FEDERATED STOCK & BOND FUND INC /MD/, 485BPOS, 1997-12-29

FEDERATED STOCK & BOND FUND INC /MD/
485BPOS, 1997-12-29

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1933 Act File No. 2-10415
1940 Act File No. 811-1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----

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

Post-Effective Amendment No. 95 .................... X
------- ----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 35 ................................... X
------- ------

FEDERATED STOCK AND BOND FUND, INC.
(Exact Name of Registrant as Specified in Charter)

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

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

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

__ immediately upon filing pursuant to paragraph (b).
X on DECEMBER 31, 1997 pursuant to paragraph (b).
_ 60 days after filing pursuant to paragraph (a)(i).
on pursuant to paragraph (a)(i).
75 days after filing pursuant to paragraph (a)(ii).
on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

Copies to:

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

<PAGE>

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of FEDERATED STOCK AND BOND
FUND, INC. (the "Fund"), consists of one investment portfolio with three classes
of shares: (1) Class A Shares, (2) Class B Shares, and (3) Class C Shares, and
is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

PROSPECTUS HEADING
(RULE 404(C) CROSS-REFERENCE)
<S> <C> <C>

Item 1. Cover Page....................(1-3) Cover Page.

Item 2. Synopsis (1-3) Summary of Fund Expenses.
Item 3. Condensed Financial
Information..................(1) Financial Highlights-Class A Shares; (2) Financial Highlights-Class B Shares;
(3) Financial Highlights-Class C Shares; (1-3) Net Asset Value;
(1-3) Performance Information.
Item 4. General Description of
Registrant...................(1-3) General Information; (1-3) Investment Information;
(1-3) Investment Objective; (1-3) Investment
Policies; (1-3) Investment Limitations.

Item 5. Management of the Fund........(1-3) Fund Information; (1-3) Management of the Fund;
(1-3) Distribution of Shares; (1-3) Administration of the Fund;
(1-3) Brokerage Transactions; (1-3) Expenses of the Fund and Shares.
Item 6. Capital Stock and Other
Securities...................(1-3) Calling the Fund; (1-3)
Investing in the Fund; (1-3) Account
and Share Information; (1-3)
Confirmations and Account Statements;
(1-3) Dividends and Distributions;
(1-3) Capital Gains; (1-3) Shareholder
Information; (1-3) Tax Information;
(1-3) Federal Income Tax; (1-3) State
and Local Taxes.
Item 7. Purchase of Securities Being
Offered......................(1-3) Investing in the Fund; (1-3)
Purchasing Shares; (1) Class A Shares;
(2) Class B Shares; (2) Conversion of
Class B Shares; (3) Class C Shares;
(1-3) Purchasing Shares through a
Financial Intermediary; (1-3)
Purchasing Shares by Wire; (1-3)
Purchasing Shares by Check; (1-3)
Systematic Investment Program; (1-3)
Retirement Plans; (1-3) Net Asset
Value.

Item 8. Redemption or Repurchase......(1-3) Investing in the Fund; (1-3) Redeeming and Exchanging Shares;
(1-3) Redeeming or Exchanging Shares through your Financial Intermediary;
(1-3) Redeeming or Exchanging Shares by Telephone;
(1-3) Redeeming or Exchanging Shares by Mail; (1-3) Requirements for Redemption;
(1-3) Requirements for Exchange; (1-3) Systematic Withdrawal Program;
(1-3) Contingent Deferred Sales Charge; (1-3) Elimination of Contingent
Deferred Sales Charge; (1-3) Accounts with low Balances.

Item 9. Pending Legal Proceedings None.

<PAGE>

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

Item 10. Cover Page.................... (1-3) Cover Page.

Item 11. Table of Contents (1-3) Table of Contents.

Item 12. General Information and
History......................(1-3) General Information About the Fund; (1-3) About Federated Investors.

Item 13. Investment Objectives and
Policies.....................(1-3) Investment Objective and Policies; (1-3) Investment Limitations.

Item 14. Management of the Fund........(1-3) Federated Stock and Bond Fund, Inc. Management.

Item 15. Control Persons and Principal
Holders of Securities (1-3) Share Ownership.

Item 16. Investment Advisory and Other
Services.....................(1-3) Investment Advisory Services; (1-3) Other Services;
(1-3) Purchasing Shares.

Item 17. Brokerage Allocation (1-3) Brokerage Transactions.

Item 18. Capital Stock and Other
Securities Not Applicable.

Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered................(1-3) Purchasing Shares;
(1-3) Determining Net Asset Value; (1-3) Redeeming Shares.

Item 20 Tax Status (1-3) Tax Status.

Item 21. Underwriters Not Applicable.

Item 22. Calculation of Performance
Data.........................(1-3) Total Return; (1-3) Yield;
(1-3) Performance Comparisons.

Item 23. Financial Statements..........(1-3) Filed in Annual Report
to Shareholders dated
October 31, 1997.

</TABLE>

Federated Stock and Bond Fund, Inc.

Class A Shares, Class B Shares, Class C Shares

Prospectus

The shares of Federated Stock and Bond Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund).

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.

This prospectus contains the information you should read and know before you
invest in the Class A Shares, Class B Shares, and Class C Shares of the Fund.
Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, and Class C Shares dated December 31, 1997, with the
Securities and Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

Prospectus dated December 31, 1997

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary of Fund Expenses...................... 1

Financial Highlights--Class A Shares.......... 2
Financial Highlights--Class B Shares.......... 4
Financial Highlights--Class C Shares.......... 5

General Information........................... 6
Calling the Fund............................. 6

Investment Information........................ 6
Investment Objective......................... 6
Investment Policies.......................... 6
Investment Limitations....................... 13

Net Asset Value............................... 13

Investing in the Fund......................... 14

Purchasing Shares............................. 14
Purchasing Shares through a
Financial Intermediary....................... 14
Purchasing Shares by Wire.................... 15
Purchasing Shares by Check................... 15
Systematic Investment Program................ 15
Retirement Plans............................. 15
Class A Shares............................... 15
Class B Shares............................... 15
Conversion of Class B Shares................. 16
Class C Shares............................... 16

Redeeming and Exchanging Shares............... 16
Redeeming or Exchanging Shares through
a Financial Intermediary..................... 16
Redeeming or Exchanging Shares by Telephone.. 16
Redeeming or Exchanging Shares by Mail....... 16
Requirements for Redemption.................. 17
Requirements for Exchange.................... 17
Systematic Withdrawal Program................ 17
Contingent Deferred Sales Charge............. 17

Account and Share Information................ 18
Confirmations and Account Statements........ 18
Dividends and Distributions................. 18
Capital Gains............................... 18
Accounts with Low Balances................... 18

Fund Information.............................. 18
Management of the Fund....................... 18
Distribution of Shares....................... 19
Administration of the Fund................... 20
Brokerage Transactions....................... 21
Expenses of the Fund and Shares.............. 21

Shareholder Information....................... 21

Tax Information............................... 21
Federal Income Tax............................ 21
State and Local Taxes........................ 22

Performance Information....................... 22

Appendix...................................... 22
</TABLE>

SUMMARY OF FUND EXPENSES

Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............. 5.50% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).. None None None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)....................................................... None 5.50%(1)1.00%(1)
Redemption Fee (as a percentage of amount redeemed, if applicable)........................ None None None
Exchange Fee.............................................................................. None None None

Annual Operating Expenses
(As a percentage of average net assets)

Management Fee (after waiver)(2).......................................................... 0.58% 0.58% 0.58%
12b-1 Fee................................................................................. 0.00%(3) 0.75% 0.75%
Total Other Expenses...................................................................... 0.63% 0.63% 0.63%
Shareholder Services Fee................................................................. 0.25% 0.25% 0.25%
Total Operating Expenses(4)............................................................... 1.21% 1.96%(5) 1.96%
</TABLE>

(1) For shareholders of Class B Shares, the contingent deferred sales charge is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred
sales charge assessed is 1.00% of the lesser of the original purchase price
or the net asset value of Shares redeemed within one year of their purchase
date. For a more complete description, see "Investing in the Fund."

(2) The management fee for all classes 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.

(3) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the period ending October 31, 1998. If Class A Shares were paying
or accruing the 12b-1 fee, the Class A Shares would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Fund
Information."

(4) The total operating expenses for Class A Shares, Class B Shares, and Class C
Shares would have been 1.37%, 2.12%, and 2.12% respectively, absent the
voluntary waiver described in note 2 above.

(5) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

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 "Purchasing Shares" and "Fund Information." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.

<TABLE>
<CAPTION>
Example Class A Class BClass C
- --------------------------------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return,
(2) redemption at the end of each time period, and (3) payment of the maximum sales charge.
1 Year....................................................................................... $ 67 $ 77 $30
3 Years...................................................................................... $ 91 $105 $62
5 Years...................................................................................... $118 $129 106
10 Years..................................................................................... $194 $208 229

You would pay the following expenses on the same investment, assuming no
redemption.

1 Year....................................................................................... $ 67 $ 20 $ 0
3 Years...................................................................................... $ 91 $ 62 $ 2
5 Years...................................................................................... $118 $106 $106
10 Years..................................................................................... $194 $208 $229
</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.

FINANCIAL HIGHLIGHTS--CLASS A SHARES

(For a share outstanding throughout each period)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, is included in the
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained from the Fund.

<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990(a)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.96 $18.38 $16.25 $16.87 $15.91 $15.74 $13.60 $15.11
Income from investment
operations
Net investment income 0.62 0.61 0.63 0.51 0.55 0.65 0.74 1.37
Net realized and unrealized
gain (loss) on investments 3.35 1.81 2.21 (0.59) 1.58 0.39 2.17 (2.22)
Total from investment operations 3.97 2.42 2.84 (0.08) 2.13 1.04 2.91 (0.85)
Less distributions
Distributions from net
investment income (0.56) (0.63) (0.62) (0.54) (0.56) (0.68) (0.77) (0.66)
Distributions from net realized gain
on investments (1.91) (1.21) (0.09) -- (0.61) (0.19) -- --
Total distributions (2.47) (1.84) (0.71) (0.54) (1.17) (0.87) (0.77) (0.66)
Net asset value, end of period $20.46 $18.96 $18.38 $16.25 $16.87 $15.91 $5.74 $13.60
Total return(b) 23.02% 14.57% 17.99% (0.48)% 14.10% 7.94% 21.78% (5.90)%
Ratios to average net assets
Expenses 1.21% 1.10% 1.07% 1.06% 1.04% 1.04% 1.01% 1.01%*
Net investment income 3.06% 3.44% 3.71% 3.23% 3.49% 4.15% 4.91% 5.77%*
Expense waiver/reimbursement(c) 0.16% 0.27% 0.31% 0.07% 0.20% 0.21% 0.45% 0.54%*
Supplemental data
Net assets, end of period (000 omitted) $162,780 $130,694 $134,669 $125,382 $124,583 $95,387 $88,534 $79,003
Average commission rate paid(d) $0.0496 $0.0307 -- -- -- -- -- --
Portfolio turnover 87% 74% 68% 45% 51% 43% 72% 49%
</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.

(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of change.

FINANCIAL HIGHLIGHTS--CLASS A SHARES CONTINUED

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value,
beginning of period $14.94 $14.89 $15.34
Income from investment operations
Net investment income 0.91 0.85 0.81
Net realized and unrealized gain (loss) on investments 0.91 0.52 (0.24)
Total from investment operations 1.82 1.37 0.57
Less distributions
Distributions from net investment income (0.94) (0.86) (0.79)
Distributions from net realized gain on investments (0.71) (0.46) (0.23)
Total distributions (1.65) (1.32) (1.02)
Net asset value, end of period $15.11 $14.94 $14.89
Total return(a) 12.46% 9.28% 3.58%
Ratios to average net assets 1.01% 1.00% 1.00%
Net investment income 5.82% 5.53% 5.07%
Expense waiver/reimbursement(b) 0.51% 0.39% 0.22%
Supplemental data
Net assets, end of period (000 omitted) $88,367 $90,504 $92,105
Average commission rate paid(c) -- -- --
Portfolio turnover 26% 131% 110%
</TABLE>
* Computed on an annualized basis.

(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of change.

FINANCIAL HIGHLIGHTS--CLASS B SHARES

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended Period Ended
October 31, October 31,
1997 1996(a)
----------- ------------
<S> <C> <C>
Net asset value, beginning of period $18.96 $17.89
Income from investment operations
Net Investment Income 0.51 0.02
Net realized and unrealized gain (loss) on investments 3.34 1.05
Total from investment operations 3.85 1.07
Less distributions
Distributions from net investment income (0.45) --
Distributions from net realized gain on investments (1.91) --
Total distributions (2.36) --
Net asset value, end of period $20.45 $18.96
Total return(b) 22.20% 5.98%
Ratios to average net assets
Expenses 1.96% 1.96%*
Net investment income 2.31% 3.52%*
Expense waiver/reimbursement(c) 0.16% 0.15%*
Supplemental data
Net assets, end of period (000 omitted) $4,622 $94
Average commission rate paid(d) $0.0496 $0.0307
Portfolio turnover 87% 74%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from August 30, 1996 (date of initial
public offering) to October 31, 1996.

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

(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of change.

FINANCIAL HIGHLIGHTS--CLASS C SHARES

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended Period Ended
October 31, October 31,
1997 1996(a)
----------- ------------
<S> <C> <C>
Net asset value, beginning of period $18.96 $17.89
Income from investment operations
Net Investment Income 0.47 0.04
Net realized and unrealized gain (loss) on investments 3.35 1.03
Total from investment operations 3.82 1.07
Less distributions
Distributions from net investment income (0.45) --
Distributions from net realized gain on investments (1.91) --
Total distributions (2.36) --
Net asset value, end of period $20.42 $18.96
Total return(b) 22.08% 5.98%
Ratios to average net assets
Expenses 1.96% 2.03%*
Net investment income 2.31% 1.94%*
Expense waiver/reimbursement(c) 0.16% 0.15%*
Supplemental data
Net assets, end of period (000 omitted) $1,114 $2
Average commission rate paid(d) $0.0496 $0.0307
Portfolio turnover 87% 74%
</TABLE>
* Computed on an annualized basis.

(a) Reflects operations for the period from August 30, 1996 (date of initial
public offering) to October 31, 1996.

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

(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of change.

GENERAL INFORMATION

The Fund was incorporated under the laws of the state of Maryland on October 31,
1934. Class A Shares, Class B Shares and Class C Shares of the Fund ("Shares")
are designed for institutions, pension plans, and individuals as a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio of common and preferred stocks and other equity securities, bonds,
notes and short-term obligations.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

Calling the Fund Call the Fund at 1-800-341-7400.

INVESTMENT INFORMATION

Investment Objective

The investment objective of the Fund is 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 this investment objective 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 objective, it endeavors to do so by following the investment policies
described in this prospectus. The investment objective cannot be changed without
approval of shareholders.

Investment Policies

The Fund invests in a diversified portfolio of domestic and foreign securities
as described below. Under normal circumstances, the Fund will invest at least
65% of its total assets in stocks and bonds. Unless indicated otherwise, the
investment policies and limitations described below may be changed by the
Directors without shareholder approval. Shareholders will be notified before any
material change becomes effective.

Acceptable Investments

The Fund invests primarily in securities of larger, well-established companies
which have a history of lower volatility in earnings. Therefore, the corporate
bonds in which the Fund invests, including those purchased through and
collateralizing repurchase agreements, will generally be rated in one of the top
four rating categories by a nationally recognized statistical rating
organization ("NRSRO") such as Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P"), or Fitch Investors Service, L.P.
("Fitch") or unrated, but determined by the Fund's investment adviser
("Adviser") to be of comparable quality. The Fund may invest no more than 35% of
its assets in corporate bonds rated below the top four categories or which are
unrated but determined to be of comparable quality by the Adviser. Bonds rated
BBB by S&P or Fitch, or Baa by Moody's have speculative characteristics. A
description of the ratings categories is contained in the Appendix to this
prospectus. Permitted investments include:

. common stocks;

. preferred stocks;

. corporate bonds;

. convertible securities;

. obligations of the United States;

. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities;

. taxable municipal debt obligations rated BBB or better by an NRSRO, or which
are or comparable quality in the judgment of the Adviser;

. asset-backed securities;

. commercial paper that matures in 270 days or less and is rated A-1 or A-2 by
S&P, P-1 or P-2 by Moody's, or F-1 or EF-2 by Fitch;

. time and savings deposits;

. bankers' acceptances;

. other securities; and

. repurchase agreements collateralized by
acceptable investments.

Common Stocks

The domestic and foreign common stocks in which the Fund invests are selected by
the Fund's 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. However, other factors, such as product
position, market share, or profitability, will also be considered by the Fund's
Adviser.

Corporate Bonds

Although the corporate bonds in which the Fund will invest primarily are rated
as investment grade by an NRSRO, or of comparable quality in the judgment of the
Adviser, the Fund may, under normal circumstances, invest as much as 35% of its
net assets in such bonds that are rated below investment grade or are of
comparable quality ("junk bonds"). Although there is a percentage limitation,
there is no minimum rating applicable to corporate bonds purchased or held by
the Fund, and the Fund may, from time to time, purchase or hold such bonds in
the lowest category, including bonds in default.

Bonds that are not determined to be investment grade are high-yield, high-risk
bonds, typically subject to greater market fluctuations and greater risk of loss
of income and principal due to an issuer's default. To a greater extent than
investment grade bonds, lower-rated bonds tend to reflect short-term corporate,
economic, and market developments, as well as investor perceptions of the
issuer's credit quality. In addition, lower-rated bonds may be more difficult to
dispose of or to value than higher-rated, lower-yielding bonds. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than higher-rated bonds.

The Fund may, from time to time, own zero coupon bonds or pay-in-kind
securities. A zero coupon bond makes no periodic interest payments and the
entire obligation becomes due only upon maturity. Pay-in-kind securities make
periodic payments in the form of additional securities (as opposed to cash). The
price of zero coupon bonds and pay-in-kind securities are generally more
sensitive to fluctuations in interest rates than are conventional bonds.
Additionally, federal tax law requires that interest on zero coupon bonds and
paid-in-kind securities be reported as income to the Fund even though the Fund
received no cash interest until the maturity or payment date of such securities.
To maintain its qualification as a regulated investment company and avoid
liability of federal income taxes, the Fund will be required to distribute
income accrued from zero coupon convertible securities which it owns, and may
have to sell portfolio securities (perhaps at disadvantageous times) in order to
generate cash to satisfy these distribution requirements.

The Fund may invest in the High Yield Bond Portfolio, a portfolio of Federated
Core Trust, as an efficient means of investing in high-yield debt obligations.
Federated Core Trust is a registered investment company advised by Federated
Research Corp., an affiliate of the Fund's adviser. The High Yield Bond
Portfolio's investment objective is to seek high current income and its primary
investment policy is to invest in lower-rated, high-yield debt securities.
Federated Core Trust currently is not charged an advisory fee and is sold
without any sales charge. Any administrative fee charged to Federated Core Trust
by an affiliate of the Fund's adviser will be for services provided in addition
to the administrative services provided to the Fund. The Fund's adviser
anticipates that the High Yield Bond Portfolio will provide the Fund broad
diversity and exposure to all aspects of the high-yield bond sector of the
market while at the same time providing greater liquidity than if high-yield
debt obligations were purchased separately for the Fund.

The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.

Reducing Risks of Lower-Rated Securities

The Adviser believes that the risks of investing in lower-rated securities can
be reduced. The professional portfolio management techniques used by the Fund to
attempt to reduce these risks include:

Credit Research

The Adviser will perform its own credit analysis in addition to using NRSROs
and other resources, including discussions with the issuer's management, the
judgment of other investment analysts, and its own informed judgment. The
Adviser's credit analysis will consider the issuer's financial soundness, its
responsiveness to changes in interest rates and business conditions, and its
anticipated cash flow, interest or dividend coverage and earnings. In
evaluating an issuer, the Adviser places special emphasis on the estimated
current value of the issuer's assets rather than historical costs.

Diversification

The Fund invests in securities of many different issuers, industries, and
economic sectors to reduce portfolio risk.

Economic Analysis

The Adviser will analyze current developments and trends in the economy and in
the financial markets. When investing in lower-rated securities, timing and
selection are critical, and analysis of the business cycle can be important.

Convertible Securities

Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock of the issuer or a related financial entity
(for example, a merged or acquired company or partner). Convertible securities
may include, but are not limited to: convertible bonds or debentures;
convertible preferred stock; units consisting of usable bonds, and warrants; or,
securities which cap or otherwise limit returns to the convertible security
holder, such as DECS--(Dividend Enhanced Convertible Stock, or Debt Exchangeable
for Common Stock when issued as a debt security), LYONS--(Liquid Yield Option
Notes. A corporate bond which is purchased at prices below par with no coupons,
and are convertible into stock), PERCS--(Preferred Equity Redemption Cumulative
Stock, which is an equity issue that pays a high cash dividend, has a cap price
and mandatory conversion to common stock at maturity), PRIDES--(Preferred
Redeemable Increased Dividend Securities, which are essentially the same as
DECS; the difference is little more than who initially underwrites the issue).

Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. The Fund does not limit convertible
securities by rating, and there is no minimal acceptance rating for a
convertible security to be purchased or held in the Fund. Therefore, the Fund
invests in convertible securities irrespective of their ratings. This could
result in the Fund purchasing and holding, without limit, convertible securities
rated below investment grade by an NRSRO or in the Fund holding such securities
where they have acquired a rating below investment grade after the Fund has
purchased it (see "Corporate Bonds"). U.S. Government Obligations

The U.S. government obligations 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;

. notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States; and

. notes, bonds, and discount notes of other U.S. government agencies or
instrumentalities which receive or have access to federal funding.

Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These agencies and instrumentalities 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.

Municipal Securities

Municipal securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities. Municipal securities
include industrial development bonds issued by or on behalf of public
authorities to provide financing aid to acquire sites or construct and equip
facilities for privately or publicly owned corporations. The availability of
this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.

Asset-Backed Securities

Asset-backed securities are created by the grouping of certain governmental,
government-related and private loans, receivables and other lender assets,
including vehicle installment purchase obligations and credit card receivables,
into pools. Interests in these pools are sold as individual securities and are
not backed or guaranteed by the U.S. government and may not be secured. Payments
from the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.

Because the loans held in the asset pool often may be prepaid without penalty or
premium, asset-backed securities are generally subject to higher prepayment
risks than most other types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining mortgage interest rates,
because many borrowers refinance their mortgages to take advantage of the more
favorable rates. Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any scheduled principal
payments, may be lower than the yield on the original mortgage security. As a
consequence, mortgage securities may be a less effective means of "locking in"
interest rates than other types of debt securities having the same stated
maturity and may also have less potential for capital appreciation. For certain
types of asset pools, such as collateralized mortgage obligations ("CMOs"),
prepayments may be allocated to one tranch of securities ahead of other
tranches, in order to reduce the risk of prepayment for the other tranches.

Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
amount. Conversely, the prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate the recognition of
interest income by the Fund, which would be taxed as ordinary income when
distributed to the shareholders.

The credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities. The credit quality of most
asset-backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.

Non-Mortgage-Related Asset-Backed Securities

The Fund may invest in non-mortgage-related asset-backed securities including,
but not limited to, interests in pools of receivables, such as credit card and
accounts receivable and motor vehicle and other installment purchase obligations
and leases. Many of these securities are unsecured. These securities may be in
the form of pass-through instruments or asset-backed obligations. The
securities, all of which are issued by non-governmental entities and carry no
direct or indirect government guarantee, are structurally similar to CMOs and
mortgage pass-through securities, which are described below.

Mortgage-Related Asset-Backed Securities

The Fund may also invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate mortgage securities
("ARMS"), CMOs, real estate mortgage investment conduits ("REMICs"), or other
securities collateralized by or representing an interest in real estate
mortgages (collectively, "mortgage securities"). Many mortgage securities are
issued or guaranteed by government agencies.

Adjustable Rate Mortgage Securities

ARMS are pass-through mortgage securities representing interests in adjustable
rather than fixed interest rate mortgages. The ARMS in which the Fund invests
are issued by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage
Corporation ("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMS issued by GNMA are fully guaranteed by the Federal Housing
Administration (FHA) or Veterans Administration (VA), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.

Collateralized Mortgage Obligations

CMOs are bonds issued by single-purpose, stand-alone finance subsidiaries or
trusts of financial institutions, government agencies, investment bankers, or
companies related to the construction industry. CMOs purchased by the Fund may
be:

. collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the
U.S. government;

. collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or

. securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest is supported by the
credit of an agency or instrumentality of the U.S. government.

All CMOs purchased by the Fund are investment grade, as rated by a NRSRO or are
of comparable quality as determined by the Adviser.

Real Estate Mortgage Investment Conduits

REMICs are offerings of multiple class real estate mortgage-backed securities
which qualify and elect treatment as such under provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). Issuers of REMICs may take
several forms, such as trusts, partnerships, corporations, associations, or
segregated pools of mortgages. Once REMIC status is elected and obtained, the
entity is not subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who hold interests in
the REMIC. A REMIC interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates of interest, and a single
class of "residual interests." To qualify as a REMIC, substantially all the
assets of the entity must be in assets directly or indirectly secured
principally by real property.

Resets of Interest

The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.

To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an ARMS will tend to be less sensitive
to interest rate changes than a fixed rate debt security of the same stated
maturity. Hence, ARMS which use indices that lag changes in market rates should
experience greater price volatility than ARMS that closely mirror the market.
Certain residual interest tranches of CMOs may have adjustable interest rates
that deviate significantly from prevailing market rates, even after the interest
rate is reset, and are subject to correspondingly increased price volatility. In
the event the Fund purchases such residual interest mortgage securities, it will
factor in the increased interest and price volatility of such securities when
determining its dollar-weighted average duration.

Caps and Floors

The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in which
the Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval; and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes.

These payment caps may result in negative amortization. The value of mortgage
securities in which the Fund invests may be affected if market interest rates
rise or fall faster and farther than the allowable caps or floors on the
underlying residential mortgage loans. Additionally, even though the interest
rates on the underlying residential mortgages are adjustable, amortization and
prepayments may occur, thereby causing the effective maturities of the mortgage
securities in which the Fund invests to be shorter than the maturities stated in
the underlying mortgages.

Bank Instruments

The Fund only invests in bank instruments either issued by an institution having
capital, surplus and undivided profits over $100 million or insured by BIF or
SAIF. Bank instruments may include Eurodollar Certificates of Deposit (ECDs),
Yankee Certificates of Deposit (Yankee CDs) and Eurodollar Time Deposits (ETDs).
Due to the fact that institutions issuing such instruments are not necessarily
subject to the same regulatory requirements that apply to domestic banks, such
as the reserve requirements, loan limitations, examination, accounting,
auditing, recordkeeping, and the public availability of information, these
investments may present additional risks to investors.

Restricted and Illiquid Securities

The Fund intends to invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its investment
objective and policies, but which are subject to restriction on resale under
federal securities law. However, the Fund will limit investments in illiquid
securities, including certain restricted securities determined by the Directors
to be illiquid, non-negotiable time deposits, unlisted options, and repurchase
agreements providing for settlement in more than seven days after notice, to 15%
of its net assets.

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 the federal
securities laws, 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 Fund believes that Section 4(2) commercial paper,
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Directors, are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial paper,
as determined by the Adviser, as liquid and not subject to the investment
limitations applicable to illiquid securities.

Foreign Securities and Investment Risks

The Fund may invest in American Depositary Receipts, and may invest all of its
assets in foreign securities.

Investments in foreign securities, particularly those of non-governmental
issuers, involve considerations which are not ordinarily associated with
investments in domestic securities. These considerations include the possibility
of expropriation, the unavailability of financial information or the difficulty
of interpreting financial information prepared under foreign accounting
standards, less liquidity and more volatility in foreign securities markets, the
impact of political, social, or diplomatic developments, and the difficulty of
assessing economic trends in foreign countries. It may also be more difficult to
enforce contractual obligations abroad than would be the case in the United
States because of differences in the legal systems. Transaction costs in foreign
securities may be higher. The Adviser will consider these and other factors
before investing in foreign securities and will not make such investments
unless, in its opinion, such investments will meet the Fund's standards and
objective. The Fund's investments in foreign securities may include securities
of issuers in emerging markets.

With respect to foreign governmental securities, the Fund reserves the right to
invest up to 25% of its total assets in fixed income securities of foreign
governmental units located within an individual foreign nation and to purchase
or sell various currencies on either a spot or forward basis in connection with
these investments. The Adviser will allocate investments among securities of
particular issuers on the basis of its views as to the best values then
currently available in the marketplace. Such values are a function of yield,
maturity, issue classification and quality characteristics, coupled with
expectations regarding the economy, movements in the general level and term of
interest rates, currency values, political developments and variations in the
supply of funds available for investment in the world bond market relative to
the demands placed upon it.

This policy would enable the Fund to concentrate its investments in the
securities of foreign governmental and non-governmental issuers which would have
the effect of magnifying the investment risks disclosed above.

Investing in Securities of Other Investment Companies

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.

Temporary Investments

For temporary defensive purposes, the Fund may invest up to 100% of its total
assets in cash and cash items including: 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.

The Fund may also hold the instruments described above in such amounts as
necessary: to provide funds for the settlement of portfolio transactions;
pending investment of cash receipts in the ordinary course of business; and to
meet requests for redemption of Fund Shares.

Repurchase Agreements

Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or other
securities of deposit to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. 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.

When-Issued or 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 the transaction 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.

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 in 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.

Lending of Portfolio Securities

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis up to one-third of the value of its total
assets 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 Adviser has determined are creditworthy under
guidelines established by the 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.

Put and Call Options

The Fund may purchase put options on financial futures contracts and put options
on portfolio securities. Financial futures may include index futures. These
options will be used as a hedge to attempt to protect securities which the Fund
holds against decreases in value. For the immediate future, the Fund will enter
into futures contracts directly only when it desires to exercise a financial
futures put option in its portfolio rather than either closing out the option or
allowing it to expire. The Fund will only purchase puts on financial futures
contracts which are traded on a nationally recognized exchange.

The Fund will generally purchase over-the-counter put options on portfolio
securities in negotiated transactions with the writers of the options since
options on the portfolio securities held by the Fund are typically not traded on
an exchange. The Fund purchases options only from investment dealers and other
financial associations (such as commercial banks or savings associations) deemed
creditworthy by the Adviser.

In general, over-the-counter put options differ from exchange traded put options
in the following respects. Over-the-counter put options are two party contracts
with price and terms negotiated between buyer and seller, and such options are
endorsed and/or guaranteed by third parties (such as a New York Stock Exchange
member). Additionally, over-the-counter strike prices are adjusted to reflect
dividend payments, initial strike prices are generally set at market, and option
premiums (which are all time premiums) are amortized on a straight line basis
over the life of the option. In contrast, exchange traded options are
third-party contracts with standardized strike prices and expiration dates and
are purchased from the Clearing Corporation. Strike prices are not adjusted for
dividends, and options are marked to market, thereby obviating the need to
amortize the time premium. Exchange traded options have a continuous liquid
market while over-the-counter options do not.

The Fund may also write call options on all or any portion of its portfolio in
an effort to generate income for the Fund. The Fund will write call options on
securities either held in its portfolio or which it has the right to obtain
without payment of further consideration or for which it has segregated cash in
the amount of any additional consideration. The call options which the Fund
writes and sells must be listed on a recognized options exchange. Although the
Fund reserves the right to write covered call options on its entire portfolio,
it will not write such options on more than 25% of its total assets unless a
higher limit is authorized by the Directors.

The Fund may attempt to hedge the portfolio by entering into financial futures
contracts and to write calls on financial futures contracts.

Risks

When the Fund writes a call option, the Fund risks not participating in any
rise in the value of the underlying security. In addition, when the Fund
purchases puts on financial futures contracts to protect against declines in
prices of portfolio securities, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with
the prices of the securities in the Fund's portfolio of investments. This may
cause the futures contract and its corresponding put to react differently than
the portfolio securities to market changes. In addition, the Adviser could be
incorrect in its expectations about the direction or extent of market factors
such as interest rate movements. In such an event, the Fund may lose the
purchase price of the put option. Finally, it is not certain that a secondary
market for options will exist at all times. Although the Adviser will consider
liquidity before entering into option transactions, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option
or at any particular time. The Fund's ability to establish and close out option
positions depends on this secondary market.

Derivative Contracts and Securities

The term "derivative" has traditionally been applied to certain contracts
(including, futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.

Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stocks and bonds, derivatives do not
necessarily present greater market risks than traditional investments. The Fund
will only use derivative contracts for the purposes disclosed in the applicable
prospectus sections above. To the extent that the Fund invests in securities
that could be characterized as derivatives, such as asset-backed securities and
mortgage-backed securities, including ARMS, CMOs, and REMICs, it will only do so
in a manner consistent with its investment objective, policies and limitations.

Investment Limitations

The following investment limitations cannot be changed without shareholder
approval. 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; or invest in more than 10% of any class of securities of one
issuer.

NET ASSET VALUE

The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for each
class of Shares may differ due to the variance in daily net income realized by
each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.

All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.

INVESTING IN THE FUND

This prospectus offers three classes of Shares each with the characteristics
described below.

<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Minimum and
Subsequent
Investment Amounts $500/$100 $1500/$100 $1500/$100
Minimum and
Subsequent
Investment Amount
for Retirement Plans $50 $50 $50
Maximum Sales Charge 5.50%* None None
Maximum Contingent
Deferred Sales
Charge** None 5.50% 1.00%#
Conversion Feature No Yes No
</TABLE>

* Class A Shares are sold at NAV, plus a sales charge as follows:

<TABLE>
<CAPTION>
Sales Charge
as a Percentage of Dealer
------------------ Concession as
Public Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
- --------------------- -------- -------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
</TABLE>

** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.

+ The following contingent deferred sales charge schedule applies to Class B
Shares:

Year of Redemption Contingent Deferred
After Purchase Sales Charge
- ------------------ -------------------
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

++ Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "Conversion of Class B Shares."

# The contingent deferred sales charge is assessed on Shares redeemed within
one year of their purchase date.

PURCHASING SHARES

Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial intermediary (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request.

In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.

Purchasing Shares through a Financial Intermediary

Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge fees for their services.

The financial intermediary which maintains investor accounts in Class B Shares
or Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

Purchasing Shares by Wire

Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit
to: (Fund Name) (Share Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.

Purchasing Shares by Check

Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).

Systematic Investment Program

Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund. Shareholders should contact their financial intermediary
or the Fund to participate in this program.

Retirement Plans
Fund Shares can be purchased as an investment for retirement plans or Individual
Retirement Accounts ("IRAs"). For further details, contact the Fund and consult
a tax adviser.

Class A Shares

Class A Shares are sold at NAV, plus a sales charge. However:

No sales charge is imposed for Class A Shares purchased:

. through financial intermediaries that do not receive sales charge dealer
concessions;

. by Federated Life Members who maintain a $500 minimum balance in at least one
of the Federated Funds; or

. through "wrap accounts" or similar programs under which clients pay a fee for
services.

In addition, the sales charge can be reduced or eliminated by:

. purchasing in quantity and accumulating purchases at the levels in the table
under "Investing in the Fund";

. combining concurrent purchases of two or more funds;

. signing a letter of intent to purchase a specific quantity of shares within
13 months; or

. using the reinvestment privilege.

Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase.

Dealer Concession

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational-
type facilities, or items of material value. In some instances, these incentives
will be made available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1million or more, the investor
pays no sales charge; however, the distributor will make twelve monthly payments
to the dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end. The sales charge for Shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp.

Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the establishment of customer accounts and
purchases of Shares.

Class B Shares

Class B Shares are sold at NAV. Under certain circumstances, a contingent
deferred sales charge will be assessed at the time of a redemption. Orders for
$250,000 or more of Class B Shares will automatically be invested in Class A
Shares.

Conversion of Class B Shares

Class B Shares will automatically convert into Class A Shares after eight full
years from the purchase date. Such conversion will be on the basis of the
relative NAVs per Share, without the imposition of any charges. Class B Shares
acquired by exchange from Class B Shares of another Federated Fund will convert
into Class A Shares based on the time of the initial purchase.

Class C Shares

Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.

REDEEMING AND EXCHANGING SHARES

Shares of the Fund may be redeemed for cash or exchanged for Shares of the same
class of other Federated Funds on days on which the Fund computes its NAV.
Shares are redeemed at NAV less any applicable contingent deferred sales charge.
Exchanges are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like class, in a pre-determined amount on a monthly, quarterly, or
annual basis may take advantage of a systematic exchange privilege. Information
on this privilege is available from the Fund or your financial intermediary.
Depending upon the circumstances, a capital gain or loss may be realized when
Shares are redeemed or exchanged.

Redeeming or Exchanging Shares Through a Financial Intermediary

Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.

Redeeming or Exchanging Shares by Telephone

Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.

Telephone instructions will 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
this occurs, "Redeeming or Exchanging Shares By Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.

Redeeming or Exchanging Shares by Mail

Shares may be redeemed in any amount, or exchanged, by mailing a written request
to: Federated Shareholder Services Company, Fund Name, Share Class, P.O. Box
8600, Boston, MA 02266-8600. If share certificates have been issued, they must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.

All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. A check for redemption proceeds is normally mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the day that
a redemption or exchange request is processed.

Requirements for Redemption

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 their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution,O as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.

Requirements for Exchange

Shareholders must exchange Shares having an NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.

Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.

Systematic Withdrawal Program

Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. To be eligible to participate
in this program, a shareholder must have an account value of at least $10,000,
other than retirement accounts subject to required minimum distributions. A
shareholder may apply for participation in this program through his financial
intermediary or by calling the Fund.

Because participation in this program may reduce, and eventually deplete the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class A Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge may be imposed on Class B and C
Shares.

Contingent Deferred Sales Charge

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent deferred sales
charge. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.

Eliminating the Contingent Deferred Sales Charge

Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:

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

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

. which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;

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

. which are reinvested in the Fund under the reinvestment privilege;

. of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, employees of any
financial intermediary that sells Shares of the Fund pursuant to a sales
agreement with the distributor, and their immediate family members to the
extent that no payments were advanced for purchases made by these persons; and

. of Shares originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940 or retirement
plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial intermediary, to the extent that no payments were advanced for
purchases made through such entities.

For more information regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, or any of the above provisions,
contact your financial intermediary or the Fund. The Fund reserves the right to
discontinue or modify these provisions. Shareholders will be notified of such
action.

ACCOUNT AND SHARE INFORMATION

Confirmations and Account Statements

Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.

Dividends and Distributions

Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.

Capital Gains

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

Accounts with Low Balances

Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum investment
amount. Retirement plan accounts and accounts where the balance falls below the
minimum due to NAV changes will not be closed in this manner. Before an account
is closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.

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 Adviser receives an annual investment advisory fee equal to 0.55% of the
Fund's average daily net assets plus 4.50% 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. Under the investment advisory contract which provides for the
voluntary waiver and reimbursement of expenses by the Adviser, 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
reimbursement of expenses at any time at its sole discretion.

Adviser's Background

Federated Management, a Delaware business trust organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It
is a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr.Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across over 300 funds
under management and/or administration by its subsidiaries, as of December
31,1996, Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees, Federated
continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,500 financial
institutions nationwide.

Portfolio Managers' Background

Scott B. Schermerhorn has been a portfolio manager of the Fund since July 1996
and is responsible for managing the equity portion of the Fund. Mr.
Schermerhorn joined Federated Investors in 1996 as a Vice President of the
Fund's investment adviser and Federated Research Corp. From 1990 through 1996,
Mr. Schermerhorn was a Senior Vice President and Senior Investment Officer at
J W Seligman & Co., Inc. Mr. Schermerhorn received his M.B.A. in Finance and
International Business from Seton Hall University.

Michael P. Donnelly is a portfolio manager of the Fund, effective December 1997
and is responsible for managing the equity portion of the Fund. Mr. Donnelly
joined Federated in 1989 as an Investment Analyst and has been a Vice President
of the Fund's adviser and Federated Research Corp. since 1994. He served as an
Assistant Vice President of the Fund's adviser and Federated Research Corp.
from 1992 to 1994. Mr. Donnelly is a Chartered Financial Analyst and received
his M.B.A. from the University of Virginia.

Joseph M. Balestrino has been a portfolio manager of the Fund since May 1994
and is responsible for managing the overall allocation of the Fund's assets
within the corporate sector. Mr. Balestrino also manages the investment grade
portion of the Fund. Mr. Balestrino joined Federated Investors in 1986 and has
been a Vice President of the Fund's investment adviser and Federated Research
Corp. since 1995. Mr. Balestrino served as an Assistant Vice President of the
investment adviser and Federated Research Corp. from 1991 to 1995. Mr.
Balestrino is a Chartered Financial Analyst and received his Master's Degree in
Urban and Regional Planning from the University of Pittsburgh.

Mark E. Durbiano has been a portfolio manager of the Fund since September 1996
and is responsible for managing the high yield portion of the Fund. Mr.
Durbiano joined Federated Investors in 1982 and has been a Senior Vice
President of the Fund's investment adviser and Federated Research Corp. since
January 1996. From 1988 through 1995, Mr. Durbiano was a Vice President of the
Fund's investment adviser and Federated Research Corp. Mr. Durbiano is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.

<PAGE>

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 interest. 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.

Distribution of Shares

Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on
November14,1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.

The distributor may offer to pay financial institutions an amount up to 1.00% of
the NAV of Class C Shares purchased by their clients or customers at the time of
purchase. These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.

The distributor will pay dealers an amount equal to 5.50% of the NAV of Class B
Shares purchased by their clients or customers. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund. Dealers may voluntarily waive receipt of all or any portion
of these payments. The distributor may pay a portion of the distribution fee
discussed below to financial institutions that waive all or any portion of the
advance payments.

Distribution Plan and Shareholder Services

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class A Shares, Class B Shares, and Class C
Shares may pay a fee to the distributor in an amount computed at an annual rate
of 0.25%, 0.75%, and 0.75%, respectively, of the average daily net assets of
each class of Shares to finance any activity which is principally intended to
result in the sale of Shares subject to the Distribution Plan. For Class C
Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor may
not exceed an annual rate of 0.75% of each class of Shares" average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its distribution and distribution-related services pursuant to
the Plan. The Fund is not currently making payments for Class A Shares under the
Distribution Plan, nor does it anticipate doing so in the immediate future.

The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Distribution Plan.

In addition, 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 the average daily NAV of Class A
Shares, Class B Shares, and Class C Shares to obtain certain personal services
for shareholders and for the maintenance of shareholder accounts ("Shareholder
Services Agreement"). 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 such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

Supplemental Payments to Financial Institutions

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to 0.50% of the NAV of Class A
Shares purchased by their clients or customers under certain qualified
retirement plans as approved by Federated Securities Corp. (Such payments are
subject to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase).

Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
in addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may offer to pay to 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 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
Adviser or its affiliates.

Administration of the Fund
Administrative Services

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors as
specified below:

Maximum Average Aggregate
Fee Daily Net Assets
- ----------- -----------------------------------
<S> <C>
0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million 0.100
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 Services Company may choose voluntarily to waive a portion of its fee.

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.

Expenses of the Fund and Shares

Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Fund and portfolio expenses.

The Fund expenses for which holders of Class A Shares, Class B Shares, and Class
C Shares pay their allocable portion include, but are not limited to: the cost
of organizing the Fund and continuing its existence; registering the Fund with
federal and state securities authorities; Directors' fees; auditors' fees; the
cost of meetings of Directors; legal fees of the Fund; association membership
dues; and such non-recurring and extraordinary items as may arise from time to
time.

The portfolio expenses for which holders of Class A Shares, Class B Shares, and
Class C Shares pay their allocable portion include, but are not limited to:
registering the portfolio and Shares of the portfolio; investment advisory
services; taxes and commissions; custodian fees; insurance premiums; auditors'
fees; and such non-recurring and extraordinary items as may arise from time to
time.

At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Fund's Distribution Plan and fees for Shareholder Services. However, the
Directors reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares, and Class C Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to: transfer
agent fees as identified by the transfer agent as attributable to holders of
Class A Shares, Class B Shares, and Class C Shares; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the SEC and registration fees paid to state securities commissions;
expenses related to administrative personnel and services as required to support
holders of Class A Shares, Class B Shares, and Class C Shares; legal fees
relating solely to Class A Shares, Class B Shares, and Class C Shares and
Directors' fees incurred as a result of issues relating solely to Class A
Shares, Class B Shares, and Class C Shares.

SHAREHOLDER INFORMATION

Each Share of the Fund 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 in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.

Directors may be removed by the Directors or shareholders at a special meeting.
A special meeting of shareholders shall be called by the Directors upon the
written request of shareholders owning at least 25% of the Fund's outstanding
Shares of all series entitled to vote.

TAX INFORMATION

Federal Income Tax

The Fund will pay no federal income tax because it expects to meet requirements
of the Code 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 their Shares. No federal income tax is due on
any dividends earned in an IRA or qualified retirement plan until distributed,
so long as such IRA or qualified retirement plan meets the applicable
requirements of the Code.

State and Local Taxes

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 its total return and yield for each class
of Shares.

Total return represents the change, over a specified period of time, in the
value of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the SEC) earned by each class of Shares over a
thirty-day period by the maximum offering price per share of each class 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 each class of Shares, and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

The performance information reflects the effect of non-recurring charges such as
the maximum sales charge or contingent deferred sales charge, which, if
excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.

APPENDIX

Standard & Poor's Ratings Services Corporate Bond Rating Definitions

AAA--Debt rated AAA has the highest rating assigned by 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.

BB, B, CCC, CC--Debt rated BB, B, CCC, and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.

CI--The rating CI is reversed for income bonds on which no interest is being
paid.

D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

Moody's Investors Service, Inc. Corporate Bond Rating Definitions

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 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 near 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.

Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Fitch Investors Service, L.P. Investment Grade Bond Rating Definitions

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 strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BB--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 for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.

[LOGO] FEDERATED INVESTORS

Federated Stock and Federated Stock and
Bond Fund, Inc. Bond Fund, Inc.
Class A Shares
Class B Shares Class A Shares, Class B Shares,
Class C Shares Class C Shares

Federated Investors Funds
5800 Corporate Drive Prospectus
Pittsburgh, PA 15237-7000 December 31, 1997

Distributor An Open-End, Diversified
Federated Securities Corp. Management Investment Company
Federated Investors Tower
Pittsburgh, PA 15222-3779

Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

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

Independent Auditors
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401

Federated Securities Corp., Distributor

1-800-341-7400

www.federatedinvestors.com

Cusip 313911109
Cusip 313911208 [LOGO]
Cusip 313911307 RECYCLED
8012905 (12/97) PAPER

FEDERATED STOCK AND BOND FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
for Class A Shares, Class B Shares, and Class C Shares of Federated Stock
and Bond Fund, Inc. (the "Fund"), dated December 31, 1997. 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 1-800-341-7400.

FEDERATED STOCK AND BOND FUND, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated December 31, 1997

<PAGE>

[GRAPHIC OMITTED]

Cusip 313911109
Cusip 313911208
Cusip 313911307
8012905B (12/97)

<PAGE>

TABLE OF CONTENTS

<PAGE>

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments 1
Convertible Securities 1
Investments in Mortgage-Backed and Asset-Backed Securities2
Futures and Options Transactions 2
Investing In Foreign Currencies 4
Investing in Securities of Other Investment Companies 5
When-Issued and Delayed Delivery Transactions 5
Lending of Portfolio Securities 5
Repurchase Agreements 5
Reverse Repurchase Agreements 5
Portfolio Turnover 6
INVESTMENT LIMITATIONS 6

Selling Short and Buying on Margin 6
Issuing Senior Securities and Borrowing Money 6
Diversification of Investments 6
Selling Securities 6
Investing in Commodities, Commodity Contracts, or Real Estate 6
Underwriting 6
Lending Cash or Securities 6
Concentration of Investments 6
Investing in Illiquid Securities 7
Acquiring Securities 7
FEDERATED STOCK AND BOND FUND, INC. MANAGEMENT 7

Share Ownership 11
Directors' Compensation 12
Director Liability 12
INVESTMENT ADVISORY SERVICES 13

Adviser to the Fund 13
Advisory Fees 13
BROKERAGE TRANSACTIONS 13

OTHER SERVICES 13

Fund Administration 13
Custodian and Portfolio Accountant 14
Transfer Agent 14
Independent Auditors 14

PURCHASING SHARES 14

Quantity Discounts and Accumulated Purchases 14
Concurrent Purchases 14
Letter of Intent 14
Reinvestment Privilege 15
Conversion of Class B Shares 15
Distribution Plan and Shareholder Services 15
Purchases by Sales Representatives, Fund Directors, and Employees 16
Exchanging Securities for Fund Shares16
DETERMINING NET ASSET VALUE 16

Determining Market Value of Securities16
REDEEMING SHARES 17

Redemption in Kind 17
Contingent Deferred Sales Charge 17
TAX STATUS 18

The Fund's Tax Status 18
Shareholders' Tax Status 18
TOTAL RETURN 18

YIELD 18

PERFORMANCE COMPARISONS 19

Economic and Market Information 20
Duration 20
ABOUT FEDERATED INVESTORS 20

Mutual Fund Market 21
Institutional Clients 21
Bank Marketing 21
Broker/Dealers and Bank Broker/Dealer Subsidiaries 21
FINANCIAL STATEMENTS 21

<PAGE>

GENERAL INFORMATION ABOUT THE FUND

The Fund was incorporated under the laws of the state of Maryland on October
31, 1934. 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. At a meeting of the Board of Directors (the "Directors") held on
February 26, 1996, the Directors approved an amendment to the Articles of
Incorporation to change the name of Stock and Bond Fund, Inc. to Federated Stock
and Bond Fund, Inc., and to re-establish the Fund's offering of separate classes
of shares by approving Class B Shares and Class C Shares.

Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Statement of Additional Information
relates to all three classes of the above-mentioned Shares.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is 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 objective 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. Unless otherwise
noted, investment policies and limitations may be changed by the Directors
without shareholder approval. Shareholders will be notified before any material
change occurs.

TYPES OF INVESTMENTS

The Fund invests in a diversified portfolio of domestic and foreign common and
preferred stocks and other equity securities, convertible securities,
domestically-issued and foreign-issued corporate and government debt
obligations, mortgage-backed and asset-backed securities, obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, taxable
municipal debt obligations and repurchase agreements.

CONVERTIBLE SECURITIES

Dividend Enhanced Convertible Stock or Debt Exchangeable for Common Stock
("DECS") offer a substantial dividend advantage with the possibility of
unlimited upside potential if the price of the underlying common stock exceeds a
certain level. DECS convert to common stock at maturity. The amount received is
dependent on the price of the common stock at the time of maturity. DECS contain
two call options at different strike prices. The DECS participate with the
common stock up to the first call price. They are effectively capped at that
point unless the common stock rises above a second price point, at which time
they participate with unlimited upside potential. Preferred Equity Redemption
Cumulative Stock ("PERCS") offer a substantial dividend advantage, but capital
appreciation potential is limited to a predetermined level. PERCS are less risky
and less volatile than the underlying common stock because their superior income
mitigates declines when the common stock falls, while the cap price limits gains
when the common stock rises.

As with all securities, various market forces influence the market value of
convertible securities, including changes in the level of interest rates. As the
level of interest rates increases, the market value of convertible securities
may decline and, conversely, as interest rates decline, the market value of
convertible securities may increase. The unique investment characteristic of
convertible securities, the right to be exchanged for the issuer's common stock,
causes the market value of convertible securities to increase when the
underlying common stock increases. However, since securities prices fluctuate,
there can be no assurance of capital appreciation, and most convertible
securities will not reflect quite as much capital appreciation as their
underlying common stocks. When the underlying common stock is experiencing a
decline, the value of the convertible security tends to decline to a level
approximating the yield-to-maturity basis of straight nonconvertible debt of
similar quality, often called "investment value," and may not experience the
same decline as the underlying common stock.

Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation due to the
conversion privilege. If this appreciation potential is not realized, the
premium may not be recovered.

INVESTMENTS IN MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then re-registered because the owner and obligor moves to another state, such
re-registration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.

FUTURES AND OPTIONS TRANSACTIONS

The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio securities
and listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase its current income. The Fund currently does not intend to
invest more than 5% of its total assets in options transactions.

FINANCIAL FUTURES CONTRACTS

A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future.

In the fixed income securities market, price generally moves inversely to
interest rates. Thus, a rise in rates generally means a drop in price.
Conversely, a drop in rates generally means a rise in price. In order to hedge
its holdings of fixed income securities against a rise in market interest rates,
the Fund could enter into contracts to deliver securities at a predetermined
price (i.e., "go short") to protect itself against the possibility that the
prices of its fixed income securities may decline during the Fund 's anticipated
holding period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market interest
rates.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

The Fund may purchase listed put options on financial futures contracts. Unlike
entering directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.

The Fund would purchase put options on futures contracts to protect portfolio
securities against decreases in value resulting from an anticipated increase in
market interest rates. Generally, if the hedged portfolio securities decrease in
value during the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of the
second option will be large enough to offset both the premium paid by the Fund
for the original option plus the decrease in value of the hedged securities.

Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the option
(for a price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment of the
strike price. If the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the premium paid
for the contract will be lost.

CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS

In addition to purchasing put options on futures, the Fund may write listed call
options on futures contracts to hedge its portfolio against an increase in
market interest rates. When the Fund writes a call option on a futures contract,
it is undertaking the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the value of
the Fund's call option position to increase.

In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can offset the drop
in value of the Fund's fixed income portfolio which is occurring as interest
rates rise.

Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then offset the decrease in value of the hedged securities.

The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.

"MARGIN" IN FUTURES TRANSACTIONS

Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.

A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark-to-market its open futures positions.

The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.

PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES

The Fund may purchase put options on portfolio securities to protect against
price movements in particular securities in its portfolio. A put option gives
the Fund, in return for a premium, the right to sell the underlying security to
the writer (seller) at a specified price during the term of the option.

WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES

The Fund may also write covered call options to generate income. As writer of a
call option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price. The Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any additional
consideration).

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
investment practice, the Fund will not invest in the obligations of a foreign
issuer if any such risk appears to the Fund's investment adviser, Federated
Management (the "Adviser"), to be substantial.

INVESTING IN FOREIGN CURRENCIES

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Fund may enter into forward foreign currency exchange contracts in order to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. However, forward foreign currency exchange contracts may
limit potential gains which could result from a positive change in such currency
relationships. The Fund's Adviser believes that it is important to have the
flexibility to enter into forward foreign currency exchange contracts whenever
it determines that it is in the Fund's best interest to do so. The Fund will not
speculate in foreign currency exchange.

There is no limitation as to the percentage of the Fund's assets that may be
committed to such contracts.

The Fund does not enter into forward foreign currency exchange contracts or
maintain a net exposure in such contracts when the Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency or, in the
case of a "cross-hedge", denominated in a currency or currencies that the
Adviser believes will tend to be closely correlated with the currency with
regard to price movements. Generally, the Fund does not enter into a forward
foreign currency exchange contract with a term longer than one year.

FOREIGN CURRENCY OPTIONS

A foreign currency option provides the option buyer with the right to buy or
sell a stated amount of foreign currency at the exercise price on a specified
date or during the option period. The owner of a call option has the right, but
not the obligation, to buy the currency. Conversely, the owner of a put option
has the right, but not the obligation to sell the currency.

When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the seller or
the buyer may, in the secondary market, close its position during the option
period at any time prior to expiration. A call option on foreign currency
generally rises in value if the underlying currency appreciates in value, and a
put option on foreign currency generally falls in value if the underlying
currency depreciates in value. Although purchasing a foreign currency option can
protect the Fund against an adverse movement in the value of a foreign currency,
the option will not limit the movement in the value of such currency. For
example, if the Fund were holding securities denominated in a foreign currency
that was appreciating and had purchased a foreign currency put to hedge against
a decline in the value of the currency, the Fund would not have to exercise its
put option. Likewise, if the Fund were to enter into a contract to purchase a
security denominated in foreign currency and, in conjunction with that purchase,
were to purchase a foreign currency call option to hedge against a rise in value
of the currency, and if the value of the currency instead depreciated between
the date of purchase and the settlement date, the Fund would not have to
exercise its call. Instead, the Fund could acquire, in the spot market, the
amount of foreign currency needed for settlement.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS

Buyers and sellers of foreign currency options are subject to the same risks
that apply to options generally.

There are certain additional risks associated with foreign currency options. The
markets in foreign currency options are relatively new, and the Fund's ability
to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the Adviser, the market
for them has developed sufficiently to ensure that the risks in connection with
such options are not greater than the risks in connection with the underlying
currency, there can be no assurance that a liquid secondary market will exist
for a particular option at any specific time.

In addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.

The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and may
have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis.

Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e. less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. option markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they re-open.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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. 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 OF 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.

There is a 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.

REPURCHASE AGREEMENTS

The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are 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 a defaulting seller files for bankruptcy or
becomes insolvent, disposition of 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 deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Directors.

REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into reverse repurchase agreements. These transactions
are 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. The securities are marked to market daily and
maintained until the transaction is settled.

PORTFOLIO TURNOVER

The Fund normally holds or disposes of portfolio securities in order to
achieve its investment objective. Securities held by the Fund are selected
because they are considered to represent real value and will be held or disposed
of accordingly. The Adviser will not generally seek profits through short-term
trading. The Fund will not attempt to set or meet a portfolio turnover rate
since any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. For the fiscal years ended October
31, 1997 and 1996, the portfolio turnover rates were 87% and 74%, respectively.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

The Fund will not sell any securities short or purchase any securities on
margin.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except as permitted by its investment
objective and policies, and except that the Fund may enter into reverse
repurchase agreements and otherwise borrow up to one-third of the value of its
net assets including the amount borrowed, as a temporary, extraordinary or
emergency measure or to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous. This practice is not for investment
leverage. The Fund will not purchase any portfolio instruments while any
borrowings (including reverse repurchase agreements) are outstanding.

DIVERSIFICATION OF INVESTMENTS

The Fund will not invest more than 5% of the value of its total assets in the
securities of any one issuer, except U.S. government securities; invest in more
than 10% of the voting securities of one issuer; or invest in more than 10% of
any class of securities of one issuer.

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. However, with respect to foreign
governmental securities, the Fund reserves the right to invest up to 25% of its
total assets in fixed income securities of foreign governmental units located
within an individual foreign nation and to purchase or sell various currencies
on either a spot or forward basis in connection with these investments.

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.

<PAGE>

INVESTING IN ILLIQUID SECURITIES

The Fund will limit investments in illiquid securities, including certain
restricted securities determined by the Directors to be illiquid non-negotiable
time deposits, unlisted options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.

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.

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.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."

Cash items may include short-term obligations such as:

o obligations of the U.S. government or its agencies or instrumentalities; and

o repurchase agreements.

FEDERATED STOCK AND BOND FUND, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Stock and Bond Fund, Inc., and principal
occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

President and Director

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 or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934

Director

Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.

<PAGE>

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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Director

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Director

Professor of Medicine, 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 or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Director

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.

<PAGE>

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Director

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee 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; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925

Director

Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Director

Public relations/Marketing/Conference Planning; Director or Trustee 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 Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, President and Director of the Company.

<PAGE>

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
Shareholder Services Company; 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 , Secretary and Treasurer

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
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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.

* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board between meeting of the
Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; 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 Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; 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: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; and World Investment Series, Inc.

SHARE OWNERSHIP

Officers and Directors as a group own less than 1% of the Fund's outstanding
Shares.

As of December 1, 1997, no shareholder of record owned 5% or more of the
outstanding Class A Shares of the Fund.

As of December 1, 1997, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class B Shares for its clients), Jacksonville, FL,
owned 17,504 Shares (5.56%).

As of December 1, 1997, the following shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class C Shares for its clients), Jacksonville, FL,
owned 13,536 Shares (21.52%); Eva R. Spencer and Judy B. Crumley, Virginia
Beach, VA, owned approximately 5,702 Shares (9.07%); and Edward D. Jones & Co.,
Maryland Heights, MO, owned approximately 4,468 Shares (7.11%).

DIRECTORS' COMPENSATION

AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM FUND*# TOTAL COMPENSATION PAID
FUND FROM FUND COMPLEX +
<S> <C> <C>

John F. Donahue $0 $0 for the Fund and
Director and President 56 other investment companies in the Fund Complex

Thomas G. Bigley $1,116 $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex

John T. Conroy, Jr. $1,228 $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex

William J. Copeland $1,228 $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex

James E. Dowd $1,228 $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex

Lawrence D. Ellis, M.D. $1,116 $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex

Edward L. Flaherty, Jr. $1,228 $119,615 for the Fund and
Director 56 other investment companies in the Fund Complex

Peter E. Madden $1,116 $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex

John E. Murray, Jr. $1,116 $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex

Wesley W. Posvar $1,116 $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex

Marjorie P. Smuts $1,116 $108,725 for the Fund and
Director 56 other investment companies in the Fund Complex

</TABLE>

* Information is furnished for the fiscal year ended October 31, 1997.

# The aggregate compensation is provided for the Fund which is comprised of
one portfolio.

+ The information is provided for the last calendar year.

DIRECTOR LIABILITY

The Fund'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, 1997, 1996, and 1995, the Adviser earned $1,138,430, $1,028,943, and
$979,379, respectively, of which $248,204, $206,429, and $215,192, respectively,
were 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.

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, 1997, 1996, and 1995, the Fund paid
total brokerage commissions of $178,864, $142,462, and $84,056, respectively.

As of October 31, 1997, the Fund owned $875,000 of securities of Travelers Inc.
(Smith Barney), $906,500 of securities of Dean Witter, and $932,656 of
securities of Bear Stearns Cos., Inc., three 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 SERVICES

FUND ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators". For the fiscal years ended
October 31, 1997, 1996, and 1995, the Administrators earned $185,000, $135,000
and $125,000, respectively.

<PAGE>

CUSTODIAN AND PORTFOLIO ACCOUNTANT

State Street Bank and Trust Company ("State Street Bank"), Boston, MA, is
custodian for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, PA, provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments. The fee paid for this service is
based upon the level of the Fund's average net assets for the period plus
out-of-pocket expenses.

TRANSFER AGENT

Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the size, type and
number of transactions made by shareholders.

INDEPENDENT AUDITORS

The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh, PA.

PURCHASING SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value (plus a sales charge on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the prospectus under "Investing in the Fund"
and "Purchasing Shares."

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

As described in the prospectus, larger purchases reduce the sales charge paid.
The Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce or eliminate the sales charge
after it confirms the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more
funds for which affiliates of Federated Investors serve as investment adviser
and principal underwriter (the "Federated Funds"), the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$80,000 in the Class A Shares of one of the other Federated Funds with a sales
charge, and $20,000 in this Fund, the sales charge would be reduced.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $50,000 of Class A Shares of
Federated Funds (excluding money market funds) over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for the
custodian to hold up to 5.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.

REINVESTMENT PRIVILEGE

The reinvestment privilege is available for all Shares of the Fund. If Class A
Shares in the Fund have been redeemed, the shareholder has the privilege, within
120 days, to reinvest the redemption proceeds at the next-determined net asset
value without any sales charge. Similarly, shareholders who redeem Class B
Shares or Class C Shares may be reinvested in the same Share class within 120
days but would not be entitled to a reimbursement of the contingent deferred
sales charge if paid at the time of redemption. However, such reinvested shares
would not be subject to a contingent deferred sales charge upon later
redemption. In addition, if the Class B or Class C Shares were reinvested
through a financial intermediary, the financial intermediary would not be
entitled to an advanced payment from Federated Securities Corp. on the
reinvested Shares. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial intermediary of the reinvestment in
order to eliminate a sales charge or a contingent deferred sales charge. If the
shareholder redeems Shares in the Fund, there may be tax consequences.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
15th of the month eight full years from the purchase date and will no longer be
subject to a fee under the distribution plan. For purposes of conversion to
Class A Shares, Shares purchased through the reinvestment of dividends and
distributions paid on Class B Shares will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account will also convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute taxable events for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B Shares to Class A Shares will not
occur if such a ruling or opinion is not available. In such event, Class B
Shares would continue to be subject to higher expenses than Class A Shares for
an indefinite period.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and 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,
marketing efforts; 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 Distribution Plan, the Directors expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objective. By identifying potential
investors whose needs are served by the Fund's objective, and properly servicing
these accounts, it may be possible to curb sharp fluctuations in rates of
redemptions and sales.

Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.

For the fiscal year ended October 31, 1997, the Fund paid shareholder
services fees in the amount of $384,287, of which none was waived, all of which
were paid to financial institutions.

Federated Investors and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third-party
financial providers who have advanced commissions to financial
intermediaries.

<PAGE>

PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES

The following individuals and their immediate family members may buy Class A
Shares at net asset value without a sales charge:

o Directors, employees, and sales representatives of the Fund, Federated
Management, and Federated Securities Corp. and its affiliates;

o Federated Life Members (Class A Shares only);

o any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.;

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

These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be resold
except through redemption by the Fund.

EXCHANGING SECURITIES FOR FUND SHARES

Investors may exchange qualifying securities they already own for Shares, or
they may exchange a combination of qualifying securities and cash for Shares.
Any qualifying securities to be exchanged must meet the investment objective and
policies of the Fund, must have readily ascertainable market value, must be
liquid, and must not be subject to restrictions on resale.

The Fund will prepare a list of securities which are eligible for acceptance and
furnish this list to brokers upon request. The Fund reserves the right to reject
any security, even though it appears on the list, and the right to amend the
list of acceptable securities at any time without notice to brokers or
investors.

An investment broker acting for an investor should forward the securities in
negotiable form with an authorized letter of transmittal to Federated Securities
Corp. Federated Securities Corp. will determine that transmittal papers are in
good order and forward to the Fund's custodian, State Street Bank. The Fund will
notify the broker of its acceptance and valuation of the securities within five
business days of their receipt by State Street Bank.

The Fund values such securities in the same manner as the Fund values its
portfolio securities. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share will be issued
for each equivalent amount of securities accepted.

Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, conversion, or
other rights attached to the securities become the property of the Fund, along
with the securities.

TAX CONSEQUENCES

Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.

DETERMINING NET ASSET VALUE

The Fund's net asset value per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The net asset value for
each class of Shares may differ due to the variance in daily net income realized
by each class.

Net asset value is not determined 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; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

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. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
prospectus under "Redeeming and Exchanging Shares." Although the 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

Although the Fund intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.

Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset value
and selecting the securities in a manner the Directors determine to be fair and
equitable.

The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem Shares for any shareholder
in cash up to the lesser of $250,000 or 1% of the Fund's net asset value during
any 90-day period.

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 certain transaction costs.

CONTINGENT DEFERRED SALES CHARGE

In computing the amount of the applicable contingent deferred sales charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis.

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

To qualify for elimination of the contingent deferred sales charge through
a Systematic Withdrawal Program, the redemptions of Class B Shares must be
from an account that is at least 12 months old, has all Fund distributions
reinvested in Fund Shares, and has an account value of at least $10,000
when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as
periodically determined by the Fund. The amounts that a shareholder may
withdraw under a Systematic Withdrawal Program that qualify for
elimination of the contingent deferred sales charge may not exceed 12.00%
annually with reference initially to the value of the Class B Shares upon
establishment of the Systematic Withdrawal Program and then as calculated
at the annual valuation date . Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00%
quarterly, or 6.00% semi-annually with reference to the applicable account
valuation amount. Amounts that exceed the 12.00% annual limit for
redemption, as described, may be subject to the contingent deferred sales
charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for
Shares are to be held will be added to the time for which exchanged-from
Shares were held for purposes of satisfying the 12-month holding
requirement. However, for purposes of meeting the $10,000 minimum account
value requirement, Class B Share accounts will be not be aggregated. Any
Shares purchased prior to the termination of this program would have the
contingent deferred sales charge eliminated as provided in the Fund's
prospectus at the time of the purchase of the Shares.

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 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 based on offering price for the
following periods ended October 31, 1997 were:

SHARE CLASS INCEPTION DATEONE-YEARFIVE-YEARS TEN-YEARSSINCE INCEPTION

Class A Shares 12/31/68 16.27% 12.28% 10.55% 8.81%
Class B Shares 8/30/96 15.99% NA NA 20.27%
Class C Shares 8/30/96 20.95% NA NA 23.69%

The average annual total return for all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at the
end of the period by the 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, less any applicable sales
charge, adjusted over the period by any additional Shares, assuming a
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investments based
on the lesser of the original purchase price or the offering price of Shares
redeemed.

YIELD

The Fund's yields for the thirty-day period ended October 31, 1997 were:

SHARE CLASS YIELD

Class A Shares3.53%
Class B Shares2.76%
Class C Shares2.76%

The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by any class of
Shares over a thirty-day period by the maximum offering price per Share of any
class of Shares on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a
twelve-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by any class of Shares because of
certain adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.

PERFORMANCE COMPARISONS

The Fund's performance of each class of Shares 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 or a class of Shares' 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 RATINGS SERVICES ("S&P") DAILY STOCK PRICE INDEX OF
500 COMMON STOCKS is an unmanaged composite index of common stocks in
industrial, 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 fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in offering price 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) INDEX 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 all three classes of Shares may
quote total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an investment
in each class of Shares based on quarterly reinvestment of dividends over a
specified period of time.

From time to time , as it deems appropriate, the Fund may advertise the
performance of a class of Shares, using charts, graphs, and descriptions,
compared to federally insured bank products, including certificates of deposits
and time deposits, and to money market funds using the Lipper Analytical
Services, Inc. money market instruments average.

Advertisements may quote performance information which does not reflect the
effect of various sales charges on Class A Shares, Class B Shares, and Class C
Shares.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and U.S. Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI").

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. These traders handle trillions of dollars
in annual trading volume.

In the equity sector, Federated Investors has more than 26 years experience. As
of December 31, 1996, Federated managed 31 equity funds totaling approximately
$7.6 billion in assets across growth, value, equity income, international, index
and sector (i.e. utility) styles. Federated's value-oriented management style
combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970's.

In the corporate bond sector, as of December 31, 1996, Federated Investors
managed 12 money market funds, and 17 bond funds with assets approximating $17.2
billion, and $4.0 billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis--is backed by over 21 years
of experience in the corporate bond sector. In 1972, Federated introduced one of
the first high yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.

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 and global portfolios.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.*

Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:

INSTITUTIONAL CLIENTS

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.

BANK MARKETING

Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended October 31, 1997, are
incorporated herein by reference to the Annual Report of the Fund dated October
31, 1997 (File Nos. 2-10415 and 811-1). A copy of the Report may be obtained
without charge by contacting the Fund.

*Source: Investment Company Institute

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits:

(a) Financial Statements (Filed in the Annual Report to Shareholders
dated October 31, 1997); (b) Exhibits:
(1) Conformed copy of Charter of the Registrant as
amended; (14)
(2) Copies of By-Laws of the Registrant as amended; (14)
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant; (15)
(ii) Copy of Specimen Certificate for Shares of Capital
Stock for Class B Shares of the Registrant; (16) (iii)
Copy of Specimen Certificate for Shares of Capital Stock
for Class C Shares of the Registrant; (16)
(5) Conformed copy of Investment Advisory Contract of the
Registrant; (13) (6) (i) Conformed copy of Distributors
Contract; (12)
(ii) Conformed copy of Exhibit B to the Distributor's
Contract; (15) (iii) Conformed Copy of Distributor's
Contract; + (iv) Conformed Copy of Amendment to the
Distribution Plan; +
(v) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement; and Plan
Trustee/Mutual Funds Service Agreement from Item 24 (b)
(6) of the Cash Trust Series II Registration Statement
on Form N-1A, filed with the Commission on July 24,
1995. (File Numbers 33-38550 and 811-6269)
(7) Not applicable;
(8) (i) Conformed copy of Custodian Contract; (13) (ii)
Conformed copy of Custodian Fee Schedule; (17)
(9) (i) Conformed copy of Amended and Restated Shareholder
Services Agreement; (17)
(ii) Conformed copy of Principal Shareholder
Services Agreement; +
(iii) Conformed copy of Shareholder Services
Agreement; +
- ----------------------------
+ All exhibits have been filed electronically.

12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 83 filed on Form N-1A December 28, 1993.(File Nos. 2-10415
and 811-1)

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 85 filed on Form N-1A December 29, 1994.(File Nos. 2-10415
and 811-1)

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 87 filed on Form N-1A December 27, 1995. (File Nos. 2-10415
and 811-1)

15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 88 filed on Form N-1A July 1, 1996. (File Nos. 2-10415 and
811-1)

16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 91 filed on Form N-1A December 23, 1996. (File Nos. 2-10415
and 811-1)

17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 94 filed on Form N-1A October 31, 1997. (File Nos. 2-10415
and 811-1)

<PAGE>

(iv) The responses described in Item 24 (b) (6)
are hereby incorporated by reference.
(v) The Registrant hereby incorporates the
conformed copy of the Shareholder Services Sub-
Contract between Fidelity and Federated
Shareholder Services from Item 24(b)(9)(iii) of
the Federated GNMA Trust Registration Statement
on Form N-1A, filed with the Commission on
March 25, 1996. (File Nos. 2-75670 and 811-3375)
(10) Not applicable;
(11) Conformed copy of Consent of Independent Public
Accountants; +
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) Conformed copy of Distribution Plan including
Exhibit A; (15)
(16) Copy of Schedule for Computation of Fund
Performance Data; (7)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates by reference the
conformed copy of the specimen Multiple Class Plan
from Item 24(b)(18) of the World Investment Series,
Inc. Registration Statement on Form N-1A, filed with
the Commission on January 26, 1996.
(File Nos. 33-52149 and 811-07141);
(19) (i) Conformed copy of Power of Attorney; (16)
(ii) Conformed copy of Limited Power of
Attorney. (16)

Item 25. Persons Controlled by or Under Common Control with Registrant:

None

Item 26. Number of Holders of Securities:

Number of Record Holders
as of December 1, 1997
(Class A Shares,only),
and December 3, 1997
TITLE OF CLASS (CLASS B AND C SHARES, ONLY)

Shares of Capital Stock
($0.001 per share par value)

Class A Shares 4,227
Class B Shares 662
Class C Shares 384

- -----------------------
+ All exhibits have been filed electronically.

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 49 filed on Form N-1A December 21, 1979. (File Nos.
2-10415 and 811-1)

15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 88 filed on Form N-1A July 1, 1996. (File Nos. 2-10415 and
811-1)

16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 91 filed on Form N-1A December 23, 1996. (File Nos. 2-10415
and 811-1)

<PAGE>

Item 27. Indemnification (13)

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment adviser, see
the section entitled "Fund Information - Management of the Fund" in
Part A. The affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are included in Part
B of this Registration Statement under "Federated Stock and Bond Fund,
Inc. Management." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski

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

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 85 filed on Form N-1A December 29, 1994.(File Nos. 2-10415
and 811-1)

<PAGE>

Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka

Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle

Assistant Treasurer: Richard B. Fisher

The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.

<PAGE>

ITEM 29. PRINCIPAL UNDERWRITERS:

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

111 Corcoran 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
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
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: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Independence One Mutual Funds;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds;
Star Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters
Funds; The Virtus Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower
Mutual Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Group of Funds, Inc.; and World Investment Series,
Inc.

Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice Executive
Federated Investors Tower President, Federated, Vice President
Pittsburgh, PA 15222-3779 Securities Corp.

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp.

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. LOCATION OF ACCOUNTS AND RECORDS:

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

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

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

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

Federated Management Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779

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

Item 31. Management Services: Not applicable

<PAGE>

Item 32. Undertakings:

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

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED STOCK AND BOND FUND,
INC., has duly caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 29th day of December 1997.

FEDERATED STOCK AND BOND FUND, INC.

BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
December 29, 1997

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

NAME TITLE DATE

By: /s/ J. Crilley Kelly
J. Crilley Kelly Attorney In Fact December 29, 1997
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* President and Director
(Chief Executive Officer)

John W. McGonigle* Treasurer, Executive
Vice President and Secretary
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

John E. Murray, Jr.* Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

* By Power of Attorney

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K

INDEPENDENT AUDITORS' CONSENT

To the Board of Trustees and Shareholders of FEDERATED STOCK and BOND FUND,
INC.:

We consent to the incorporation by reference in Post-Effective Amendment
No. 95 to Registration Statement (No. 2-10415) of Federated Stock and Bond Fund,
Inc. of our report dated December 12, 1997, appearing in the Annual Report for
the year ended October 31, 1997, and to the reference to us under the heading
"Financial Highlights" in such Prospectus, which is a part of such Registration
Statement.

/s/Deloitte & Touche LLP

Deloitte & Touche LLP

Pittsburgh, Pennsylvania
December 22, 1997

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Federated Stock and Bond Fund, Inc.
Class A Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 146,667,612
<INVESTMENTS-AT-VALUE> 168,025,678
<RECEIVABLES> 3,472,430
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 171,498,108
<PAYABLE-FOR-SECURITIES> 2,733,019
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 249,696
<TOTAL-LIABILITIES> 2,982,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,362,459
<SHARES-COMMON-STOCK> 7,957,520
<SHARES-COMMON-PRIOR> 6,891,406
<ACCUMULATED-NII-CURRENT> 573,526
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,067,380
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,512,026
<NET-ASSETS> 162,779,794
<DIVIDEND-INCOME> 1,723,002
<INTEREST-INCOME> 4,849,836
<OTHER-INCOME> 0
<EXPENSES-NET> 1,884,775
<NET-INVESTMENT-INCOME> 4,688,063
<REALIZED-GAINS-CURRENT> 22,063,804
<APPREC-INCREASE-CURRENT> 4,663,075
<NET-CHANGE-FROM-OPS> 31,414,942
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,348,933
<DISTRIBUTIONS-OF-GAINS> 13,236,606
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,977,985
<NUMBER-OF-SHARES-REDEEMED>2,721,403
<SHARES-REINVESTED> 809,532
<NET-CHANGE-IN-ASSETS> 37,726,467
<ACCUMULATED-NII-PRIOR> 282,059
<ACCUMULATED-GAINS-PRIOR> 13,295,575
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 1,138,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,132,979
<AVERAGE-NET-ASSETS> 151,604,234
<PER-SHARE-NAV-BEGIN> 18.960
<PER-SHARE-NII> 0.630
<PER-SHARE-GAIN-APPREC> 3.340
<PER-SHARE-DIVIDEND> 0.560
<PER-SHARE-DISTRIBUTIONS> 1.910
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 20.460
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Federated Stock and Bond Fund, Inc.
Class B Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 146,667,612
<INVESTMENTS-AT-VALUE> 168,025,678
<RECEIVABLES> 3,472,430
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 171,498,108
<PAYABLE-FOR-SECURITIES> 2,733,019
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 249,696
<TOTAL-LIABILITIES> 2,982,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,362,459
<SHARES-COMMON-STOCK> 226,059
<SHARES-COMMON-PRIOR> 4,930
<ACCUMULATED-NII-CURRENT> 573,526
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,067,380
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,512,026
<NET-ASSETS> 4,622,062
<DIVIDEND-INCOME> 1,723,002
<INTEREST-INCOME> 4,849,836
<OTHER-INCOME> 0
<EXPENSES-NET> 1,884,775
<NET-INVESTMENT-INCOME> 4,688,063
<REALIZED-GAINS-CURRENT> 22,063,804
<APPREC-INCREASE-CURRENT> 4,663,075
<NET-CHANGE-FROM-OPS> 31,414,942
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38,375
<DISTRIBUTIONS-OF-GAINS> 45,261
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 229,204
<NUMBER-OF-SHARES-REDEEMED>12,259
<SHARES-REINVESTED> 4,184
<NET-CHANGE-IN-ASSETS> 37,726,467
<ACCUMULATED-NII-PRIOR> 282,059
<ACCUMULATED-GAINS-PRIOR> 13,295,575
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 1,138,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,132,979
<AVERAGE-NET-ASSETS> 151,604,234
<PER-SHARE-NAV-BEGIN> 18.960
<PER-SHARE-NII> 0.510
<PER-SHARE-GAIN-APPREC> 3.340
<PER-SHARE-DIVIDEND> 0.450
<PER-SHARE-DISTRIBUTIONS> 1.910
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 20.450
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> Federated Stock and Bond Fund, Inc.
Class C Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 146,667,612
<INVESTMENTS-AT-VALUE> 168,025,678
<RECEIVABLES> 3,472,430
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 171,498,108
<PAYABLE-FOR-SECURITIES> 2,733,019
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 249,696
<TOTAL-LIABILITIES> 2,982,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,362,459
<SHARES-COMMON-STOCK> 54,539
<SHARES-COMMON-PRIOR> 98
<ACCUMULATED-NII-CURRENT> 573,526
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22,067,380
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,512,026
<NET-ASSETS> 1,113,537
<DIVIDEND-INCOME> 1,723,002
<INTEREST-INCOME> 4,849,836
<OTHER-INCOME> 0
<EXPENSES-NET> 1,884,775
<NET-INVESTMENT-INCOME> 4,688,063
<REALIZED-GAINS-CURRENT> 22,063,804
<APPREC-INCREASE-CURRENT> 4,663,075
<NET-CHANGE-FROM-OPS> 31,414,942
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,286
<DISTRIBUTIONS-OF-GAINS> 10,132
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 56,460
<NUMBER-OF-SHARES-REDEEMED>2,889
<SHARES-REINVESTED> 870
<NET-CHANGE-IN-ASSETS> 37,726,467
<ACCUMULATED-NII-PRIOR> 282,059
<ACCUMULATED-GAINS-PRIOR> 13,295,575
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 1,138,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,132,979
<AVERAGE-NET-ASSETS> 151,604,234
<PER-SHARE-NAV-BEGIN> 18.960
<PER-SHARE-NII> 0.470
<PER-SHARE-GAIN-APPREC> 3.350
<PER-SHARE-DIVIDEND> 0.450
<PER-SHARE-DISTRIBUTIONS> 1.910
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 20.420
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>