[LOGO] FEDERATED INVESTORS
FEDERATED STOCK AND BOND FUND, INC.
Annual Report
October 31, 1997
Fund Inception 1968
[blank page]
President's Message
Dear Shareholder:
Federated Stock and Bond Fund, Inc. is a balanced fund that has, in 1996 and in
1997, put together two years of outstanding performance, mainly because the
stock and bond markets have positively reacted to the continued growth in the
American economy.
Federated Stock and Bond Fund, Inc. had its origination in the Income Foundation
Fund, which was created in the mid-1930s, and was the first mutual fund
registered under the Investment Company Act of 1940. Federated became investment
manager of the Income Foundation Fund in 1956. In the late 1960s, many insurance
companies wanted to sell mutual funds to their policy holders, and Boston Mutual
Life Insurance Company felt they could increase assets and help their policy
holders by offering this balanced mutual fund. As a consequence, the Income
Foundation Fund changed its name to Boston Foundation Fund. After 10-12 years,
Boston Mutual decided to concentrate its efforts on insurance products, and the
Federated organization, brought the fund into our family of funds, renaming it
Federated Stock and Bond Fund, Inc.
We are indeed proud of the long-term history of service to the fund's
shareholders. I urge you to read this annual report, especially the comments by
Scott Schermerhorn and Joseph Balestrino, co-managers of the fund. Scott, in
addition to managing the equity portion of the fund, manages over $4 billion in
equities with his group, and Joe, in addition to managing the bond portion of
the fund, manages over $1 billion in high-quality corporate securities with his
group.
As of October 31, 1997, Federated Stock and Bond Fund, Inc. is invested in 51%
stocks and 41% bonds. These corporate issues are from well-known companies
paying dividends, and easily recognized corporations paying interest on their
bonds.
This annual report covers the fund's most recent fiscal year, the twelve-month
period from November 1, 1996 through October 31, 1997. Following Scott's and
Joe's discussion, detailing both the stock and bond markets and the fund's
strategies, are a series of performance charts, a complete listing of the fund's
holdings, and the financial statements.
Federated Stock and Bond Fund, Inc. gives shareholders the opportunity to
participate in the benefits of two key financial markets. This diversification
may provide income from bonds and a degree of protection of your investment as
you pursue growth of capital from stocks. The fund's balance reflects an
emphasis on diversification and quality. At the end of the reporting period, the
fund's $168 million portfolio was diversified across more than 290 securities.
During the fiscal year (November 1, 1996 to October 31, 1997), the fund's stocks
participated in the strong stock market that experienced well-publicized
volatility late in the reporting period, and the bond holdings benefited from a
much improved bond market environment. As a result, a net asset value increase,
good income distributions and capital gains contributed to a total return of
more than 22% for all share classes based on net asset value.*
<TABLE>
<CAPTION>
Capital Net
Total Income Gains Asset Value
Return Per Share Per Share Increase
<S> <C> <C> <C> <C>
Class A Shares 23.02% $0.56 $1.91 7%
Class B Shares 22.20% $0.45 $1.91 7%
Class C Shares 22.08% $0.45 $1.91 7%
</TABLE>
All in all, it was another good year for the fund.
Thank you for participating in the growth and income potential of Federated
Stock and Bond Fund, Inc. You can easily increase your participation in stock
and bond markets by reinvesting your quarterly earnings automatically in
additional fund shares.
A balanced fund is very appealing to investors today, for those who want to
capture a portion of the equity opportunities, as well as income from
high-quality bonds. A combination affords investors, we believe, performance on
the equity side and downside protection.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[sig]
John F. Donahue
President
December 15, 1997
* Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. The total returns for the fund's Class A, B, and C Shares based
on offering price were 16.27%, 15.99%, and 20.95%, respectively.
Investment Review
[Graphic]
Scott Schermerhorn
Vice President
Federated Management
[Graphic]
Joseph Balestrino
Vice President
Federated Management
[Q]
What are your comments on the record-setting, yet highly volatile, stock market
and the improved bond market during the reporting period?
[A]
The stock market, as measured by Standard & Poor's Index of 500 Common Stocks*
("S&P 500") turned in a very strong 32.11% total return performance over the
twelve-month reporting period. Major stock indexes reached all-time highs as
economic conditions--moderate growth, stable interest rates, subdued inflation,
and rising corporate profits--were favorable for equities.
However, the volatility on a daily basis increased as investors remained
uncertain about the direction of the economy and interest rates.
The end of the twelve-month reporting period was marked by extreme volatility--
notably the 554-point drop in the Dow Jones Industrial Average on October 27th.
The market rebounded somewhat over the next few days, with the S&P 500 ending
October 1997 with a total return of -3.34% for the month. We expect further
volatility of the stock market at these levels.
The bond market's total return improved considerably during the second half of
the fund's fiscal year. The Lehman Brothers Government/ Corporate Index** ended
the twelve-month reporting period with a total return of 8.81%, compared to a
relatively weak 1.30% total return for the first six months of the reporting
period.
Specifically, the fiscal year ended October 31, 1997 continued to provide an
overall positive but changing environment for high-quality, fixed-income
securities. The initial six months of the reporting period saw interest rates
increase for all maturity points in response to stronger-than-anticipated
economic activity during the early part of 1997. In a growing economic
environment, high-quality corporate issuers generally experience improved
business conditions, and thus, corporate securities usually outperform
comparable maturity Treasury securities.
* The S&P 500 is an unmanaged index of common stocks in industry,
transportation, and financial and public utility companies. Investments
cannot be made in an index.
** Lehman Brothers Government/Corporate is an unmanaged index 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. Investments cannot be made in an index.
During the latter half of the reporting period, the situation completely
reversed. Interest rates fell in response to slower-than-expected growth, and
corporate securities were underperforming Treasuries as the fiscal year drew to
a close. For the entire twelve-month period, the high-quality, fixed-income
market delivered solid returns as interest rates generally fell, ranging from
0.1% for shorter maturities out to 0.5% for longer maturities. This was largely
due to very modest inflation figures that have continued to surprise the market
on the downside. Thus, shareholders received dividends plus capital
appreciation.
October of 1997 delivered approximately one-half of the total period decline in
interest rates. The foreign currency and stock market crisis, that started in
Southeast Asia and spread to Latin America, created an immense "flight to
quality" among investors. In short, U.S. Treasury securities became the most
attractive investment class in the entire world as investors, at least
momentarily, shunned domestic and foreign stock markets as well as foreign bond
markets.
[Q]
How did the fund perform for its shareholders during the twelve-month reporting
period from November 1, 1996, through October 31, 1997?
[A]
For the twelve-month reporting period, the fund's Class A, B, and C Shares
produced a total return of 23.02%, 22.20%, and 22.08%, respectively, based on
net asset value.*
The fund continued to show solid, long-term results. For example, annualized
total returns, based on net asset value, for Class A Shares for the five-year,
ten-year, and since-inception (12/31/68) periods ended October 31, 1997, were
13.56%, 11.18%, and 9.03%, respectively.**
* Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. The total returns for the fund's Class A, B, and C Shares
based on offering price were 16.27%, 15.99%, and 20.95%, respectively.
** Total returns for the fund's Class A Shares based on offering price for the
five-year, ten-year, and since inception (12/31/68) periods ended October 31,
1997, were 12.28%, 10.55%, and 8.81%,respectively.
[Q]
What is your strategy for what has been a highly valued stock market?
[A]
While we do believe some industries and numerous stocks are overvalued, we do
not believe that market timing is a logical way to protect our shareholders. We
believe our valuation disciplines, which force us to exit overpriced securities
and focus on undervalued situations, are in our shareholders' best interest.
Given current valuations, our recent emphasis has been on high-quality, well-run
companies that for various reasons have not fully participated in the
unprecedented bull market of the past 2 1/2 years.
Our largest industry underweight continues to be Technology as the valuations
have continued at all-time highs, and the fundamental picture is not as robust
as it was two years ago. Conversely, we remain overweight in Energy, as we
believe global industrialization should continue to increase demand while
historic underinvestment has kept supply constrained. Retailing is also an
industry where we maintain an overweight exposure as we believe valuations are
extremely attractive.
Recent stock additions include the following companies:
Dow Chemical Co. (1.1% of stock portfolio)--Shunned by investors who are
concerned about the "polyethelene cycle," current valuations are extremely low
for this market dominant company. Dow has been behind competitors in
restructuring efforts, allowing for more future growth potential.
Eastman Kodak (0.8% of stock portfolio)--The world's largest film producer with
a dominant brand, Eastman Kodak's short-term competitive issues have created a
unique buying opportunity.
Lexmark International, Class A (1.2% of stock portfolio)--This IBM spin-off
manufactures printers for personal computers. Lexmark has been gaining market
share in the laser printer market at the expense of Japanese competitors.
Readers Digest Association (1.1% of stock portfolio)--High-quality, globally
recognized products, but under pressure as a result of the flawed strategy of
trying to sell more products to existing clients versus increasing their client
base. The stock currently trades at valuations that, we believe, reflect
investors' emotions, not the value of the company. While we admit this is a
turnaround situation, the current yield of 6.3% gives us incentive to be
patient.
Sara Lee Corp. (1.2% of stock portfolio)--This company's results and stock
performance have not kept pace with its peer group. This has not gone unnoticed
by their shareholder-friendly management who announced a restructuring shortly
after we purchased the company.
Seagate Technology (1.1% of stock portfolio)--A dominant player in the disk
drive business for personal computers, Seagate also leads in the manufacture of
high- end drives used in PC networks. The high-end business not only enjoys
higher profitability, but has a faster growth rate.
Viacom, Inc., Class A and B (1.3% of stock portfolio)--With dominant franchises
such as MTV and Blockbuster Video in the entertainment industry, this holding
allows us to diversify and do so at unprecedented low valuations.
[Q]
Did you make any adjustments to the duration and quality of the fund's bond
portfolio during the reporting period?
[A]
Not materially. The portfolio's average maturity position was modestly shorter
at the end of the fiscal year, relative to the beginning, just shy of a neutral
position. Thus, performance incorporated the higher income of corporate
securities slightly offset by the maturity target.
Concerning quality, we continued to maintain approximately 25% of total fund
assets in high-yield corporate securities.* This minor, but still significant,
position has helped generate an above-average income distribution for
shareholders, and has enhanced price appreciation as high-yield bonds
outperformed higher quality bonds over the past year.
* Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
[Q]
What were the fund's top ten holdings in stocks and bonds as of October 31,
1997, and how are the fund's holdings diversified by industry and quality?
[A]
The top holdings and sector weightings were as follows:
Top Holdings
<TABLE>
<CAPTION>
Percentage of
Stocks Stock Portfolio
<S> <C>
K Mart Corp. 2.3%
Storage Technology Corp. 2.1%
Bristol-Myers Squibb Co. 2.1%
Wal-Mart Stores, Inc. 2.1%
Dayton-Hudson Corp. 2.0%
ITT Industries, Inc. 2.0%
PepsiCo, Inc. 2.0%
Marsh & McLennan Cos., Inc. 1.9%
Unilever N.V. 1.9%
MCI Communications Corp. 1.9%
Total percentage of stock portfolio 20.3%
</TABLE>
Sector Weightings
<TABLE>
<CAPTION>
Percentage of S&P 500
Sector Stock Portfolio Weighting
<S> <C> <C>
Utilities 12.6% 9.0%
Energy Minerals 11.8% 7.7%
Finance 11.5% 15.4%
Technology 11.5% 14.9%
Health Care 9.7% 10.9%
Services 9.5% 4.6%
Consumer Non-Durables 8.6% 10.4%
Producer Manufacturing 8.0% 8.1%
Retail Trade 7.3% 4.5%
Basic Industry 4.0% 4.4%
Transportation 3.1% 1.2%
Consumer Durables 2.4% 2.4%
</TABLE>
Bonds
<TABLE>
<CAPTION>
Percentage of
Name, Coupon Rate, Maturity Date Bond Portfolio
<S> <C>
U.S. Treasury Note, 6.25% due 6/30/02 3.89%
U.S. Treasury Note, 6.00% due 6/30/99 3.55%
U.S. Treasury Bond, 6.375% due 8/15/27 2.75%
CNA Financial Corp., 7.25% due 11/15/23 2.53%
Trans Ocean Container Corp.,
12.250% due 7/1/04 2.21% Delphi Funding, 9.31% due 3/25/27 1.74% Loewen
Group Int'l, 8.25% due 4/15/03 1.72% America General Corp., 9.625% due
2/1/18 1.68% Philip Morris Co., Inc., 7.750% due 1/15/27 1.64% Husky Oil
Ltd., 7.125% due 11/15/06 1.63%
Total percentage of bond portfolio 23.34%
</TABLE>
Rating Distribution* as of October 31, 1997
AAA 37.10%
AA 15.49%
A 47.41%
[Q]
With 1997 nearly behind us, what is your outlook for the stock and bond markets?
[A]
As previously stated, current valuations in the equity market are high and
discounting very favorable trends. We have become more defensive and continue to
favor large companies with reasonable valuations. Conversely, we have taken
profits in holdings that have appreciated to the point where we cannot justify
valuations. We continue to believe we are in a "stock pickers" environment where
active management should outperform passive strategies.
* Represents the credit quality of the fund's portfolio of investments as rated
by Standard & Poor's Ratings Services. These figures are reflected as a
percentage of total portfolio market value.
Turning to bonds, as the fiscal year closes, inflation remains very low in the
U.S. and in most industrialized countries. In addition, domestic economic
activity continues to move forward, but at a slower rate of growth than in
previous years. Thus, the backdrop of low inflation and moderate growth would
seem to present an environment well suited to the high-quality, fixed-income
investor. The average maturity of the fund's bond portfolio is approximately ten
years.
The worldwide events of October 1997 also heightened the attractiveness of
high-quality U.S. bonds. While most economists, along with Federal Reserve Board
Chairman Alan Greenspan, are not expecting a dramatic economic slowdown as a
result of Southeast Asian disruptions, all are anticipating the U.S. economy
will grow at a slower rate than would have been expected prior to these events.
In summary, the domestic and worldwide environment appears very favorable for
bond investors, who prefer slower growth to stronger growth, as we start the new
fiscal year.
Two Ways You May Seek to Invest for Success in Federated Stock and Bond Fund,
Inc.
Initial Investment:
If you had made an initial investment of $29,000 in the Class A Shares of
Federated Stock and Bond Fund, Inc. on 12/31/68, reinvested dividends and
capital gains, and didn't redeem any shares, your account would be worth
$350,399 on 10/31/97. You would have earned a 9.03%* average annual total return
for the 29-year investment lifespan.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/97, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 21.24%, 12.43%, and 10.07%, respectively. Class B
Shares' average annual one-year and since inception (8/30/96) total returns were
21.21% and 23.83%, respectively. Class C Shares' average annual one-year and
since inception (8/30/96) total returns were 26.25% and 27.60%, respectively.**
[Graphic representation "A1" omitted. See Appendix.]
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.50%
sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The total return stated takes into account the 5.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, and
the 1% contingent deferred sales charge for Class C Shares.
Federated Stock and Bond Fund, Inc.
One Step at a Time:
$1,000 invested each year for 29 years (reinvesting all dividends and capital
gains) grew to $201,615.
With this approach, the key is consistency.
-----------
If you had started investing $1,000 annually in the Class A Shares of Federated
Stock and Bond Fund, Inc. on 12/31/68, reinvested your dividends and capital
gains, and didn't redeem any shares, you would have invested only $29,000, but
your account would have reached a total value of $201,615* by 10/31/97. You
would have earned an average annual total return of 11.18%.
A practical investment plan helps you pursue long-term growth of capital and
income through a balanced portfolio of stocks and bonds. Through systematic
investing, you buy shares on a regular basis and reinvest all earnings. This
investment plan works for you even if you invest only $1,000 annually. You can
take it one step at a time. Put time, money and compounding to work.
[Graphic representation "A2" omitted. See Appendix.]
*This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets. However, by investing regularly over time
and buying shares at various prices, investors can purchase more shares at
lower prices. All accumulated shares have the ability to pay income to the
investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Federated Stock and Bond Fund, Inc.
Hypothetical Investor Profile: Investing for a College Education
David and Joan Rice are a fictional couple who, like many shareholders, are
searching for a way to make their money grow over time.
David and Joan are planning for the college education of their child. On October
31, 1987, they invested $5,000 in the Class A Shares of Federated Stock and Bond
Fund, Inc. Since then, David and Joan have made additional investments of $250
every month.
As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to $71,577.
This represents a 12.13% average annual total return.* For the Rices, a
dedicated program of monthly investment really paid off.
[Graphic representation "A3" omitted. See Appendix.]
* This hypothetical scenario is provided for illustrative purposes only and does
not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated Stock and Bond Fund, Inc.
(Class A Shares)
Growth of $25,000 Invested in Federated Stock & Bond Fund, Inc. (Class A Shares)
The graph below illustrates the hypothetical investment of $25,000* in Federated
Stock & Bond Fund, Inc. (Class A Shares) (the "Fund") from October 31, 1987 to
October 31, 1997 compared to Standard & PoorOs Index of 500 Common Stocks (S&P
500),+ the Lehman Brothers Government/Corporate Bond Index (LBGCBI) and the
Lipper Balanced Funds Average (LBFA).++
[Graphic representation "A4" omitted. See Appendix.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $25,000 in the fund after deducting
the maximum sales charge of 5.50% ($25,000investment minus $1,375 sales
charge = $23,625). The FundOs performance assumes the reinvestment of all
dividends and distributions. The S&P 500, LBGCBI, and LBFA have been adjusted
to reflect reinvestment of dividends on securities in the indices and
average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 and the LBGCBI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. The indices are unmanaged.
++ The LBFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
Federated Stock and Bond Fund, Inc.
(Class B Shares)
Growth of $25,000 Invested in Federated Stock & Bond Fund, Inc. (Class B Shares)
The graph below illustrates the hypothetical investment of $25,000* in Federated
Stock & Bond Fund, Inc. (Class B Shares) (the "Fund") from August 30, 1996
(start of performance) to October 31, 1997 compared to Standard & Poor's Index
of 500 Common Stocks (S&P 500),+ the Lehman Brothers Government/Corporate Bond
Index (LBGCBI) and the Lipper Balanced Funds Average (LBFA).++
[Graphic representation "A5" omitted. See Appendix.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $25,000 in the Fund. The ending value
of the Fund reflects a 4.75% contingent deferred sales charge on any
redemption less than 2 years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than 1 year from the
purchase date. The FundOs performance assumes the reinvestment of all
dividends and distributions. The S&P 500, LBGCBI and LBFA have been adjusted
to reflect reinvestment of dividends on securities in the indices and
average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 and the LBGCBI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. The indices are unmanaged.
++ The LBFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
Federated Stock and Bond Fund, Inc.
(Class C Shares)
Growth of $25,000 Invested in Federated Stock & Bond Fund, Inc. (Class C Shares)
The graph below illustrates the hypothetical investment of $25,000* in Federated
Stock & Bond Fund, Inc. (Class C Shares) (the "Fund") from August 30, 1996
(start of performance) to October 31, 1997 compared to Standard & Poor's Index
of 500 Common Stocks (S&P 500),+ the Lehman Brothers Government/Corporate Bond
Index (LBGCBI) and the Lipper Balanced Funds Average (LBFA).++
[Graphic representation "A6" omitted. See Appendix.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $25,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500,
LBGCBI and LBFA have been adjusted to reflect reinvestment of dividends on
securities in the indices and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 and the LBGCBI are not adjusted to reflect salesEcharges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. The indices are unmanaged.
++ The LBFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fundOs performance.
Federated Stock and Bond Fund, Inc.
Portfolio of Investments
October 31, 1997
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Common Stocks--50.4%
Basic Industry--2.0%
46,200 Archer-Daniels-Midland Co. $ 1,027,950
10,000 Dow Chemical Co. 907,500
61,500 LTV Corp. 749,531
34,500 Louisiana-Pacific Corp. 724,500
Total 3,409,481
Consumer Durables--1.2%
11,500 Eastman Kodak Co. 688,562
9,000 General Motors Corp. 577,687
33,000 Rubbermaid, Inc. 794,062
Total 2,060,311
Consumer Non-Durables--4.4%
7,500 CPC International, Inc. 742,500
44,500 PepsiCo, Inc. 1,638,156
14,500 Philip Morris Cos., Inc. 574,562
17,000 RJR Nabisco Holdings Corp. 538,687
43,000 Russell Corp. 1,263,125
20,500 Sara Lee Corp. 1,048,063
30,000 Unilever N.V., ADR 1,601,250
Total 7,406,343
Energy Minerals--6.0%
9,500 Atlantic Richfield Co. 781,969
16,000 Chevron Corp. 1,327,000
20,000 Exxon Corp. 1,228,750
33,500 Occidental Petroleum Corp. 933,813
14,000 Royal Dutch Petroleum Co., ADR 736,750
38,500 Sun Co., Inc. 1,542,406
22,000 Texaco, Inc. 1,252,625
39,000 USX Marathon Group $ 1,394,250
30,000 YPF Sociedad Anonima, ADR 960,000
Total 10,157,563
Finance--5.5%
19,000 Allmerica Financial Corp. 890,625
11,000 Allstate Corp. 912,312
23,500 Bear Stearns Cos., Inc. 932,656
26,500 (a)Boston Properties, Inc. 848,000
9,500 CIGNA Corp. 1,474,875
4,000 General RE Corp. 788,750
23,000 Marsh & McLennan Cos., Inc. 1,633,000
18,500 Morgan Stanley, Dean Witter, Discover & Co. 906,500
12,500 Travelers Group, Inc. 875,000
Total 9,261,718
Health Care--5.0%
17,000 Abbott Laboratories 1,042,312
57,500 (a)Beverly Enterprises, Inc. 858,906
20,500 Bristol-Myers Squibb Co. 1,798,875
9,700 Merk & Co., Inc. 865,725
29,200 (a)Perrigo Co. 448,950
36,000 Pharmacia & Upjohn, Inc. 1,143,000
15,500 Smithkline Beecham Corp., ADR 738,188
27,500 U.S. Surgical Corp. 740,781
15,500 United Healthcare Corp. 717,844
Total 8,354,581
Producer Manufacturing--4.0%
52,500 ITT Industries, Inc. $ 1,657,031
39,750 Ingersoll-Rand Co. 1,547,766
23,500 Johnson Controls, Inc. 1,054,562
33,000 (a)Lexmark Intl. Group, Class A 1,008,562
7,000 Loews Corp. 781,812
16,500 PACCAR, Inc. 743,531
Total 6,793,264
Retail Trade--3.7%
27,500 Dayton-Hudson Corp. 1,727,344
147,000 (a)K Mart Corp. 1,938,562
30,000 (a)Meyer (Fred), Inc. 856,875
49,500 Wal-Mart Stores, Inc. 1,738,688
Total 6,261,469
Services--4.7%
23,000 Block (H&R), Inc. 851,000
22,000 Browning-Ferris Industries, Inc. 715,000
6,500 News Corp., Ltd., ADR 123,906
87,000 News Corp., Ltd., ADR 1,544,250
41,000 Readers Digest Association, Inc., Class A 932,750
39,108 (a)TCI Ventures Group, Class A 901,928
4,450 (a)Tricon Global Restaurants, Inc. 134,891
23,000 (a)Viacom, Inc., Class A 687,125
14,500 (a)Viacom, Inc., Class B 438,625
63,500 Waste Management, Inc. 1,484,313
Total 7,813,788
Technology--5.8%
25,000 AMP, Inc. $ 1,125,000
21,500 (a)Cabletron Systems, Inc. 623,500
14,000 General Motors Corp., Class H 885,500
10,000 International Business Machines Corp. 980,625
10,000 Lucent Technologies, Inc. 824,375
7,000 Matsushita Electric Industrial Co., ADR 1,183,875
101,500 (a)Novell, Inc. 856,406
10,500 Raytheon Co. 569,625
34,000 (a)Seagate Technology, Inc. 922,250
31,000 (a)Storage Technology Corp. 1,819,313
Total 9,790,469
Transportation--1.6%
24,500 CNF Transportation, Inc. 1,093,312
23,345 KLM Royal Dutch Airlines, ADR 796,648
21,500 Ryder Systems, Inc. 752,500
Total 2,642,460
Utilities--6.4%
6,700 ABB AB, ADR 777,200
19,000 CMS Energy Corp. 693,500
11,500 (a)CalEnergy Co., Inc. 393,875
13,500 Coastal Corp. 811,687
12,500 Columbia Gas System, Inc. 903,125
13,000 GTE Corp. 551,688
37,500 Houston Industries, Inc. 815,625
44,200 MCI Communications Corp. 1,569,100
232 (a)NEXTEL Communications, Inc., Class A 6,090
42,500 P G & E Corp. 1,086,406
26,000 Public Service Enterprises Group, Inc. 674,375
<CAPTION>
Shares or
Principal
Amount Value
<C> <S> <C>
Common Stocks--continued
Utilities--continued
68,392 (a)Tele-Communications, Inc., Class A $ 1,568,742
23,000 U.S. West, Inc. 915,688
Total 10,767,101
Total Common Stocks (identified cost $66,066,834) 84,718,548
Preferred Stocks--0.6%
Finance--0.4%
1,500 Crown American Realty Trust, Sr. Pfd., Series A, $1.38 81,375
500 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock,
Series A, $86.25 548,975
Total 630,350
Producer Manufacturing--0.0%
50 Fairfield Manufacturing Co., Inc., Exchangeable Pfd. Stock 52,750
Services--0.2%
782 American Radio Systems Corp., PIK Pfd., 11.375% 90,321
500 Capstar Broadcasting Partners, Inc., Sr. Pfd., $12.00 55,125
1,000 SFX Broadcasting, Inc., Exchangeable Pfd. Stock, Series E 116,500
500 Sinclair Broadcast Group, Inc., Pfd., $11.63 55,125
Total 317,071
Technology--0.0%
50 (b)Echostar Communications Corp., Sr. Red. Pfd. Stk., $12.13 51,749
Total Preferred Stocks (identified cost $969,324) 1,051,920
Corporate Bonds--40.9%
Automobile--0.1%
$ 100,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 113,750
100,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 109,500
Total 223,250
Banking--0.2%
$ 250,000 First Nationwide Holdings, Inc., Sr. Sub. Note, 9.125%, 1/15/2003 $ 258,750
Basic Industry--2.5%
1,000,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 1,064,230
150,000 Buckeye Cellulose Corp., Sr. Sub. Note, 8.50%, 12/15/2005 152,250
1,000,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 1,043,097
150,000 Polymer Group, Inc., Sr. Sub. Note, 9.00%, 7/1/2007 150,750
250,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 260,645
500,000 Southdown, Inc., Sr. Sub. Note, 10.00%, 3/1/2006 556,250
100,000 Stone Container Corp., Sr. Note, 12.58%, 8/1/2016 109,500
500,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 667,685
250,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 262,500
Total 4,266,907
Broadcast Radio & TV--0.6%
100,000 (b)ACME Television, LLC, Sr. Disc. Note, 0/10.875%, 9/30/2004 74,250
250,000 (b)Fox/Liberty Networks, LLC, Sr. Disc. Note, 0/9.75%, 8/15/2007 158,750
100,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 107,000
100,000 Pegasus Media, Note, 12.50%, 7/1/2005 114,500
500,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 523,135
Total 977,635
Building & Development--0.1%
50,000 American Builders & Contractors Supply Co., Inc., Sr. Sub.
Note, 10.625%, 5/15/2007 52,250
100,000 Building Materials Corp. of America, Sr. Note, 8.625%, 12/15/2006 102,000
Total 154,250
Business Equipment & Services--0.0%
50,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 56,625
Cable Television--1.2%
$ 200,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 $ 209,000
75,000 Charter Communications Holdings, Inc., Sr. Disc. Note, 0/14.00%,
3/15/2007 55,875
50,000 Charter Communications Southeast, L.P., Sr. Note, 11.25%,
3/15/2006 54,750
150,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 117,750
125,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%,
2/15/2007 81,563
75,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/11.75%,
12/15/2005 56,250
125,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%,
3/15/2004 100,625
50,000 (b)FrontierVision Holdings, L.P., 0/11.875%, 9/15/2007 34,250
100,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 100,000
1,000,000 TKR Cable, Inc., 10.50%, 10/30/2007 1,117,570
300,000 TeleWest plc, Sr. Disc. Deb., 0/11.00%, 10/1/2007 226,500
100,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 71,000
Total 2,225,133
Chemicals & Plastics--1.1%
100,000 ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 104,250
1,250,000 (b)Reliance Industries Ltd., Bond, 8.25%, 1/15/2027 1,173,725
100,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%,
8/15/2008 72,500
500,000 SUSA Partnership, 8.20%, 6/1/2017 543,000
Total 1,893,475
Clothing & Textiles--0.1%
50,000 Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note, 10.00%,
1/15/2007 51,875
$ 50,000 (b)Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 $ 51,750
500,000 GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 153,000
50,000 (b)Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 53,750
Total 310,375
Consumer Durables--0.3%
500,000 Arvin Industries, Inc., 9.50%, 2/1/2027 549,150
50,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 52,875
50,000 Syratech Corp., Sr. Note, 11.00%, 4/15/2007 48,500
Total 650,525
Consumer Non-Durables--1.7%
100,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 105,500
100,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 107,250
100,000 (b)NBTY, Inc., Sr. Sub. Note, 8.625%, 9/15/2007 98,500
1,281,000 Philip Morris Cos., Inc., Deb., 6.00%, 7/15/2001 1,257,289
1,250,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 1,293,163
Total 2,861,702
Consumer Products--0.2%
75,000 ICON Fitness Corp., Sr. Disc. Note, 0/14.00%, 11/15/2006 43,875
100,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 100,500
50,000 Renaissance Cosmetics, Inc., Sr. Note, 11.75%, 2/15/2004 49,625
50,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%,
2/15/2003 53,000
50,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 51,750
Total 298,750
Container & Glass Products--0.0%
50,000 Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 52,875
Ecological Services & Equipment--0.1%
$ 100,000 Allied Waste North America, Inc., Company Guarantee, 10.25%,
12/1/2006 $ 109,001
Education--0.5%
750,000 Boston University, 7.625%, 7/15/2097 799,112
Electronics--0.1%
125,000 Fairchild Semiconductor Corp., Sr. Sub., 10.125%, 3/15/2007 132,500
Electronic Technology--0.3%
500,000 (b)Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 429,470
Energy Minerals--0.7%
100,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%, 11/1/2006 105,500
750,000 Sun Co., Inc., 9.00%, 11/1/2024 910,725
100,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 109,500
Total 1,125,725
Finance--10.0%
500,000 African Development Bank, Note, 6.875%, 10/15/2015 511,165
1,250,000 American General Corp., S.F. Deb., 9.625%, 2/1/2018 1,319,188
1,000,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 1,069,710
2,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 1,994,000
1,000,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 1,206,060
250,000 Continental Corp., Note, 8.25%, 4/15/1999 258,088
1,250,000 Delphi Financial Group, Inc., 9.31%, 3/25/2027 1,373,850
1,000,000 (b)Equitable Life, Note, 7.70%, 12/1/2015 1,060,110
750,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005 773,745
1,000,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 1,155,200
500,000 (b)Hutchison Whampoa Finance, Company Guarantee, 7.50%,
8/1/2027 450,865
1,000,000 Morgan Stanley Group, Inc., Deb., 9.25%, 3/1/1998 1,012,230
$1,000,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 $ 1,005,110
1,000,000 Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 1,047,350
650,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 673,953
1,000,000 Swedish Export Credit, 9.875%, 3/15/2038 1,063,070
750,000 USF&G Corp., Company Guarantee, 8.47%, 1/10/2027 779,013
Total 16,752,707
Food & Drug Retailer--0.3%
100,000 DiGiorgio Corp., Sr. Note, 10.00%, 6/15/2007 100,250
100,000 (b)Jitney-Jungle Stores of America, Inc., Sr.
Sub. Note, 10.375%, 9/15/2007 104,500
200,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 221,000
150,000 (b)Stater Brothers Holdings, Inc., Sr. Sub. Note, 9.00%, 7/1/2004 153,375
Total 579,125
Food Products--0.2%
150,000 (b)AmeriServe Food Distribution, Inc., Sr. Sub. Note, 10.125%,
7/15/2007 156,750
50,000 Aurora Foods, Inc., Sr. Sub. Note, 9.875%, 2/15/2007 51,750
150,000 International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/1/2006 159,750
Total 368,250
Forest Products--0.8%
1,000,000 Donohue Forest Products, 7.625%, 5/15/2007 1,062,160
200,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 212,000
Total 1,274,160
Health Care--1.4%
1,000,000 Columbia/HCA Healthcare Corp., Note, 9.00%, 12/15/2014 1,091,030
250,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 278,750
150,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 10/1/2006 154,125
$ 500,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 $ 507,500
250,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 271,875
Total 2,303,280
Household Products--0.3%
500,000 (b)Life Re Capital Trust I, 8.72%, 6/15/2027 525,490
Industrial Products & Equipment--0.4%
100,000 Continental Global Group, Inc., Sr. Note, 11.00%, 4/1/2007 106,250
150,000 Euramax International Plc, Sr. Sub. Note, 11.25%, 10/1/2006 162,750
100,000 Hawk Corp., Sr. Note, 10.25%, 12/1/2003 105,000
100,000 International Knife & Saw, Inc., Sr. Sub. Note, 11.375%, 11/15/2006 108,500
75,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 4/15/2007 82,125
50,000 Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 53,500
50,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 52,000
Total 670,125
Leisure & Entertainment--0.3%
250,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 188,750
50,000 (b)Livent, Inc., Sr. Note, 9.375%, 10/15/2004 50,125
200,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 212,000
Total 450,875
Machinery & Equipment--0.2%
100,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 105,250
50,000 Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 52,750
100,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 113,250
Total 271,250
Metals & Mining--0.1%
100,000 (b)Anker Coal Group, Inc., Sr. Note, 9.75%, 10/1/2007 101,250
Non-Energy Minerals--0.8%
$ 500,000 Repap Wisconsin, Inc., 1st Priority Sr. Secd. Note, 9.25%, 2/1/2002 $ 528,750
750,000 Repap Wisconsin, Inc., 2nd Priority Sr. Secd. Note, 9.875%, 5/1/2006 811,875
Total 1,340,625
Oil & Gas--1.3%
100,000 Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 110,000
600,000 Clark Refining & Marketing Inc., Sr. Note, 10.50%, 12/1/2001 619,500
1,250,000 Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 1,286,525
50,000 Pacalta Resources Ltd., Sr. Note, 10.75%, 6/15/2004 50,250
50,000 (b)XCL, Ltd., Unit, 13.50%, 5/1/2004 65,250
Total 2,131,525
Printing & Publishing--1.0%
100,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note, 0/13.25%,
7/1/2006 93,000
200,000 (b)Garden State Newspapers, Inc., Sr. Sub. Note, 8.75%, 10/1/2009 199,000
250,000 K-III Communications Corp., Company Guarantee, Series B, 8.50%,
2/1/2006 255,000
1,000,000 News America Holdings, Inc., 10.125%, 10/15/2012 1,165,030
Total 1,712,030
Producer Manufacturing--1.3%
1,000,000 Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 1,056,030
150,000 Falcon Building Products, Inc., Sr. Sub. Disc. Note, 0/10.50%,
6/15/2007 96,750
1,000,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 10/1/1999 1,048,750
50,000 (b)Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 53,750
Total 2,255,280
Real Estate--1.1%
$1,500,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 $ 1,738,650
67,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 76,631
Total 1,815,281
Retail Trade--2.5%
250,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 265,625
800,000 Harcourt General, Inc., Sr. Deb., 7.20%, 8/1/2027 813,016
100,000 (b)Leslie's Poolmart, Inc., Sr. Note, 10.375%, 7/15/2004 104,000
1,000,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 1,103,620
1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 1,065,650
750,000 Shopko Stores, Inc., 9.25%, 3/15/2022 894,090
Total 4,246,001
Services--4.3%
75,000 (b)Allied Waste Industries, Inc., Sr. Disc. Note, 0/11.30%, 6/1/2007 51,375
750,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 818,438
50,000 (b)Chancellor Media Corp., Sr. Sub. Note, 8.75%, 6/15/2007 50,375
100,000 Chancellor Media Corp., Sr. Sub. Note, 9.375%, 10/1/2004 103,500
1,000,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 1,184,900
50,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 51,250
100,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 106,000
50,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
2/1/2006 51,375
100,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
3/15/2007 103,500
1,300,000 Loewen Group Int'l, Sr. Note, 8.25%, 4/15/2003 1,355,640
150,000 Outdoor Systems, Inc., Sr. Sub. Note, 8.875%,
6/15/2007 155,250
50,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 53,125
75,000 (b)RCN Corp., Sr. Disc. Note, 0/11.125%, 10/15/2007 43,500
$ 150,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 $ 163,500
50,000 Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 50,000
150,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 9/30/2005 157,875
1,000,000 USA Waste Services, Inc., Sr. Note, 7.125%, 10/1/2007 1,038,240
250,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%, 3/15/1999 259,953
300,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 297,000
1,000,000 Waste Management, Inc., Deb., 8.75%, 5/1/2018 1,134,880
Total 7,229,676
Sovereign Government--0.7%
1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,167,310
Surface Transportation--0.4%
50,000 (b)Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007 51,250
150,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 159,000
100,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 110,250
100,000 Statia Terminals International N.V., 1st Mtg. Note, 11.75%, 11/15/2003 107,000
100,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 109,250
100,000 Stena AB, Sr. Note, 8.75%, 6/15/2007 100,750
Total 637,500
Steel--0.1%
100,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 111,500
Technology--0.2%
75,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 81,281
50,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 52,750
100,000 DecisionOne Corp., Sr. Sub. Note, 9.75%, 8/1/2007 103,500
$ 50,000 Tracor, Inc., Sr. Sub. Note, 8.50%, 3/1/2007 $ 50,500
Total 288,031
Telecommunications & Cellular--0.6%
50,000 (b)American Communications Services, Inc., Sr. Note, 13.75%, 7/15/2007 57,750
175,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 142,625
50,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/11.875%, 11/1/2006 39,250
50,000 (b)Hermes Europe Railtel B.V., Sr. Note, 11.50%, 8/15/2007 54,750
100,000 McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 69,500
50,000 (b)McLeod, Inc., Sr. Note, 9.25%, 7/15/2007 51,250
50,000 (b)MetroNet Communications, Unit, 12.00%, 8/15/2007 55,875
100,000 Millicom International Cellular S. A., Sr. Disc. Note, 0/13.50%,
6/1/2006 75,500
50,000 (b)Qwest Communications International, Inc., Sr. Disc. Note,
0/9.47%, 10/15/2007 32,250
100,000 Qwest Communications International, Inc., Sr. Note, 10.875%, 4/1/2007 112,500
50,000 (b)Source Media, Inc., Sr. Secd. Note, 12.00%, 11/1/2004 50,250
175,000 Teleport Communications Group, Inc., Sr. Disc. Note, 0/11.125%,
7/1/2007 138,250
75,000 (b)Telesystem International Wireless, Inc., Sr. Disc. Note, 0/10.50%,
11/1/2007 40,125
100,000 (b)Telesystem International Wireless, Inc., Sr. Disc. Note, 0/13.25%,
6/30/2007 60,500
Total 980,375
Transportation--0.6%
1,000,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B, 6.90%,
7/2/2019 1,016,380
Utilities--2.2%
$ 250,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 $ 272,188
100,000 Cellular Communications International, Inc., Sr. Disc. Note, 13.25%
accrual, 8/15/2000 78,250
1,000,000 Comcast Corp., Note, 8.50%, 5/1/2027 1,145,920
200,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 213,000
100,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 113,480
1,000,000 Enersis S.A., Note, 7.40%, 12/1/2016 974,890
50,000 (b)HighwayMaster Communications, Inc., Unit, 13.75%, 9/15/2005 49,750
75,000 Intermedia Communications of Florida, Inc., Sr. Disc.
Note, 0/11.25%, 7/15/2007 49,500
150,000 Intermedia Communications of Florida, Inc., Sr. Disc.
Note, 0/12.50%, 5/15/2006 113,250
150,000 International Cabletel, Inc., Sr. Defd. Cpn. Note,
0/11.50%, 2/1/2006 111,750
150,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 129,000
50,000 NEXTLINK Communications, Inc., Sr. Note, 9.625%, 10/1/2007 50,250
150,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 153,750
250,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 256,250
Total 3,711,228
Total Corporate Bonds (identified cost $66,305,547) 68,765,314
Government Agencies--5.9%
Government Agency Securities--0.8%
500,000 Federal Home Loan Bank System, Deb., 4.55%, 1/15/1998 498,320
1,000,000 Federal National Mortgage Association, 0/8.62%, 3/9/2022 982,380
Total 1,480,700
Mortgage-Backed Securities--0.3%
420,361 Federal National Mortgage Association, 9.00%, 11/1/2021 452,413
$ 30,078 Federal National Mortgage Association, 7.50%, 9/1/2023 $ 30,896
Total 483,309
Treasury Securities--4.8%
2,100,000 United States Treasury Bond, 6.375%, 8/15/2027 2,164,890
2,775,000 United States Treasury Note, 6.00%, 6/30/1999 2,792,177
3,000,000 United States Treasury Note, 6.25%, 6/30/2002 3,059,490
Total 8,016,557
Total Government Agencies (identified cost $9,787,789) 9,980,566
Municipal Securities--1.3%
1,000,000 Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 1,132,740
1,000,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds
(FSA LOC), 11/1/2018 1,061,590
Total Municipal Securities (identified cost $2,069,158) 2,194,330
(c)Repurchase Agreements--0.8%
1,315,000 BT Securities Corp., 5.71%, dated 10/31/1997, due 11/3/1997
(at amortized cost) 1,315,000
Total Investments (identified cost $146,513,652)(d) $168,025,678
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $5,799,659 which represents 3.4% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $146,667,612.
The net unrealized appreciation of investments on a federal tax basis
amounts to $21,358,066 which is comprised of $23,166,637 appreciation and
$1,808,571 depreciation at October 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($168,515,393) at October 31, 1997.
The following acronyms are used throughout this portfolio:
ADR --American Depository Receipt
FSA --Financial Security Assurance
LOC --Letter of Credit
PIK --Payment in Kind
PLC --Public Limited Company
REIT --Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements)
Federated Stock and Bond Fund, Inc.
Statement of Assets and Liabilities
October 31, 1997
<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified cost $145,513,652 and tax cost $146,667,612) $168,025,678
Income receivable 1,814,981
Receivable for investments sold 1,111,970
Receivable for shares sold 545,479
Total assets 171,498,108
Liabilities:
Payable for investments purchased $ 1,618,019
Payable for shares redeemed 139,930
Payable to Bank 1,160,579
Payable for taxes withheld 463
Accrued expenses 63,724
Total liabilities 2,982,715
Net Assets for 8,238,118 shares outstanding $168,515,393
Net Assets Consist of:
Paid in capital $124,362,459
Net unrealized appreciation of investments 21,512,026
Accumulated net realized gain on investments 22,067,380
Undistributed net investment income 573,528
Total Net Assets $168,515,393
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($162,779,794/7,957,520 shares outstanding) $20.46
Offering Price Per Share (100/94.50 of $20.46)* $21.65
Redemption Proceeds Per Share $20.46
Class B Shares:
Net Asset Value Per Share ($4,622,062/226,059 shares outstanding) $20.45
Offering Price Per Share $20.45
Redemption Proceeds Per Share (94.50/100 of $20.45)** $19.33
Class C Shares:
Net Asset Value Per Share ($1,113,537/54,539 shares outstanding) $20.42
Offering Price Per Share $20.42
Redemption Proceeds Per Share (99.00/100 of $20.42)** $20.22
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus).
(See Notes which are an integral part of the Financial Statements)
Federated Stock and Bond Fund, Inc.
Statement of Operations
Year Ended October 31, 1997
<TABLE>
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes withheld of $463) $ 1,723,002
Interest 4,849,836
Total income 6,572,838
Expenses:
Investment advisory fee $ 1,138,430
Administrative personnel and services fee 185,000
Custodian fees 18,224
Transfer and dividend disbursing agent fees and expenses 154,402
Directors'/Trustees' fees 5,081
Auditing fees 16,194
Legal fees 3,715
Portfolio accounting fees 79,631
Distribution services fee--Class B Shares 14,791
Distribution services fee--Class C Shares 3,273
Shareholder services fee--Class A Shares 378,265
Shareholder services fee--Class B Shares 4,931
Shareholder services fee--Class C Shares 1,091
Share registration costs 39,121
Printing and postage 63,317
Insurance premiums 4,706
Taxes 6,488
Miscellaneous 16,319
Total expenses 2,132,979
Waiver of investment advisory fee (248,204)
Net expenses 1,884,775
Net investment income 4,688,063
Realized and Unrealized Gain (Loss) on investments:
Net realized gain on investments 22,063,804
Net change in unrealized appreciation of investments 4,663,075
Net realized and unrealized gain on investments 26,726,879
Change in net assets resulting from operations $31,414,942
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Stock and Bond Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, October 31,
1997 1996
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 4,688,063 $ 4,698,067
Net realized gain (loss) on investments ($22,149,236 and
$13,291,068, respectively, as computed for federal tax purposes) 22,063,804 13,222,540
Net change in unrealized appreciation (depreciation) 4,663,076 246,245
Change in net assets resulting from operations 31,414,943 18,166,852
Net equalization credits (debits)-- 289,759 (105,828)
Distributions to Shareholders--
Distributions from net investment income
Class A Shares (4,348,933) (4,746,649)
Class B Shares (38,375) --
Class C Shares (9,286) --
Distributions from net realized gains
Class A Shares (13,236,606) (9,454,029)
Class B Shares (45,261) --
Class C Shares (10,132) --
Change in net assets resulting from distributions to shareholders (17,688,593) (14,200,678)
Share Transactions
Proceeds from sale of shares 60,106,988 35,914,004
Net asset value of shares issued to shareholders in payment of
distributions declared 14,484,711 11,037,554
Cost of shares redeemed (50,881,341) (54,691,774)
Change in net assets resulting from share transactions 23,710,358 (7,740,216)
Change in net assets 37,726,467 (3,879,870)
Net Assets:
Beginning of period 130,788,926 134,668,796
End of period (including undistributed net investment
income of $573,526 and $282,059, respectively) $168,515,393 $130,788,926
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Stock and Bond Fund, Inc.
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.96 $18.38 $16.25 $16.87 $15.91
Income from investment operations
Net investment income 0.63 0.61 0.63 0.51 0.55
Net realized and unrealized
gain (loss) on investments 3.34 1.81 2.21 (0.59) 1.58
Total from investment operations 3.97 2.42 2.84 (0.08) 2.13
Less distributions
Distributions from net investment income (0.56) (0.63) (0.62) (0.54) (0.56)
Distributions from net realized
gain on investments (1.91) (1.21) (0.09) -- (0.61)
Total distributions (2.47) (1.84) (0.71) (0.54) (1.17)
Net asset value, end of period $20.46 $18.96 $18.38 $16.25 $16.87
Total return(a) 23.02% 14.57% 17.99% (0.48%) 14.10%
Ratios to average net assets
Expenses 1.21% 1.10% 1.07% 1.06% 1.04%
Net investment income 3.06% 3.44% 3.71% 3.23% 3.49%
Expense waiver/reimbursement(b) 0.16% 0.27% 0.31% 0.07% 0.20%
Supplemental data
Net assets, end of period (000 omitted) $162,780 $130,694 $134,669 $125,382 $124,583
Average commission rate paid(c) $0.0496 $0.0307 -- -- --
Portfolio turnover 87% 74% 68% 45% 51%
</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.
(See Notes which are an integral part of the Financial Statements)
Federated Stock and Bond Fund, Inc.
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 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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
Federated Stock and Bond Fund, Inc.
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 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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
Federated Stock and Bond Fund, Inc.
Notes to Financial Statements
October 31, 1997
1. Organization
Federated Stock and Bond Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers three classes of shares:
Class A Shares, Class B Shares, and Class C Shares. The investment objectives of
the Fund are to provide relative safety of capital with the possibility of
long-term growth of capital and income.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities, listed corporate
bonds, (other fixed income and asset-backed securities), and unlisted
securities and private placement securities are generally valued at the mean
of the latest bid and asked price as furnished by an independent pricing
service. Listed equity securities are valued at the last sale price reported
on a national securities exchange. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
Repurchase Agreements--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase price
on the sale of collateral securities.
Investment Income, Expenses and Distributions-- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
accumulated equalization. The following reclassification was made to the
financial statements.
Undistributed Net
Paid-In Capital Investment Income
$289,759 ($289,759)
Net investment income, net realized gains, and net assets were not affected
by this reclass.
Federal Taxes--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Equalization--The Fund follows the accounting practice known as equalization.
With equalization, a portion of the proceeds from sales and costs of
redemptions of fund shares (equivalent, on a per share basis, to the amount
of undistributed net investment income on the date of the transaction) is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of fund shares.
When-Issued and Delayed Delivery Transactions--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
Restricted Securities--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another
registered offering of the securities. Many restricted securities may be
resold in the secondary market in transactions exempt from registration. Such
restricted securities may be determined to be liquid under criteria
established by the Board of Trustees. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at October 31, 1997
is as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
<S> <C> <C>
ACME Television 9/24/97 $74,243
Allied Holdings, Inc. 9/19/97 $50,000
Allied Waste Industries, Inc. 9/23/97 $51,858
American Communications Services, Inc. 7/18/97 $50,000
AmeriServe Food Distribution, Inc. 7/9/97 - 9/17/97 $153,714
Anker Coal Group, Inc. 9/22/97 $100,000
Chancellor Media Corp. 7/18/97 $49,458
Dyersburg Corp. 9/3/97 - 11/12/97 $102,366
Equitable Life 10/17/96 $993,718
Fox/Liberty Networks 8/15/97 - 9/18/97 $160,222
Frontier Vision Holdings 9/16/97 - 11/10/97 $67,630
Garden State Newspapers, Inc. 9/26/97 $198,838
Glenoit Corp 7/14/97 $52,809
Hermes Europe Railtel 8/14/97 $51,090
HighwayMaster Communications, Inc. 9/18/97 $50,741
Hutchison Whampoa Finance 8/5/97 $496,634
Jitney-Jungle Stores of America, Inc. 9/15/97 - 10/24/97 $102,984
Johnstown America Industries, Inc. 8/6/97 $52,234
Leslie's Poolmart, Inc. 7/8/97 $103,684
Life Re Capital Trust I 6/6/97 $500,000
Livent, Inc. 10/10/97 $50,247
McLeod, Inc. 7/15/97 $50,000
MetroNet Communications 7/18/97 $51,606
NBTY, Inc. 9/17 - 24/97 $99,406
Qwest Communications International, Inc. 10/9/97 $31,775
RCN Corp. 10/10/97 $44,127
Reliance Industries Ltd. 1/10/97 $1,250,000
Source Media, Inc. 10/24/97 $50,000
Stater Brothers Holdings, Inc. 9/30/97 $154,249
Telesystem International Wireless, Inc. 10/22/97 $45,221
Telesystem International Wireless, Inc. 6/24/97 - 10/9/97 $61,247
Tenaga Nasional Berhad 3/3/97 $474,926
XCL, Ltd. 3/13/97 $50,000
</TABLE>
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
Other--Investment transactions are accounted for on the trade date.
3. Capital Stock
At October 31, 1997, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
Number
of Par Value
Capital Stock
Class Name Authorized
<S> <C>
Class A Shares 750,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996
Class A Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 2,977,985 $ 54,558,231 2,010,466 $ 35,819,180
Shares issued to shareholders in
payment of distributions declared 809,532 14,391,854 635,946 11,037,554
Shares redeemed (2,721,403) (50,579,473) (3,082,912) (54,691,774)
Net change resulting from
Class A Share transactions 1,066,114 $ 18,370,612 (436,500) $ (7,835,040)
</TABLE>
<TABLE>
<CAPTION>
Year Ended Period Ended
October 31,1997 October 31, 1996(a)
Class B Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 229,204 $ 4,445,960 4,930 $ 93,028
Shares issued to shareholders in
payment of distributions declared 4,184 76,944 -- --
Shares redeemed (12,259) (243,127) -- --
Net change resulting from
Class B Share transactions 221,129 $ 4,279,777 4,930 $ 93,028
</TABLE>
<TABLE>
<CAPTION>
Year Ended Period Ended
October 31,1997 October 31, 1996(a)
Class C Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 56,460 $ 1,102,797 98 $ 1,796
Shares issued to shareholders in
payment of distributions declared 870 15,913
Shares redeemed (2,889) (58,741)
Net change resulting from
Class C Share transactions 54,441 $ 1,059,969 98 $ 1,796
Net change resulting from
share transactions 1,341,684 $23,710,358 (431,472) $(7,740,216)
</TABLE>
(a) For the period from August 30, 1996 (date of initial public offering) to
October 31, 1996.
4. Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to (a) a maximum of 0.55% of the average daily net assets of the Fund,
and (b) 4.5% of the gross income of the Fund, excluding capital gains or
losses.
The Adviser may voluntarily choose to waive any portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
Administrative Fee--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Distribution Services Fee--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the plan,
the Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses of the average daily net assets of each class
as follows:
Percentage of
Average Daily Net
Share Class Name Assets of Class
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
For the year ended October 31, 1997, Class A did not incur a distribution
service fee.
Shareholder Services Fee--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to
0.25% of average daily net assets of the Fund shares for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts.
Transfer and Dividend Disbursing Agent Fees and Expenses--FServ serves as
transfer and dividend disbursing agent for the Fund. The fee paid to is based
on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
General--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
5. Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1997, were as follows:
Purchases $142,304,893
Sales $129,808,628
Independent Auditors' Report
To the Board of Trustees and Shareholders of FEDERATED STOCK AND BOND FUND,
INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Stock and Bond Fund, Inc. as of
October 31, 1997, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended October 31, 1997 and
1996, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
October 31, 1997 by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Stock and
Bond Fund, Inc. as of October 31, 1997, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 12, 1997
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
Officers
John F. Donahue
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
J. Crilley Kelly
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO] FEDERATED INVESTORS
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313911109
Cusip 313911208
Cusip 313911307
G01454-D1 (12/97)
Appendix
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x"-axis reflects computation periods from 12/31/68
to 10/31/97. The "y"-axis is measured in increments of $60,000 ranging from $0
to $360,000 and indicates that the ending value of a hypothetical initial
investment of $29,000 (2,043 Shares) on 12/31/68 in the fund's Class A Shares
("Shares"), assuming the reinvestment of dividends and capital gains, would have
grown to $350,399 (17,126 Shares) on 10/31/97.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x"-axis reflects computation periods from 12/31/68
to 10/31/97. The "y"-axis is measured in increments of $30,000 ranging from $0
to $210,000 and indicates that the ending value of hypothetical yearly
investments of $1,000 (70 Shares) in the fund's Class A Shares ("Shares"),
assuming the reinvestment of dividends and capital gains, would have grown to
$201,615 (9,854 Shares) on 10/31/97.
A3. The graphic representation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x"-axis reflects computation periods from 10/31/87
to 10/31/97. The "y"-axis is measured in increments of $15,000 ranging from $0
to $75,000 and indicates that the ending value of a hypothetical initial
investment of $5,000 and subsequent monthly investments of $250 over 10 years in
the fund's Class A Shares ("Shares") would have grown to $71,577 (3,498 Shares)
on 10/31/97.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Stock and Bond Fund, Inc., based on a 5.50% sales charge are
represented by a solid line. The Standard & Poor's Index of 500 Common Stocks
("S&P 500") is represented by a dotted line. The Lehman Brothers
Government/Corporate Bond Index ("LBGCBI") is represented by a dashed line and
the Lipper Balanced Funds Average ("LBFA") is represented by a dash-dotted line.
The line graph is a visual representation of a comparison of change in value of
a $25,000 hypothetical investment in the Class A Shares of the fund, the S&P
500, the LBGCBI and the LBFA. The "x"-axis reflects computation periods from
10/31/87 to 10/31/97. The "y"-axis is measured in increments of $12,000 ranging
from $24,000 to $132,000 and reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the fund's
Class A Shares, based on a 5.50% sales charge, as compared to the S&P 500, the
LBGCBI and the LBFA. The ending values were $72,120, $121,608, $60,215, and
$80,777, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares Average Annual Total Returns
for the one-year, five-year and ten-year periods ended 10/31/97, and from the
share class' start of performance (12/31/68) to 10/31/97. The total returns were
16.27%, 12.28%, 10.55% and 8.81%, respectively.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Stock and Bond Fund, Inc., based on a 4.75% contingent
deferred sales charge on any redemption less than 2 years from the purchase
date, are represented by a solid line. The Standard & Poor's Index of 500 Common
Stocks ("S&P 500") is represented by a dotted line. The Lehman Brothers
Government/Corporate Bond Index ("LBGCBI") is represented by a dashed line and
the Lipper Balanced Funds Average ("LBFA") is represented by a dash-dotted line.
The line graph is a visual representation of a comparison of change in value of
a $25,000 hypothetical investment in the Class B Shares of the fund, the S&P
500, the LBGCBI and the LBFA. The "x"-axis reflects computation periods from
8/30/96 (start of performance) to 10/31/97. The "y"-axis is measured in
increments of $2,000 ranging from $24,000 to $36,000 and reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class B Shares, based on a 4.75% contingent deferred
sales charge on any redemption less than 2 years from the purchase date, as
compared to the S&P 500, the LBGCBI and the LBFA. The ending values were
$31,031, $35,848, $28,331, and $31,554, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Class B Shares Average
Annual Total Returns for the one-year period ended 10/31/97 and from the share
class' start of performance (8/30/96) to 10/31/97. The total returns were 15.99%
and 20.27%, respectively.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Stock and Bond Fund, Inc., based on a 1.00% contingent
deferred sales charge on any redemption less than 1 year from the purchase date,
are represented by a solid line. The Standard & Poor's Index of 500 Common
Stocks ("S&P 500") is represented by a dotted line. The Lehman Brothers
Government/Corporate Bond Index ("LBGCBI") is represented by a dashed line and
the Lipper Balanced Funds Average ("LBFA") is represented by a dash-dotted line.
The line graph is a visual representation of a comparison of change in value of
a $25,000 hypothetical investment in the Class C Shares of the fund, the S&P
500, the LBGCBI and the LBFA. The "x"-axis reflects computation periods from
8/30/96 (start of performance) to 10/31/97. The "y"-axis is measured in
increments of $2,000 ranging from $24,000 to $36,000 and reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class C Shares, based on a 1.00% contingent deferred
sales charge on any redemption less than 1 year from the purchase date, as
compared to the S&P 500, the LBGCBI and the LBFA. The ending values were
$32,353, $35,848, $28,331, and $31,554, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Class C Shares Average
Annual Total Returns for the one-year period ended 10/31/97 and from the share
class' start of performance (8/30/96) to 10/31/97. The total returns were 20.95%
and 23.69%, respectively.
