE OF CONTENTS
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<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- --------------------------------------------------
GENERAL INFORMATION 3
- --------------------------------------------------
INVESTMENT INFORMATION 3
- --------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 6
FUND INFORMATION 7
- --------------------------------------------------
Management Of The Fund 7
Distribution Of Fund Shares 8
Administration Of The Fund 9
BROKERAGE TRANSACTIONS 10
- --------------------------------------------------
NET ASSET VALUE 10
- --------------------------------------------------
INVESTING IN THE FUND 10
- --------------------------------------------------
Share Purchases 10
Minimum Investment Required 11
What Shares Cost 11
Subaccounting Services 11
Certificates And Confirmations 11
Dividends 11
Capital Gains 12
Retirement Plans 12
REDEEMING SHARES 12
- --------------------------------------------------
Telephone Redemption 12
Written Requests 12
Accounts With Low Balances 13
SHAREHOLDER INFORMATION 13
- --------------------------------------------------
Voting Rights 13
TAX INFORMATION 14
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Federal Income Tax 14
State and Local Taxes 14
PERFORMANCE INFORMATION 14
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FINANCIAL HIGHLIGHTS--CLASS C SHARES 15
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FINANCIAL STATEMENTS 16
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INDEPENDENT AUDITORS' REPORT 31
- --------------------------------------------------
ADDRESSES 32
- --------------------------------------------------
</TABLE>
I
SUMMARY OF FUND EXPENSES
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<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......... None
Contingent Deferred Sales Charge (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
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)................................................................ 0.60%
12b-1 Fee........................................................................................ None
Total Other Expenses............................................................................. 0.47%
Shareholder Services Fee (after waiver) (2)......................................... 0.11%
Total Fund Operating Expenses (3)........................................................ 1.07%
</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 4.50% of gross income, excluding
capital gains or losses.
(2) The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.38% absent the voluntary
waivers of a portion of the management fee and a portion of the shareholder
services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "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 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period................................................. $11 $34 $59 $131
</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.
1
STOCK AND BOND FUND, INC.
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 31.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991 1990(a)
- ---------------------------------------- --------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.25 $ 16.87 $ 15.91 $ 15.74 $ 13.60 $ 15.11
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.63 0.51 0.55 0.65 0.74 1.37
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments 2.21 (0.59) 1.58 0.39 2.17 (2.22)
- ---------------------------------------- --------- ---------- --------- -------- -------- ---------
Total from investment operations 2.84 (0.08) 2.13 1.04 2.91 (0.85)
- ---------------------------------------- --------- ---------- --------- -------- -------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.62) (0.54) (0.56) (0.68) (0.77) (0.66)
- ----------------------------------------
Distributions from net realized gain
on investment transactions (0.09) -- (0.61) (0.19) -- --
- ---------------------------------------- --------- ---------- --------- -------- -------- ---------
Total distributions (0.71) (0.54) (1.17) (0.87) (0.77) (0.66)
- ---------------------------------------- --------- ---------- --------- -------- -------- ---------
Net asset value, end of period $ 18.38 $ 16.25 $ 16.87 $ 15.91 $ 15.74 $ 13.60
- ---------------------------------------- --------- ---------- --------- -------- -------- ---------
--------- ---------- --------- -------- -------- ---------
TOTAL RETURN (b) 17.99% (0.48%) 14.10% 7.94% 21.78% (5.90%)
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 1.07% 1.06% 1.04% 1.04% 1.01% 1.01%*
- ----------------------------------------
Net investment income 3.71% 3.23% 3.49% 4.15% 4.91% 5.77%*
- ----------------------------------------
Expense waiver/reimbursement (c) 0.31% 0.07% 0.20% 0.21% 0.45% 0.54%*
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $134,669 $125,382 $124,583 $95,387 $88,534 $79,003
- ----------------------------------------
Portfolio turnover 68% 45% 51% 43% 72% 49%
- ----------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1989 1988 1987 1986 1985
- ---------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.94 $ 14.89 $ 15.34 $ 15.24 $ 13.60
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.91 0.85 0.81 0.85 0.90
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments 0.91 0.52 (0.24) 1.17 2.18
- ---------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 1.82 1.37 0.57 2.02 3.08
- ---------------------------------------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.94) (0.86) (0.79) (0.86) (0.90)
- ----------------------------------------
Distributions from net realized gain
on investment transactions (0.71) (0.46) (0.23) (1.06) (0.54)
- ---------------------------------------- -------- -------- -------- -------- --------
Total distributions (1.65) (1.32) (1.02) (1.92) (1.44)
- ---------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $ 15.11 $ 14.94 $ 14.89 $ 15.34 $ 15.24
- ---------------------------------------- -------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (b) 12.46% 9.28% 3.58% 13.77% 24.09%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 1.01% 1.00% 1.00% 1.00% 1.30%
- ----------------------------------------
Net investment income 5.82% 5.53% 5.07% 5.43% 6.42%
- ----------------------------------------
Expense waiver/reimbursement (c) 0.51% 0.39% 0.22% 0.30% 0.27%
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $88,367 $90,504 $92,105 $75,441 $37,792
- ----------------------------------------
Portfolio turnover 26% 131% 110% 40% 42%
- ----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the ten month period ended October 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on October 31,
1934. On April 16, 1993, the Fund's Articles of Incorporation were amended by
Shareholders 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. During the fiscal year ended October 31,
1994, the Fund offered Class A and Class C Shares. On August 31, 1994, the Fund
was reorganized to terminate the separate classes of shares.
The Fund is 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.
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 the risk and volatility of the company's industry.
3
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.,
("Moody's"), BBB or better by Standard & Poor's Ratings Group ("S&P") and Fitch
Investors Service, Inc. ("Fitch"), or, if unrated, deemed to be of comparable
quality) by the Fund's investment adviser. Bonds rated BBB by S&P or Fitch or
Baa by Moody's 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 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 the: Farm Credit System, including the National
Bank for Cooperatives and Banks for Cooperatives; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; Export-Import Bank
of the United States; Commodity Credit Corporation; Federal Financing
Bank; The Student Loan Marketing Association; National Credit Union
Administration; and Tennessee Valley Authority.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
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
4
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 depositary 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
5
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 Board of Directors ("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.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
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 seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. 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.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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;
6
- 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.
Both the Fund and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors and could
result in severe penalties.
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.
7
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. With over $72 billion invested across more
than 260 funds under management and/or administration by its subsidiaries,
as of December 31, 1994, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,750
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Joseph M. Balestrino has been the Fund's portfolio manager since October 1,
1994. Mr. Balestrino joined Federated Investors in 1986 and has been a Vice
President of the Fund's investment adviser since 1995. Mr. Balestrino was an
Assistant Vice President of the investment adviser from 1991 until 1995 and
served as an Investment Analyst of the investment adviser from 1989 until
1991. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.
Susan M. Nason has been the Fund's portfolio manager since March 1, 1995.
Ms. Nason joined Federated Investors in 1987 and has been a Vice President
of the Fund's investment adviser since 1993. Ms. Nason served as an
Assistant Vice President of the investment adviser from 1990 until 1992. Ms.
Nason is a Chartered Financial Analyst and received her M.B.A. in Finance
from Carnegie Mellon University.
Peter R. Anderson has been the Fund's portfolio manager since September,
1995. Mr. Anderson joined Federated Investors in 1972 as, and is presently,
a Senior Vice President of the Fund's investment adviser. Mr. Anderson is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Wisconsin.
Timothy E. Keefe has been the Fund's portfolio manager since September,
1995. Mr. Keefe joined Federated Investors in 1987 and has been an Assistant
Vice President of the Fund's investment adviser since 1993. Mr. Keefe served
as an Investment Analyst of the investment adviser from 1991 until 1993, and
from 1987 until 1991, he acted as a Marketing Representative in the Broker
Dealer Department. Mr. Keefe is a Chartered Financial Analyst and received
his M.B.A. in Business Administration from the University of Pittsburgh.
DISTRIBUTION OF FUND 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.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25 of 1.00% of the
average daily net asset value of the Fund to obtain certain personal services
for shareholders and to maintain shareholder accounts. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly
8
or will select financial institutions to perform shareholder services. From time
to time and for such periods as deemed appropriate, the amount stated above may
be reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which fees will be paid
will be determined from time to time by the Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars at
recreational-type facilities for their employees, providing sales literature and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
------------------ -----------------------------------
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, ("State Street Bank") Boston,
Massachusetts is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Boston, Massachusetts is transfer agent and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche LLP, 2500 One PPG Place, Pittsburgh, Pennsylvania 15222-5401.
9
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 use 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.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets of the Fund, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
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.
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. (Eastern time) on the next business day
following the order. Federal funds should be wired as follows: Federated
Services Company c/o State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Stock and Bond Fund, Inc.; 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 holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
BY MAIL. To purchase shares by mail, send a check made payable to Stock and
Bond Fund, Inc. to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received after payment
by check is converted into federal funds. This is generally the next business
day after the check is received.
10
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund 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.
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 as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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. State securities laws may require certain
financial institutions such as depository institutions to register as dealers.
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
11
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, contact Federated Securities Corp., and
consult a tax adviser.
REDEEMING 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.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Fund before 4:00 p.m.
(Eastern 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. Proceeds from
redemption requests received on holidays when wire transfers are restricted will
be wired the following business day. Questions about telephone redemptions on
days when wire transfers are restricted should be directed to your shareholder
services representative at the telephone number listed on your account
statement. 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 account number,
and the share or dollar amount requested. If Share certificates have been
issued, they should be sent unendorsed with the written request by registered or
certified mail to: Federated Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600.
12
SIGNATURES. Shareholders requesting 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, as amended.
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.
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 $25,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $25,000 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.
13
Directors may be removed by the Directors or by 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 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.
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.
STATE AND LOCAL TAXES
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 the Fund 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 Fund is sold without a sales charge or other similar non-recurring charges.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
14
STOCK AND BOND FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 31.
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
AUGUST 31, OCTOBER 31,
1994(a) 1993(b)
- -------------------------------------------------------- ------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.84 $16.18
- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------
Net investment income 0.23 0.38
- --------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.26) 0.48
- -------------------------------------------------------- ------ ------
Total from investment operations (0.03) 0.86
- -------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS
- --------------------------------------------------------
Distributions from net investment income (0.40) (0.20)
- -------------------------------------------------------- ------ ------
Net asset value, end of period $16.41 $16.84
- -------------------------------------------------------- ------ ------
------ ------
TOTAL RETURN (c) 0.17% 5.54%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------
Expenses 1.95%* 2.04%*
- --------------------------------------------------------
Net investment income 2.38%* 2.01%*
- --------------------------------------------------------
Expense waiver/reimbursement (d) -- 0.20%*
- --------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------
Net assets, end of period (000 omitted) $ 573 $ 96
- --------------------------------------------------------
Portfolio turnover 45% 51%
- --------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 1, 1993 to August 31, 1994
(date share class ceased operations).
(b) Reflects operations for the period from April 19, 1993 (Start of
performance) to October 31, 1993.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
15
STOCK AND BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--41.6%
- -------------------------------------------------------------------------
CONSUMER DURABLES--2.1%
-------------------------------------------------------
16,200 Eastman Kodak Co. $ 1,014,525
-------------------------------------------------------
33,500 Mattel, Inc. 963,125
-------------------------------------------------------
37,600 Volvo, ADR 855,400
------------------------------------------------------- ------------
Total 2,833,050
------------------------------------------------------- ------------
CONSUMER NON-DURABLES--3.7%
-------------------------------------------------------
14,100 Avon Products, Inc. 1,002,863
-------------------------------------------------------
21,200 IBP, Inc. 1,269,350
-------------------------------------------------------
19,700 Philip Morris Cos., Inc. 1,664,650
-------------------------------------------------------
8,100 RJR Nabisco Holdings Corp. 249,075
-------------------------------------------------------
24,100 Reebok International Ltd. 819,400
------------------------------------------------------- ------------
Total 5,005,338
------------------------------------------------------- ------------
CONSUMER SERVICES--0.4%
-------------------------------------------------------
9,800 Gannett Co., Inc. 532,875
------------------------------------------------------- ------------
ELECTRONIC TECHNOLOGY--5.4%
-------------------------------------------------------
14,600 Hewlett-Packard Co. 1,352,325
-------------------------------------------------------
15,500 Intel Corp. 1,083,062
-------------------------------------------------------
10,000 International Business Machines Corp. 972,500
-------------------------------------------------------
15,100 (a) Litton Industries, Inc. 598,338
-------------------------------------------------------
22,900 Lockheed Martin Corp. 1,560,063
-------------------------------------------------------
14,800 Raytheon Co. 645,650
-------------------------------------------------------
25,400 Rockwell International Corp. 1,130,300
------------------------------------------------------- ------------
Total 7,342,238
------------------------------------------------------- ------------
</TABLE>
16
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------
ENERGY MINERALS--2.7%
-------------------------------------------------------
21,700 Chevron Corp. $ 1,014,475
-------------------------------------------------------
12,100 Exxon Corp. 924,137
-------------------------------------------------------
27,600 Occidental Petroleum Corp. 593,400
-------------------------------------------------------
15,200 Texaco, Inc. 1,035,500
------------------------------------------------------- ------------
Total 3,567,512
------------------------------------------------------- ------------
FINANCE--8.1%
-------------------------------------------------------
27,749 Allstate Corp. 1,019,776
-------------------------------------------------------
14,900 American Express Co. 605,313
-------------------------------------------------------
20,800 Bank of Boston Corp. 925,600
-------------------------------------------------------
10,200 CIGNA Corp. 1,011,075
-------------------------------------------------------
15,000 Chemical Banking Corp. 853,125
-------------------------------------------------------
22,200 Citicorp 1,440,225
-------------------------------------------------------
18,714 Dean Witter, Discover & Co. 931,021
-------------------------------------------------------
8,400 First Interstate Bancorp 1,083,600
-------------------------------------------------------
26,600 Mellon Bank Corp. 1,333,325
-------------------------------------------------------
18,000 Providian Corp. 706,500
-------------------------------------------------------
18,866 Travelers Group, Inc. 952,733
------------------------------------------------------- ------------
Total 10,862,293
------------------------------------------------------- ------------
HEALTH SERVICES--0.5%
-------------------------------------------------------
12,800 Smithkline Beecham Corp., ADR 664,000
------------------------------------------------------- ------------
HEALTH TECHNOLOGY--3.4%
-------------------------------------------------------
11,900 American Home Products Corp. 1,054,638
-------------------------------------------------------
18,900 Becton, Dickinson & Co. 1,228,500
-------------------------------------------------------
18,800 Bristol-Myers Squibb Co. 1,433,500
-------------------------------------------------------
</TABLE>
17
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------
HEALTH TECHNOLOGY--CONTINUED
-------------------------------------------------------
16,000 Merck & Co., Inc. $ 920,000
------------------------------------------------------- ------------
Total 4,636,638
------------------------------------------------------- ------------
INDUSTRIAL SERVICES--0.8%
-------------------------------------------------------
26,600 Baker Hughes, Inc. 522,025
-------------------------------------------------------
13,000 (a) Western Atlas, Inc. 570,375
------------------------------------------------------- ------------
Total 1,092,400
------------------------------------------------------- ------------
NON-ENERGY MINERALS--1.5%
-------------------------------------------------------
16,400 Aluminum Co. of America 836,400
-------------------------------------------------------
19,200 Phelps Dodge Corp. 1,216,800
------------------------------------------------------- ------------
Total 2,053,200
------------------------------------------------------- ------------
PROCESS INDUSTRIES--2.0%
-------------------------------------------------------
15,800 Du Pont (E.I.) de Nemours & Co. 985,525
-------------------------------------------------------
12,700 Eastman Chemical Co. 755,650
-------------------------------------------------------
34,300 Praxair, Inc. 926,100
------------------------------------------------------- ------------
Total 2,667,275
------------------------------------------------------- ------------
PRODUCER MANUFACTURING--5.0%
-------------------------------------------------------
17,300 (a) FMC Corp. 1,239,112
-------------------------------------------------------
21,200 General Electric Co. 1,340,900
-------------------------------------------------------
7,400 ITT Corp. 906,500
-------------------------------------------------------
7,900 Loews Corp. 1,158,338
-------------------------------------------------------
15,400 Philips Electronics N.V., ADR 594,825
-------------------------------------------------------
22,100 Textron, Inc. 1,519,375
------------------------------------------------------- ------------
Total 6,759,050
------------------------------------------------------- ------------
RETAIL TRADE--1.3%
-------------------------------------------------------
24,100 American Stores Co. 719,988
-------------------------------------------------------
</TABLE>
18
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------
RETAIL TRADE--CONTINUED
-------------------------------------------------------
29,900 Sears, Roebuck & Co. $ 1,016,600
------------------------------------------------------- ------------
Total 1,736,588
------------------------------------------------------- ------------
TECHNOLOGY SERVICES--1.1%
-------------------------------------------------------
5,000 (a) DST Systems, Inc. 105,000
-------------------------------------------------------
28,100 General Motors Corp., Class E 1,324,212
------------------------------------------------------- ------------
Total 1,429,212
------------------------------------------------------- ------------
TRANSPORTATION--0.4%
-------------------------------------------------------
8,100 Consolidated Rail Corp. 556,875
------------------------------------------------------- ------------
UTILITIES--3.2%
-------------------------------------------------------
23,500 AT&T Corp. 1,504,000
-------------------------------------------------------
8,500 CMS Energy Corp. 234,812
-------------------------------------------------------
13,900 (a) Columbia Gas System, Inc. 535,150
-------------------------------------------------------
15,700 Enron Corp. 539,687
-------------------------------------------------------
14,800 FPL Group, Inc. 619,750
-------------------------------------------------------
36,000 MCI Communications Corp. 897,750
------------------------------------------------------- ------------
Total 4,331,149
------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST $43,015,880) 56,069,693
------------------------------------------------------- ------------
------------
PREFERRED STOCKS--4.3%
- -------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.0%
-------------------------------------------------------
203,800 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 1,273,750
------------------------------------------------------- ------------
FINANCE--1.6%
-------------------------------------------------------
29,000 Merrill Lynch & Co., MTG, Inc., STRYPES, Series MGIC,
$3.12 1,562,375
-------------------------------------------------------
9,700 Sunamerica, Inc., Conv. Pfd., Series E, $3.10 601,400
------------------------------------------------------- ------------
Total 2,163,775
------------------------------------------------------- ------------
</TABLE>
19
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
PREFERRED STOCKS--CONTINUED
- -------------------------------------------------------------------------
PRODUCER MANUFACTURING--1.7%
-------------------------------------------------------
168,200 Westinghouse Electric Corp., PEPS, Series C, $1.30 $ 2,350,931
------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $6,233,439) 5,788,456
------------------------------------------------------- ------------
------------
CORPORATE BONDS--13.9%
- -------------------------------------------------------------------------
CONSUMER DURABLES--1.1%
-------------------------------------------------------
$ 1,000,000 Chrysler Auburn Hills, Deb., 12.00%, 5/1/2020 1,504,770
------------------------------------------------------- ------------
CONSUMER NON-DURABLES--0.9%
-------------------------------------------------------
1,281,000 Philip Morris Cos., Inc., Deb., 6.00%, 7/15/2001 1,244,620
------------------------------------------------------- ------------
EDUCATION--0.8%
-------------------------------------------------------
1,000,000 Harvard University, Deb., 8.125%, 4/15/2007 1,126,680
------------------------------------------------------- ------------
ENERGY MINERALS--1.5%
-------------------------------------------------------
1,000,000 Exxon Capital Corp., Deb., 7.875%, 4/15/1996 1,009,460
-------------------------------------------------------
1,000,000 Occidental Petroleum Corp., Sr. Note, 11.75%, 3/15/2011 1,070,350
------------------------------------------------------- ------------
Total 2,079,810
------------------------------------------------------- ------------
FINANCE--5.8%
-------------------------------------------------------
1,000,000 American General Corp., S.F. Deb., 9.625%, 2/1/2018 1,099,910
-------------------------------------------------------
1,250,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 1,187,300
-------------------------------------------------------
1,300,000 Equitable Cos., Inc., Sr. Note, 9.00%, 12/15/2004 1,488,526
-------------------------------------------------------
1,000,000 Ford Motor Credit Co., Note, 6.85%, 8/15/2000 1,021,140
-------------------------------------------------------
1,000,000 Lehman Brothers Holdings, Inc., Note, 5.04%, 12/15/1996 986,090
-------------------------------------------------------
1,000,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 1,006,490
-------------------------------------------------------
1,000,000 Santander Finance Issuance, Bank Guarantee, 7.875%,
4/15/2005 1,070,110
------------------------------------------------------- ------------
Total 7,859,566
------------------------------------------------------- ------------
HEALTH SERVICES--0.9%
-------------------------------------------------------
1,000,000 Columbia/HCA Healthcare Corp., Note, 9.00%, 12/15/2014 1,193,430
------------------------------------------------------- ------------
</TABLE>
20
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------
PRODUCER MANUFACTURING--0.8%
-------------------------------------------------------
$ 1,000,000 General Electric Co., Deb., 7.875%, 5/1/1996 $ 1,009,700
------------------------------------------------------- ------------
RETAIL TRADE--0.8%
-------------------------------------------------------
1,000,000 Penney (J.C.) Co., Inc., Deb., 9.45%, 7/15/2002 1,125,790
------------------------------------------------------- ------------
SOVEREIGN GOVERNMENT--0.5%
-------------------------------------------------------
500,000 Kingdom of Sweden, Deb., 10.25%, 11/1/2015 652,210
------------------------------------------------------- ------------
UTILITIES--0.8%
-------------------------------------------------------
1,000,000 Michigan Bell Telephone Co., Deb., 7.85%, 1/15/2022 1,108,830
------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $22,777,371) 18,905,406
------------------------------------------------------- ------------
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.7%
- -------------------------------------------------------------------------
1,000,000 Prudential Home Mortgage Security 1993-32, Class A-6,
7.50%, 10/25/2022 996,950
------------------------------------------------------- ------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $957,500) 996,950
------------------------------------------------------- ------------
------------
GOVERNMENT OBLIGATIONS--21.7 %
- -------------------------------------------------------------------------
GOVERNMENT AGENCIES SECURITIES--1.7%
-------------------------------------------------------
500,000 Federal Home Loan Bank System, Deb., 4.21%, 1/15/1998 472,460
-------------------------------------------------------
1,500,000 Federal Home Loan Mortgage Corp., Deb., 4.13%,
3/25/1996 1,488,105
-------------------------------------------------------
350,000 Federal National Mortgage Association, 5.86%, 6/1/1998 347,994
------------------------------------------------------- ------------
Total 2,308,559
------------------------------------------------------- ------------
MORTGAGE-BACKED SECURITIES--5.8%
-------------------------------------------------------
1,376,866 Federal Home Loan Mortgage Corp., Pool G50030, 8.50%,
8/1/1996 1,387,606
-------------------------------------------------------
183,621 Federal Home Loan Mortgage Corp., Pool M10771, 8.50%,
4/1/1996 185,053
-------------------------------------------------------
178,066 Federal Home Loan Mortgage Corp., Pool M10914, 8.50%,
5/1/1996 179,454
-------------------------------------------------------
190,312 Federal Home Loan Mortgage Corp., Pool M10975, 8.50%,
5/1/1996 191,796
-------------------------------------------------------
130,307 Federal Home Loan Mortgage Corp., Pool M11105, 8.50%,
6/1/1996 131,323
-------------------------------------------------------
100,063 Federal Home Loan Mortgage Corp., Pool M11145, 8.50%,
5/1/1996 100,843
-------------------------------------------------------
</TABLE>
21
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
GOVERNMENT OBLIGATIONS--CONTINUED
- -------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES--CONTINUED
-------------------------------------------------------
$ 12,791 Federal Home Loan Mortgage Corp., Pool M11179, 8.50%,
6/1/1996 $ 12,891
-------------------------------------------------------
365,551 Federal Home Loan Mortgage Corp., Pool M11243, 8.50%,
7/1/1996 368,403
-------------------------------------------------------
63,857 Federal Home Loan Mortgage Corp., Pool M11318, 8.50%,
7/1/1996 64,355
-------------------------------------------------------
7,278 Federal Home Loan Mortgage Corp., Pool M19004, 8.50%,
5/1/1997 7,335
-------------------------------------------------------
137,079 Federal Home Loan Mortgage Corp., Pool M90043, 8.50%,
4/1/1996 138,148
-------------------------------------------------------
108,107 Federal Home Loan Mortgage Corp., Pool M90048, 8.50%,
5/1/1996 108,950
-------------------------------------------------------
647,233 Federal National Mortgage Association, Pool 124009,
9.00%, 11/1/2021 676,352
-------------------------------------------------------
902,775 Federal National Mortgage Association, Pool 50659,
7.00%, 11/1/2007 895,427
-------------------------------------------------------
37,065 Federal National Mortgage Association, Pool 50796,
7.50%, 9/1/2023 37,470
-------------------------------------------------------
433,038 Government National Mortgage Association, Pool 299165,
9.50%, 12/15/2020 462,532
-------------------------------------------------------
936,003 Government National Mortgage Association, Pool 369457,
8.00%, 9/15/2024 963,484
-------------------------------------------------------
996,068 Government National Mortgage Association, Pool 385622,
6.50%, 5/15/2024 968,348
-------------------------------------------------------
861,076 Government National Mortgage Association, Pool 392923,
9.50%, 2/15/2025 919,724
------------------------------------------------------- ------------
Total 7,799,494
------------------------------------------------------- ------------
TREASURY SECURITIES--14.2%
-------------------------------------------------------
4,000,000 United States Treasury Bond, 11.625%, 11/15/2004 5,534,080
-------------------------------------------------------
3,540,000 United States Treasury Bond, 7.25%, 5/15/2016 3,882,884
-------------------------------------------------------
6,460,000 United States Treasury Bond, 8.875%, 2/15/2019 8,349,550
-------------------------------------------------------
1,070,000 United States Treasury Bond, 9.375%, 2/15/2006 1,337,532
------------------------------------------------------- ------------
Total 19,104,046
------------------------------------------------------- ------------
TOTAL GOVERNMENT OBLIGATIONS (IDENTIFIED COST
$21,385,708) 29,212,099
------------------------------------------------------- ------------
------------
</TABLE>
22
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------------- ------------
<C> <S> <C>
(b)REPURCHASE AGREEMENT--16.3%
- -------------------------------------------------------------------------
$21,975,000 J.P. Morgan Securities, Inc., 5.90%, dated 10/31/1995,
due 11/1/1995 (at amortized cost) $ 21,975,000
------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $116,344,898)(c) $132,947,604
------------------------------------------------------- ------------
------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $116,344,898.
The net unrealized appreciation of investments on a federal tax basis
amounts to $16,602,706 which is comprised of $17,394,200 appreciation and
$791,494 depreciation at October 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($134,668,796) at October 31, 1995.
<TABLE>
<S> <C>
The following acronyms are used throughout this portfolio:
ADR --American Depository Receipt
PEPS --Participating Equity Preferred Stock
STRYPES --Structured Yield Product Exchangeable for Stock
</TABLE>
(See Notes which are an integral part of the Financial Statements)
23
STOCK AND BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------
Investments in repurchase agreement $ 21,975,000
- ----------------------------------------------------
Investments in securities 110,972,604
- ---------------------------------------------------- ------------
Total investments in securities, at value
(identified and tax cost $116,344,898) $132,947,604
- ------------------------------------------------------------------
Income receivable 1,089,338
- ------------------------------------------------------------------
Receivable for investments sold 1,770,297
- ------------------------------------------------------------------
Receivable for shares sold 112,674
- ------------------------------------------------------------------
Prepaid expenses 7,392
- ------------------------------------------------------------------ ------------
Total assets 135,927,305
- ------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------
Payable for investments purchased $ 979,154
- ----------------------------------------------------
Payable for shares redeemed 109,042
- ----------------------------------------------------
Payable to Bank 113,014
- ----------------------------------------------------
Accrued expenses 57,299
- ---------------------------------------------------- ------------
Total liabilities 1,258,509
- ------------------------------------------------------------------ ------------
NET ASSETS for 7,327,906 shares outstanding $134,668,796
- ------------------------------------------------------------------ ------------
------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------
Paid in capital $106,005,023
- ------------------------------------------------------------------
Net unrealized appreciation of investments 16,602,706
- ------------------------------------------------------------------
Accumulated net realized gain on investments 9,527,064
- ------------------------------------------------------------------
Undistributed net investment income 2,534,003
- ------------------------------------------------------------------ ------------
Total Net Assets $134,668,796
- ------------------------------------------------------------------ ------------
------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------
$134,668,796 / 7,327,906 shares outstanding $ 18.38
- ------------------------------------------------------------------ ------------
------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
24
STOCK AND BOND FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------
Dividends $ 1,580,455
- -------------------------------------------------------------------
Interest 4,530,147
- ------------------------------------------------------------------- -----------
Total income 6,110,602
- -------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------
Investment advisory fee $ 979,379
- -------------------------------------------------------
Administrative personnel and services fee 125,000
- -------------------------------------------------------
Custodian fees 45,676
- -------------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 99,653
- -------------------------------------------------------
Directors'/Trustees' fees 9,666
- -------------------------------------------------------
Auditing fees 16,445
- -------------------------------------------------------
Legal fees 12,377
- -------------------------------------------------------
Portfolio accounting fees 41,369
- -------------------------------------------------------
Shareholder services fee 320,244
- -------------------------------------------------------
Share registration costs 23,736
- -------------------------------------------------------
Printing and postage 56,085
- -------------------------------------------------------
Insurance premiums 3,986
- -------------------------------------------------------
Taxes 19,719
- -------------------------------------------------------
Miscellaneous 4,364
- ------------------------------------------------------- ----------
Total expenses 1,757,699
- -------------------------------------------------------
Waivers--
- --------------------------------------------
Waiver of investment advisory fee $(215,192)
- --------------------------------------------
Waiver of shareholder services fee (178,558)
- -------------------------------------------- ---------
Total waivers (393,750)
- ------------------------------------------------------- ----------
Net expenses 1,363,949
- ------------------------------------------------------------------- -----------
Net investment income 4,746,653
- ------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------
Net realized gain on investments 9,527,257
- -------------------------------------------------------------------
Net change in unrealized appreciation of investments 7,067,004
- ------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 16,594,261
- ------------------------------------------------------------------- -----------
Change in net assets resulting from operations $21,340,914
- ------------------------------------------------------------------- -----------
-----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
25
STOCK AND BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------
OPERATIONS--
- ----------------------------------------------------
Net investment income $ 4,746,653 $ 3,988,625
- ----------------------------------------------------
Net realized gain (loss) on investments ($9,527,257
and $1,349,184, respectively, as computed for
federal tax purposes) 9,527,257 1,349,184
- ----------------------------------------------------
Net change in unrealized appreciation (depreciation) 7,067,004 (5,913,664)
- ---------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 21,340,914 (575,855)
- ---------------------------------------------------- ------------ ------------
NET EQUALIZATION (DEBITS) CREDITS-- (98,118) 26,597
- ---------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------
Class A Shares (4,670,579) (4,128,685)
- ----------------------------------------------------
Class C Shares -- (13,593)
- ----------------------------------------------------
Distributions from net realized gains (700,551) --
- ---------------------------------------------------- ------------ ------------
Change in net assets resulting from
distributions to shareholders (5,371,130) (4,142,278)
- ---------------------------------------------------- ------------ ------------
SHARE TRANSACTIONS--
- ----------------------------------------------------
Proceeds from sale of shares 28,842,050 38,530,728
- ----------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 3,810,223 2,833,419
- ----------------------------------------------------
Cost of shares redeemed (39,237,007) (35,969,675)
- ---------------------------------------------------- ------------ ------------
Change in net assets resulting from share
transactions (6,584,734) 5,394,472
- ---------------------------------------------------- ------------ ------------
Change in net assets 9,286,932 702,936
- ----------------------------------------------------
NET ASSETS:
- ----------------------------------------------------
Beginning of period 125,381,864 124,678,928
- ---------------------------------------------------- ------------ ------------
End of period (including undistributed net
investment income of $2,534,003 and $2,556,047,
respectively) $134,668,796 $125,381,864
- ---------------------------------------------------- ------------ ------------
------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
26
STOCK AND BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Stock and Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end,
no-load, management investment company. Previously, the Fund provided two
classes of shares ("Class A Shares" and "Class C Shares"). On May 19, 1994, the
Board of Directors ( the "Directors") authorized the combination of Class C
Shares with Class A Shares, the termination of all contracts entered into by the
Fund on behalf of Class C shares, and the amendment of the Articles of
Incorporation to reclassify Class A Shares and Class C Shares as unclassified
shares. In connection with these actions, as of August 31, 1994, the "Class C
Shares" were no longer offered.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
27
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
EQUALIZATION--The Fund follows the accounting practice known as
equalization, in which a portion of the proceeds from sales and costs of
redemptions of fund shares equivalent, on a per share basis, equal 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 fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At October 31, 1995, there were 2,000,000,000 shares of $0.001 par value capital
stock authorized : Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED
1995 OCTOBER 31, 1994
------------------------ -------------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
- ---------------------------------------------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,746,255 28,842,050 2,338,641 $ 37,487,658
- ----------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 233,136 3,810,223 174,458 2,825,356
- ----------------------------------------------------
Shares redeemed (2,369,562) (39,237,007) (2,181,393) (34,829,553)
- ---------------------------------------------------- ---------- ------------ ----------- ------------
Net change resulting from Class A share
transactions (390,171) (6,584,734) 331,706 $ 5,483,461
- ---------------------------------------------------- ---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
28
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED
1995 OCTOBER 31, 1994
------------------------ -------------------------
CLASS C SHARES SHARES DOLLARS SHARES DOLLARS
- ---------------------------------------------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold -- -- 64,355 $ 1,043,070
- ----------------------------------------------------
Shares issued to shareholders in payment of
distributions declared -- -- 497 8,063
- ----------------------------------------------------
Shares redeemed -- -- (70,562) (1,140,122)
- ---------------------------------------------------- ---------- ------------ ----------- ------------
Net change resulting from Class C share
transactions -- -- (5,710) ($ 88,989)
- ---------------------------------------------------- ---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Net change resulting from fund share transactions (390,171) (6,584,734) 325,996 $ 5,394,472
- ---------------------------------------------------- ---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to (a) a maximum of .55 of 1% of the average daily net
assets of the Fund, and (b) 4.5% of the gross income of the Fund, excluding
capital gains or losses.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/ or reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors
for the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to .25 of 1% of daily average net assets of the Fund for the period. This
fee is to obtain certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive a portion of its
fee. FSS can modify or terminate this voluntary waiver at any time at its
sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("Fserv") serves as transfer and dividend disbursing agent
for the Fund. The fee is based on the size, type, and number of accounts and
transactions made by shareholders.
29
STOCK AND BOND FUND, INC.
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees/Directors of the
Trust/Corporation are Officers and Directors or Trustees of the above
companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 77,996,628
- ------------------------------------------------------------------ ------------
SALES $105,043,890
- ------------------------------------------------------------------ ------------
</TABLE>
30
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
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. as of October 31,
1995, the related statement of operations for the year then ended, and the
statement of changes in net assets for the years October 31, 1995 and 1994, and
the financial highlights (see pages 2 and 15) for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 the securities owned as of
October 31, 1995, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Stock and Bond Fund,
Inc. as of October 31, 1995, 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 LLP
Pittsburgh, Pennsylvania
December 15, 1995
31
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <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 Trust
Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ----------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ----------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ----------------------------------------------------------------------------------
</TABLE>
32
- --------------------------------------------------------------------------------
STOCK AND BOND FUND, INC.
PROSPECTUS
An Open-End,
Diversified Management
Investment Company
December 31, 1995
[FEDERATED SECURITIES CORP. LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 86101A104
8012905A-A (12/95) [RECYCLED PAPER LOGO]
RECYCLED
STOCK AND BOND FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Stock and Bond Fund, Inc., (the "Fund"), dated December 31,
1995. This Statement is not a prospectus itself. You may request a copy of
a prospectus or a paper copy of this Statement of Additional Information,
if you have received it electronically, free of charge by calling 1-800-
235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE FUND1
INVESTMENT OBJECTIVES AND POLICIES1
TYPES OF INVESTMENTS 1
OBLIGATIONS OF FOREIGN ISSUERS 1
TEMPORARY INVESTMENTS 2
MONEY MARKET INSTRUMENTS 2
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 2
LENDING PORTFOLIO SECURITIES 3
REVERSE REPURCHASE AGREEMENTS 3
RESTRICTED AND ILLIQUID
SECURITIES 4
PORTFOLIO TURNOVER 5
INVESTMENT LIMITATIONS 5
SELLING SHORT AND BUYING ON
MARGIN 5
ISSUING SENIOR SECURITIES AND
BORROWING MONEY 5
DIVERSIFICATION OF INVESTMENTS 6
ACQUIRING SECURITIES 6
INVESTING IN NEW ISSUERS 6
SELLING SECURITIES 6
INVESTING IN COMMODITIES,
COMMODITY CONTRACTS, OR REAL
ESTATE 6
UNDERWRITING 6
LENDING CASH OR SECURITIES 6
CONCENTRATION OF INVESTMENTS 7
INVESTING IN WARRANTS 7
INVESTING IN ISSUERS WHOSE
SECURITIES ARE OWNED BY
OFFICERS AND DIRECTORS OF THE
FUND 7
INVESTING IN RESTRICTED
SECURITIES 7
INVESTING IN ILLIQUID SECURITIES
8
STOCK AND BOND FUND, INC.
MANAGEMENT 8
FUND OWNERSHIP 16
DIRECTORS' COMPENSATION 16
DIRECTOR LIABILITY 18
INVESTMENT ADVISORY SERVICES 18
ADVISER TO THE FUND 18
ADVISORY FEES 19
STATE EXPENSE LIMITATIONS 19
BROKERAGE TRANSACTIONS 20
OTHER RELATED SERVICES 21
OTHER SERVICES 21
FUND ADMINISTRATION 21
CUSTODIAN AND PORTOFOLIO
RECORDKEEPER 21
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 22
INDEPENDENT AUDITORS 22
SHAREHOLDER SERVICES AGREEMENT 22
PURCHASING SHARES 23
CONVERSION TO FEDERAL FUNDS 23
DETERMINING NET ASSET VALUE 23
DETERMINING MARKET VALUE OF
SECURITIES 23
REDEEMING SHARES 24
REDEMPTION IN KIND 24
TAX STATUS 24
THE FUND'S TAX STATUS 24
SHAREHOLDERS' TAX STATUS 25
CAPITAL GAINS 25
TOTAL RETURN 25
YIELD 26
PERFORMANCE COMPARISONS 26
DURATION 29
ABOUT FEDERATED INVESTORS 29
MUTUAL FUND MARKET 30
INSTITUTIONAL 30
TRUST ORGANIZATIONS 30
BROKER/DEALERS AND BANK
BROKER/DEALER SUBSIDIARIES 31
APPENDIX 31
GENERAL INFORMATION ABOUT THE FUND
Stock and Bond Fund, Inc., ("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 permit the Fund to offer separate series and classes of
shares. During the fiscal year ended October 31, 1994, the Fund offered Class A
Shares and Class C Shares. On August 31, 1994, a reorganization of the Fund was
completed to eliminate the separate classes of 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:
oinstruments 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
ocommercial paper rated A-1 by Standard and Poor's Ratings Group, Prime-1
by Moody's Investors Service, Inc., or F-1 by Fitch Investors Service,
Inc.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund engages in when-issued and delayed delivery transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's objectives
and policies, not for investment leverage. These transactions are made to
secure what is considered to be an advantageous price or 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 the
securities to be purchased are segregated on the Fund's records at the trade
date. These assets are marked to market daily and are maintained until the
transaction has been settled. As a matter of operating policy, which may be
changed without shareholder approval, the Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would cause the
segregation of more than 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 Board of Directors ("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 non-exclusive
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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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 objectives. For the fiscal years
ended October 31, 1995 and 1994, the portfolio turnover rates were 68% and 45%,
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 objectives 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.
SELLING SECURITIES
The Fund may not sell any security or evidence of interest therein unless
it is owned by the Fund and available for delivery.
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 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 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.
STOCK AND BOND FUND, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Stock and Bond Fund, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Director and President
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Director and President of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Treasurer of some of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ 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.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; Federated U.S. Government Securities Fund: 5-10 Years; 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; Insurance Management Series; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust
for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The Virtus
Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of December 4, 1995, the following shareholder of record owned 5% or more of
the outstanding shares of the Fund: Alltel Corp Thrift Plan, Nations Bank,
Trustee, San Francisco, California, owned approximately 942,187 shares (11.98%).
DIRECTORS' COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION * FROM FUND COMPLEX +
John F. Donahue $ 0 $ 0 for the Fund
Director and President 68 other investment companies in the
Fund Complex
Thomas G. Bigley $ 956 $ 20,688 for the Fund
Director 49 other investment companies in the
Fund Complex
John T. Conroy, Jr. $ 1,236 $ 117,202 for the Fund
Director 64 other investment companies in the
Fund Complex
William J. Copeland $ 1,236 $ 117,202 for the Fund and
Director 64 other investment companie in the Fund
Complex
James E. Dowd $ 1,236 $ 117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $ 1,125 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $ 1,236 $ 117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Peter E. Madden $ 956 $ 90,563 for the Fund and
Director 64 other investment companies in the
Fund Complex
Gregor F. Meyer $ 1,125 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
John E. Murray, Jr. $ 674 $ 0 for the Fund and
Director 69 other investment companies in the
Fund Complex
Wesley W. Posvar $ 1,125 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
Marjorie P. Smuts $ 1,125 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended October 31, 1995.
+ The information is provided for the last calendar year.
DIRECTOR LIABILITY
The Corporation's Articles of Incorporation provide that the Directors will not
be liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
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.
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, 1995, 1994, and 1993, the Fund's adviser earned $979,379, $945,715,
and $834,842, respectively, of which $215,192, $98,828, and $222,090,
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.
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. Research services
provided by brokers and dealers may be used by the adviser or its affiliates in
advising the Fund 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. 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.
During the fiscal years ended October 31, 1995, 1994, and 1993, the Fund paid
total brokerage commissions of $84,056, $41,256, and $69,262, respectively.
As of October 31, 1995, the Fund owned $952,733 of securities of Travelers Inc.
(Smith Barney) and $931,021 of securities of Dean Witter, two of its regular
brokers that derive more than 15% of gross revenues from securities- related
activities.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
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.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. Prior to March 1, 1994, Federated Administrative
Services Inc., also a subsidiary of Federated Investors, served as the Fund's
administrator. (For purposes of this Statement of Additional Information,
Federated Administrative Services and Federated Administrative Services, Inc.,
may hereinafter collectively be referred to as the "Administrators".) For the
fiscal year ended October 31, 1995, Federated Administrative Services earned
$125,000. For the fiscal year ended October 31, 1994, the Administrators
collectively earned $207,503. For the fiscal year ended October 31, 1993,
Federated Administrative Services, Inc. earned $291,137. Dr. Henry J. Gailliot,
an officer of Federated Management, the adviser to the Fund, holds
approximately 20%, of the outstanding common stock and serves as a director
of Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services.
CUSTODIAN AND PORTOFOLIO RECORDKEEPER
State Street Bank and Trust Company, ("State Street Bank") Boston, Massachusetts
is custodian for the securities and cash of the Fund. It also provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
As transfer agent, Federated Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the size, type, and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, 2500 One PPG
Place, Pittsburgh, Pennsylvania 15222-5014.
SHAREHOLDER SERVICES AGREEMENT
This arrangement permits the payment of fees to Federated Shareholder Services
and to financial institutions to cause services to be provided to shareholders
by a representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are not
limited to: providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel 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; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Directors expect that the Fund will benefit
by (1) providing personal services to the shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholder's requests and inquiries concerning their accounts. For the fiscal
year ended October 31, 1995, the Fund paid shareholder services fees in the
amount of $320,244 of which $178,558 was waived, all of which were paid to
financial institutions.
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 the Fund."
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:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o 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;
o for short-term obligations, according to the mean between the bid and asked
prices as furnished by an independent pricing service; or
o for all other securities, at fair value as determined in good faith by the
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 prospectus under "Redeeming 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
Directors determine 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 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:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o 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
The Fund's average annual total returns for the one-year, five-year, and ten-
year periods ended October 31, 1995, were 17.99%, 11.99% and 9.90%,
respectively.
Average annual total return 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
The Fund's SEC yield for the thirty-day period ended October 31, 1995, was
3.64%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund 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 the Fund, performance
will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o 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.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
STANDARD & POOR'S RATING GROUP DAILY STOCK PRICE INDEX OF 500 COMMON
STOCKS is a composite index of common stocks in industry, transportation,
and financial and public utility companies, and compares total returns of
funds whose portfolios are invested primarily in common stocks. In
addition, the 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 these figures.
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.
LEHMAN BROTHERS 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 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/LEHMAN BROTHERS GOVERNMENT/CORPORATE (WEIGHTED INDEX) AND THE S&P
500/ LEHMAN BROTHERS 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.
Advertisements and other sales literature for the Fund 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 the Fund 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.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making-structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the equity sector, Federated Investors has more than 25 years' experience. As
of December 31, 1994, Federated Investors managed 15 equity funds totaling
approximately $4 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated Investors'
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management.
Henry A. Frantzen, Executive Vice President, oversees the management of
Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions of
the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group ("S&P"). 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
edged." 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. The likelihood that the ratings of these bonds will fall below
investment grade is higher than bonds with higher ratings.
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.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
PRIME-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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-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.
Cusip 86101A104
