Federated Stock and Bond Fund, Inc.
SEMI-ANNUAL REPORT
APRIL 30, 1998
INCORPORATED 1934
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report for Federated Stock and Bond
Fund, Inc. The fund had its origin in the Income Foundation Fund, which was
created in the mid-1930s. This report covers the first half of the fund's fiscal
year, which is the six-month period from November 1, 1997 through April 30,
1998. It begins with a discussion with Joseph Balestrino, Senior Vice President,
Federated Management, who co-manages the fund with portfolio manager, Michael P.
Donnelly, Vice President, Federated Management. Following their discussion,
detailing both the stock and bond markets and the fund's strategies, are three
additional items of shareholder interest. First is a series of graphs showing
the fund's long-term investment performance. Second is a complete listing of the
fund's holdings. Third is the publication of the fund's financial statements.
Federated Stock and Bond Fund, Inc. is managed to help you to participate in
both the stock and bond markets. This diversification between stocks and bonds
helps to provide a degree of protection of your capital in any economic
condition as you pursue growth of capital and income. The fund's balanced
portfolio of more than 175 stocks and bonds reflected an emphasis on income and
growth. At the end of the reporting period, the fund's assets of $204 million
were allocated nearly equally among stocks and bonds.
During the reporting period, good income distributions and a modest increase in
share price helped the fund outperform the average balanced fund, as tracked by
the Lipper Balanced Funds Average.* For the six-month reporting period ended
April 30, 1998, individual share class total return performance, including
capital appreciation and income dividends follows.**
TOTAL CAPITAL NET ASSET
RETURN INCOME GAINS VALUE CHANGE
Class A Shares 11.94% $0.35 $2.65 $20.46 to $19.64 = (0.04%)
Class B Shares 11.54% $0.30 $2.65 $20.45 to $19.61 = (0.04%)
Class C Shares 11.50% $0.29 $2.65 $20.42 to $19.58 = (0.04%)
* Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
** Performance quoted is based on net asset value, 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. Total returns for the period,
based on offering price for Class A, B, and C Shares were 5.79%, 5.40%, and
10.36%, respectively.
Thank you for participating in the growth and income potential of Federated
Stock and Bond Fund, Inc. Remember, it is easy to increase your participation in
the performance potential of this diversified stock and bond portfolio by
reinvesting your quarterly dividends automatically in additional fund shares.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[Graphic]
John F. Donahue
President
June 15, 1998
INVESTMENT REVIEW
[Graphic]
WHAT ARE YOUR COMMENTS ON THE STOCK AND BOND MARKETS DURING THE FIRST HALF OF
THE FUND'S FISCAL YEAR?
For stocks, the beginning of the reporting period was marked by investor
uncertainty over the Asian economies, the price of oil, interest rates, and
Middle-East tensions. Our emphasis on large, high-quality U.S. companies with
reasonable valuations fared well in this environment as investors embarked on a
"flight to quality."
In 1998, we have seen extreme optimism in the market as equity investors
received an average year's return in the first quarter of 1998 alone. Some of
this enthusiasm was due to the belief that Asia will not have as dramatic an
impact on our economy as previously expected. While we do not know the full
magnitude of the Asian impact, we do not believe that it would come and go in
three months time. Therefore, while we remain positive on the stock market, we
believe it is currently discounting positive factors while largely ignoring
negative ones.
The six-month reporting period ended April 30, 1998 was generally positive for
high-quality fixed-income securities, in that the overall direction of interest
rates was down. Asia was the driving force early in the reporting period (late
in 1997), as financial unrest abroad created a massive "flight to quality" into
U.S. Treasury bonds. Much of the movement in interest rates occurred at the
longer end of the maturity spectrum with 10-30 year rates falling within a range
of 16-20 basis points. Shorter maturity rates moved less than 80 basis points,
thus the overall shape of the yield curve continued to flatten.
Over the early months of 1998, the high-quality, fixed-income market has been
engaged in a virtual tug-of-war between a strong domestic economy somewhat
offset by anticipated Asian-induced impacts. Overall corporate earnings
continued to expand but at a pace much slower than seen in recent years. As a
result, general interest rates have remained within a relative trading range of
approximately 5.75%-6.00% for the 30-year Treasury bond.
[Graphic]
HOW DID THE FUND PERFORM FOR ITS SHAREHOLDERS DURING THE SIX-MONTH REPORTING
PERIOD ENDED APRIL 30, 1998?
For the six-month reporting period, Class A, B, and C Shares produced total
returns of 11.94%, 11.54%, and 11.50%, respectively, based on net asset value.*
These returns were greater than the 11.46% total return of the average balanced
fund as represented by the Lipper Balanced Funds Average.
[Graphic]
WHAT WERE SOME OF THE FUND'S RECENT STOCK PURCHASES?
Our recent purchases include the following:
ARCHER-DANIELS-MIDLAND CO. (0.67% of portfolio assets): One of the world's
largest grain processors, ADM should begin to reap the rewards of a substantial
capital investment program that had restrained stock performance in 1997.
BELL ATLANTIC CORP. (0.53% of portfolio assets): Operating in one of the
most attractive regions for telecommunication services, this Regional Bell
Operating Company will benefit from cost savings resulting from the NYNEX
merger.
COOPER TIRE & RUBBER CO. (0.52% of portfolio assets): Boasting the highest
after-tax margins in its industry, this manufacturer of tires sells only into
the replacement market and has been gaining market share every year for the last
15 years. Trading at only 13 times forward earnings, the stock is attractive.
PARKER-HANNIFIN CORP. (0.49% of portfolio assets): This leading worldwide
manufacturer of motion control products is benefiting from strong orders and
increased operating efficiencies. The company's current valuation is in line
with more cyclical capital goods companies, despite having broad geographic and
product line diversity that makes for a more stable earnings stream.
PHARMACIA & UPJOHN, INC. (0.96% of portfolio assets): As one of the
undervalued drug manufacturers due to near-term earnings issues, P&U is
expected to turn around with new management, several new drugs (Detrusitol),
and stabilization of the dollar.
* Performance quoted is based on net asset value, 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. Total returns for the period, based on
offering price for Class A, B, and C Shares were 5.79%, 5.40%, and 10.36%,
respectively.
UST, INC. (0.51% of portfolio assets): Volume has recently started growing
in the mid-single digits for UST, the largest producer of smokeless tobacco
in the U.S. (owner of the Skoal and Copenhagen brands). The company also
recently took its first price increase since December of 1996. A 4.40%
dividend and modest valuation make UST a good defensive holding.
[Graphic]
DID YOU MAKE ANY ADJUSTMENTS TO THE DURATION AND QUALITY OF THE FUND'S BOND
PORTFOLIO?
For the entire reporting period, duration positioning did not represent a
meaningful part of relative performance. However, a slightly long position
placed the portfolio in a posture to benefit from a potential slowdown in
corporate earnings.
We have also continued to maintain approximately 25% of the fund's total assets
in high-yield corporate securities. This minor, but still significant, position
has helped to generate not only an above-average income distribution for
shareholders, but has also enhanced price appreciation as high-yield bonds
outperformed higher quality bonds in this favorable economic environment.
[Graphic]
WHAT WERE THE FUND'S TOP 10 HOLDINGS IN STOCKS AND BONDS AS OF APRIL 30, 1998,
AND HOW ARE THE FUND'S HOLDINGS DIVERSIFIED BY INDUSTRY AND QUALITY?
PERCENTAGE
OF THE STOCK
STOCKS PORTFOLIO
First Data Corp. 2.23%
Wal-Mart Stores, Inc. 2.08%
Unilever N.V., ADR 2.06%
News Corp., Ltd., ADR 1.94%
CIGNA Corp. 1.90%
Pharmacia & Upjohn, Inc. 1.90%
Waste Management, Inc. 1.86%
Bristol-Myers Squibb Co. 1.84%
ITT Industries, Inc. 1.81%
Lexmark Intl. Group, Class A 1.79%
TOTAL 19.41%
PERCENTAGE PERCENTAGE
OF THE STOCK OF S&P 500
SECTOR PORTFOLIO INDEX
Finance 12.1% 17.3%
Technology 11.9% 15.2%
Utilities 11.6% 10.2%
Health Care 11.3% 11.9%
Energy/Minerals 11.1% 7.8%
Services 9.8% 5.4%
Producer 9.1% 7.7%
Manufacturing
Consumer 7.2% 10.3%
Non-Durables
Consumer Durables 5.0% 3.0%
Basic Industry 4.2% 4.9%
Retail Trade 4.0% 5.1%
Transportation 2.7% 1.2%
PERCENTAGE
OF THE BOND
BONDS PORTFOLIO
U.S. Treasury Bond, 6.375% due 08/15/27 2.17%
CNA Financial Corp., 7.25% due 11/15/23 2.09%
Trans Ocean Container Corp., 12.25% due 07/01/04 1.75%
Shopko Stores, Inc., 9.25% due 03/15/22 1.56%
Inco Ltd., 9.60% due 06/15/22 1.52%
Delphi Financial Group, Inc., 9.31% due 03/25/27 1.43%
Loewen Group International, 8.25% due 04/15/03 1.42%
TKR Cable Inc., 10.50 due 10/30/07 1.37%
U.S. Treasury Bond, 11.625% due 11/15/04 1.36%
Husky Oil Ltd., 7.125% due 11/15/06 1.31%
TOTAL 15.98%
PERCENTAGE OF
THE BOND
PORTFOLIO
AAA 9.12%
AA 3.20%
A 26.33%
BBB 29.49%
BB 12.78%
B 16.63%
[Graphic]
AS WE APPROACH MID YEAR, WHAT IS YOUR OUTLOOK FOR THE STOCK AND BOND MARKETS?
The following significant tailwinds are currently pushing the stock market:
ample liquidity driven by favorable demographics, low inflation and interest
rates, increased productivity due to technology, and enormous free cash flow
generation by corporate America. While these forces can justify current
valuations on a backward-looking basis, moving forward, it is imperative that
corporate earnings remain strong and inflation remains subdued for this bull
market to continue. There is nothing on the near-term horizon to suggest that
this cannot be accomplished. However, one must recognize that the margin for
error is quite small given the market's high valuation.
The dramatic runup in equity prices has made it more difficult to find companies
which appear undervalued on an absolute basis. Our equity and investment
philosophy remains to be focused on purchasing stocks which appear to be
undervalued relative to their history, to the market, and to their expected
earnings growth.
Turning to bonds, over the coming months, we would expect that the effects of
the Asian crises will become more apparent. It appears that the Federal Reserve
Board will be maintaining a constant approach with no near-term interest rate
hikes or decreases. We will continue to closely monitor the pattern of corporate
earnings releases, recognizing that Wall Street's consensus of earnings
expectations have been reduced considerably over the past six months. In
summation, we are neutral-to-positive on the direction of interest rates,
feeling that the "trading range" could be broken with rates moving out on the
lower yielding side of the range.
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 $30,000 IN THE CLASS A SHARES OF
FEDERATED STOCK AND BOND FUND, INC. ON 12/31/68, REINVESTED YOUR DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$383,438 ON 4/30/98. YOU WOULD HAVE EARNED A 9.07%* AVERAGE ANNUAL TOTAL RETURN
FOR THE 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 3/31/98, Class A Shares' average annual 1-year, 5-year, and 10-year total
returns were 22.24%, 13.08%, and 11.29%, respectively. Class B Shares' average
annual 1-year and since inception (8/30/96) total returns were 21.99% and
22.16%, respectively. Class C Shares' average annual 1-year and since inception
(8/30/96) total returns were 27.16% and 25.52%, 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 that an investor's
shares, when redeemed, may be worth more or less than their original cost.
** The total returns stated take into account the 5.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, and
the 1.00% contingent deferred sales charge for Class C Shares.
FEDERATED STOCK AND BOND FUND, INC.
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 29
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $214,287.
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 did not redeem any shares, you would have invested only $30,000, but
your account would have reached a total value of $214,287* by 4/30/98. You would
have earned an average annual total return of 11.20%.
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 when 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 April
30, 1988, 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 $72,060.
This represents a 12.24% average annual total return. For the Rices, a dedicated
program of monthly investment has 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.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--50.7%
BASIC INDUSTRY--2.1%
63,500 Archer-Daniels-Midland Co. $ 1,365,250
10,600 Dow Chemical Co. 1,024,887
77,000 LTV Corp. 1,001,000
16,000 Union Camp Corp. 966,000
Total 4,357,137
CONSUMER DURABLES--2.5%
44,500 Cooper Tire & Rubber Co. 1,062,437
16,000 Eastman Kodak Co. 1,155,000
14,500 General Motors Corp. 976,937
28,500 Hasbro, Inc. 1,049,156
32,000 Rubbermaid, Inc. 916,000
Total 5,159,530
CONSUMER NON-DURABLES--3.6%
20,000 BestFoods 1,097,500
19,700 Kimberly-Clark Corp. 999,775
19,500 Philip Morris Cos., Inc. 727,594
16,000 RJR Nabisco Holdings Corp. 445,000
16,900 Sara Lee Corp. 1,006,606
37,200 UST, Inc. 1,025,325
28,500 Unilever N.V., ADR 2,126,812
Total 7,428,612
ENERGY/MINERALS--5.7%
9,500 Atlantic Richfield Co. 741,000
15,000 Chevron Corp. 1,240,312
46,000 ENSCO International, Inc. 1,299,500
19,000 Exxon Corp. 1,385,812
29,500 Occidental Petroleum Corp. 868,406
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
ENERGY/MINERALS--CONTINUED
14,000 Royal Dutch Petroleum Co., ADR $ 791,875
37,500 Sun Co., Inc. 1,516,406
21,000 Texaco, Inc. 1,291,500
38,000 USX Corp. 1,360,875
29,000 YPF Sociedad Anonima, ADR 1,011,375
Total 11,507,061
FINANCE--6.1%
17,500 Allmerica Financial Corp. 1,095,937
13,000 Allstate Corp. 1,251,250
18,500 Bear Stearns Cos., Inc. 1,055,656
19,500 Block (H&R), Inc. 877,500
25,500 Boston Properties, Inc. 843,094
9,500 CIGNA Corp. 1,965,906
4,400 General RE Corp. 983,675
9,500 Hartford Financial Services Group, Inc. 1,052,125
13,000 MBIA 970,125
11,000 Marsh & McLennan Cos., Inc. 1,002,375
17,500 Morgan Stanley, Dean Witter & Co. 1,380,312
Total 12,477,955
HEALTH CARE--5.7%
17,000 Abbott Laboratories 1,243,125
83,200 (a) Beverly Enterprises, Inc. 1,310,400
18,000 Bristol-Myers Squibb Co. 1,905,750
9,000 Merck & Co., Inc. 1,084,500
32,000 (a) Perrigo Co. 414,000
46,500 Pharmacia & Upjohn, Inc. 1,955,906
15,500 Smithkline Beecham Corp., ADR 924,187
52,000 U.S. Surgical Corp. 1,638,000
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
HEALTH CARE--CONTINUED
17,500 United Healthcare Corp. $ 1,229,375
Total 11,705,243
PRODUCER MANUFACTURING--4.6%
51,500 ITT Industries, Inc. 1,876,531
33,000 Ingersoll-Rand Co. 1,520,062
27,000 Johnson Controls, Inc. 1,603,125
32,000 (a) Lexmark Intl. Group, Class A 1,852,000
15,200 Loews Corp. 1,520,950
22,300 Parker-Hannifin Corp. 995,137
Total 9,367,805
RETAIL TRADE--2.1%
27,100 Dillards, Inc., Class A 992,537
59,700 (a) K Mart Corp. 1,041,019
42,500 Wal-Mart Stores, Inc. 2,148,906
Total 4,182,462
SERVICES--4.9%
11,500 ABB AB, ADR 1,794,000
86,000 News Corp., Ltd., ADR 2,004,875
40,000 Readers Digest Association, Inc., Class A 1,075,000
35,100 (a) Tricon Global Restaurants, Inc. 1,114,425
23,000 (a) Viacom, Inc., Class A 1,328,250
14,500 (a) Viacom, Inc., Class B 841,000
57,500 Waste Management, Inc. 1,926,250
Total 10,083,800
TECHNOLOGY--6.1%
43,000 AMP, Inc. 1,690,438
21,500 (a) Cabletron Systems, Inc. 284,875
68,000 First Data Corp. 2,303,500
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
TECHNOLOGY--CONTINUED
10,000 International Business Machines Corp. $ 1,158,750
7,000 Matsushita Electric Industrial Co., ADR 1,134,000
9,500 Northrop Corp. 1,004,031
112,000 (a) Novell, Inc. 1,120,000
16,000 Raytheon Co., Class A 883,000
33,000 (a) Seagate Technology, Inc. 880,688
21,000 (a) Storage Technology Corp. 1,773,188
3,000 (a) Sun Microsystems, Inc. 123,375
Total 12,355,845
TRANSPORTATION--1.4%
24,500 CNF Transportation, Inc. 946,313
23,345 KLM Royal Dutch Airlines, ADR 946,932
27,000 Ryder Systems, Inc. 939,938
Total 2,833,183
UTILITIES--5.9%
11,500 Bell Atlantic Corp. 1,075,969
18,000 CMS Energy Corp. 786,375
12,500 Coastal Corp. 892,969
12,500 Columbia Gas System, Inc. 1,015,625
48,500 Entergy Corp. 1,206,438
9,900 FPL Group, Inc. 614,419
16,900 GTE Corp. 987,594
37,000 Houston Industries, Inc. 1,075,313
19,400 MCI Communications Corp. 976,063
41,500 P G & E Corp. 1,343,563
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
UTILITIES--CONTINUED
25,000 Public Service Enterprises Group, Inc. $ 839,063
22,500 U.S. West, Inc. 1,186,875
Total 12,000,266
TOTAL COMMON STOCKS (IDENTIFIED COST $74,933,519) 103,458,899
PREFERRED STOCKS--0.7%
FINANCE--0.3%
500 Highwoods Properties, Inc., REIT Perpetual Pfd. 525,955
Stock, Series A, $86.25
TECHNOLOGY--0.4%
9,950 Microsoft Corp., Cumulative Conv. Pfd., Series A, 926,594
$2.20
TOTAL PREFERRED STOCKS (IDENTIFIED COST $1,400,742) 1,452,549
ASSET-BACKED SECURITIES--0.1%
298,537 (b) SMFC Trust Asset-Backed Certificates, Series
1997-A, Class 4, /28/2025 (IDENTIFIED COST $272,574) 272,134
CORPORATE BONDS--31.8%
BANKING--1.0%
500,000 (b) Den Danske Bank, Note, 7.40%, 6/15/2010 522,015
1,000,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 1,086,170
8/15/2004
500,000 (b) Swedbank, Sub., 7.50%, 11/29/2049 511,670
Total 2,119,855
BASIC INDUSTRY--2.6%
1,000,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 1,056,830
1,325,000 Inco Ltd., Note, 9.60%, 6/15/2022 1,476,116
1,000,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 1,073,882
150,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 148,509
200,000 Santa Fe Pacific Gold, Note, 8.375%, 7/1/2005 215,880
680,000 Southdown, Inc., Sr. Sub. Note, 10.00%, 3/1/2006 762,450
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BASIC INDUSTRY--CONTINUED
$ 500,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 $ 671,150
Total 5,404,817
BROADCAST RADIO & TV--0.3%
500,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 511,280
6/30/2005
CAPITAL GOODS--0.7%
1,200,000 TKR Cable, Inc., 10.50%, 10/30/2007 1,330,608
CHEMICALS--1.2%
1,250,000 (b) Reliance Industries Ltd., Bond, 8.25%, 1/15/2027 1,137,375
500,000 Storage USA, 8.20%, 6/1/2017 546,030
750,000 Storage USA, Deb., 7.50%, 12/1/2027 758,820
Total 2,442,225
COMMERCIAL MORTGAGE--0.2%
500,000 (b) Hutchison Whampoa Finance, Company Guarantee, 447,390
7.50%, 8/1/2027
CONSUMER DURABLES--1.0%
500,000 Arvin Industries, Inc., 9.50%, 2/1/2027 576,740
675,000 Arvin Industries, Inc., Note, 6.75%, 3/15/2008 670,475
850,000 Dana Corp., Note, 7.00%, 3/15/2028 857,132
Total 2,104,347
CONSUMER NON-DURABLES--1.0%
1,281,000 Philip Morris Cos., Inc., Deb., 6.00%, 7/15/2001 1,265,000
750,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 796,583
Total 2,061,583
ELECTRONIC TECHNOLOGY--0.2%
500,000 (b) Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 378,765
ENERGY/MINERALS--1.1%
750,000 Boston University, 7.625%, 7/15/2097 847,460
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
ENERGY/MINERALS--CONTINUED
$ 500,000 Occidental Petroleum Corp., Note, 8.50%, 9/15/2004 $ 516,600
750,000 Sun Co., Inc., 9.00%, 11/1/2024 920,633
Total 2,284,693
FINANCE--8.4%
500,000 (b) Amvescap PLC, Sr. Note, 6.60%, 5/15/2005 499,240
1,000,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 1,079,570
2,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 2,027,780
450,000 Conseco, Inc., Note, 6.40%, 2/10/2003 447,957
1,000,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 1,198,480
250,000 Continental Corp., Note, 8.25%, 4/15/1999 255,455
1,250,000 Delphi Financial Group, Inc., 9.31%, 3/25/2027 1,384,375
1,000,000 (b) Equitable Life, Note, 7.70%, 12/1/2015 1,079,760
750,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005 773,445
1,000,000 Ford Motor Credit Corp., Unsub., 6.875%, 6/5/2001 1,015,370
1,000,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 1,111,780
6/1/2002
1,225,000 Lehman Brothers Holdings, Inc., Bond, 6.20%, 1,222,820
1/15/2002
500,000 National Australia Bank, Ltd., Melbourne, Sub. Note,
Series B, 6.60%, 12/10/2007 506,330
1,000,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 1,003,110
1,000,000 Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 1,051,270
375,000 Provident Cos., Inc., Bond, 7.405%, 3/15/2038 382,004
600,000 SunAmerica, Inc., Sr. Note, 6.20%, 10/31/1999 601,536
650,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 664,307
750,000 USF&G Corp., Company Guarantee, 8.47%, 1/10/2027 837,743
Total 17,142,332
FOREST PRODUCTS--0.7%
1,000,000 Donohue Forest Products, 7.625%, 5/15/2007 1,068,770
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FOREST PRODUCTS--CONTINUED
$ 250,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 $ 273,020
Total 1,341,790
HEALTH CARE--0.3%
550,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 565,730
HOUSEHOLD PRODUCTS--0.3%
500,000 (b) Life Re Capital Trust I, 8.72%, 6/15/2027 535,535
PAPER--0.6%
1,250,000 Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 1,272,838
PRINTING & PUBLISHING--0.6%
1,000,000 News America Holdings, Inc., 10.125%, 10/15/2012 1,164,360
PRODUCER MANUFACTURING--1.3%
1,000,000 Anixter International, Inc., Company Guarantee, 1,048,150
8.00%, 9/15/2003
550,000 Cummins Engine Co., Inc., Deb., 7.125%, 3/1/2028 544,165
1,000,000 Figgie International Holdings, Inc., Sr. Note, 1,046,250
9.875%, 10/1/1999
Total 2,638,565
REAL ESTATE--0.8%
1,500,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 1,699,905
7/1/2004
RETAIL TRADE--3.2%
850,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 905,250
9/1/2003
1,000,000 Harcourt General, Inc., Sr. Deb., 7.20%, 8/1/2027 1,003,350
884,778 K Mart Corp., Pass Thru Cert., 8.54%, 1/2/2015 915,409
1,000,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 1,105,490
1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 1,077,190
1,250,000 Shopko Stores, Inc., 9.25%, 3/15/2022 1,517,950
Total 6,524,639
SERVICES--3.1%
750,000 California Energy Co., Inc., Sr. Note, 10.25%, 810,000
1/15/2004
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
SERVICES--CONTINUED
$ 1,000,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 $ 1,176,170
1,300,000 Loewen Group Int'l., Sr. Note, 8.25%, 4/15/2003 1,382,017
1,000,000 USA Waste Services, Inc., Sr. Note, 7.125%, 10/1/2007 1,036,860
750,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%, 773,355
3/15/1999
1,000,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 1,122,980
Total 6,301,382
SOVEREIGN GOVERNMENT--0.7%
250,000 Quebec, Province of, Deb., 9.125%, 8/22/2001 270,000
1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,137,250
Total 1,407,250
TRANSPORTATION--0.9%
1,000,000 Continental Airlines, Inc., Pass Thru Cert., Series
1997-4 B, 6.90%, 7/2/2019 1,027,430
700,000 Southwest Airlines Co., Deb., 7.375%, 3/1/2027 745,577
Total 1,773,007
UTILITIES--1.6%
1,000,000 Comcast Corp., Note, 8.50%, 5/1/2027 1,184,340
1,000,000 Enersis S.A., Note, 7.40%, 12/1/2016 997,230
750,000 (b) Israel Electric Corp. Ltd., Sr. Note, 7.875%, 771,083
12/15/2026
400,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%, 406,872
12/1/2027
Total 3,359,525
TOTAL CORPORATE BONDS (IDENTIFIED COST 64,812,421
$63,577,386)
GOVERNMENT AGENCIES--2.9%
MORTGAGE BACKED SECURITIES--0.2%
367,392 Federal National Mortgage Association, 9.00%, 394,719
11/1/2021
27,522 Federal National Mortgage Association, 7.50%, 28,417
9/1/2023
Total 423,136
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES--CONTINUED
TREASURY SECURITIES--2.7%
$ 1,000,000 United States Treasury Bond, 11.625%, 11/15/2004 $ 1,317,130
2,000,000 United States Treasury Bond, 6.375%, 8/15/2027 2,109,640
1,000,000 United States Treasury Note, 5.625%, 12/31/2002 998,380
1,000,000 United States Treasury Note, 7.75%, 11/30/1999 1,033,220
Total 5,458,370
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST 5,881,506
$5,848,749)
MUNICIPAL SECURITIES--1.5%
1,000,000 Harvard University, Revenue Bonds, 8.125% Bonds, 1,144,010
4/15/2007
500,000 Atlanta & Fulton County, GA Recreation Authority,
Taxable Revenue Bonds, Series 1997, 7.00% Bonds
(Downtown Arena Project)/(FSA INS), 12/1/2028 500,745
250,000 McKeesport, PA, Taxable G.O. Series B 1997, 7.30%
Bonds (MBIA INS), 3/1/2020 255,555
1,000,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds
(FSA LOC), 11/1/2018 1,081,200
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST 2,981,510
$2,810,453)
MUTUAL FUND--10.7%
2,186,998 The High Yield Bond Portfolio (IDENTIFIED COST 21,760,627
$20,948,770)
REPURCHASE AGREEMENT--1.1%
2,210,000 BT Securities Corp., 5.53%, dated 4/30/1998, due
5/1/1998
(AT AMORTIZED COST) 2,210,000
TOTAL INVESTMENTS (IDENTIFIED COST $172,002,193) $ 202,829,646
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At April 30, 1998, these securities amounted
to $6,154,967, which represents 3.0% 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 $172,002,193.
The net unrealized appreciation of investments on a federal tax basis
amounts to $30,827,453 which is composed of $32,673,363 appreciation and
$1,845,910 depreciation at April 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($203,989,783) at April 30, 1998.
The following acronyms are used throughout this portfolio:
ADR --American Depository Receipt FSA --Financial Security Assurance INS
- --Insured LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance 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
APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 202,829,646
$172,002,193)
Income receivable 2,004,932
Receivable for shares sold 247,907
Total assets 205,082,485
LIABILITIES:
Payable to bank $ 102,581
Payable for investments purchased 888,535
Payable for shares redeemed 5,857
Payable for taxes withheld 2,319
Accrued expenses 93,410
Total liabilities 1,092,702
Net Assets for 10,388,570 shares outstanding $ 203,989,783
NET ASSETS CONSIST OF:
Paid in capital $ 164,456,381
Net unrealized appreciation of investments 30,827,453
Accumulated net realized gain on investments 8,079,112
Undistributed net investment income 626,837
Total Net Assets $ 203,989,783
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($185,890,017 / 9,465,369 shares outstanding) $19.64
Offering Price Per Share (100/94.50 of $19.64)* $20.78
Redemption Proceeds Per Share $19.64
CLASS B SHARES:
Net Asset Value Per Share ($14,753,856 / 752,321 shares outstanding) $19.61
Offering Price Per Share $19.61
Redemption Proceeds Per Share (94.50/100 of $19.61)** $18.53
CLASS C SHARES:
Net Asset Value Per Share ($3,345,910 / 170,880 shares outstanding) $19.58
Offering Price Per Share $19.58
Redemption Proceeds Per Share (99.00/100 of $19.58)** $19.38
</TABLE>
* See "Investing in the Fund" 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
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,336,664
Interest 2,955,659
Total income 4,292,323
EXPENSES:
Investment advisory fee $ 692,736
Administrative personnel and services fee 91,740
Custodian fees 9,424
Transfer and dividend disbursing agent fees and expenses 89,348
Directors'/Trustees' fees 2,507
Auditing fees 8,127
Legal fees 2,082
Portfolio accounting fees 40,431
Distribution services fee--Class B Shares 33,302
Distribution services fee--Class C Shares 7,125
Shareholder services fee--Class A Shares 213,379
Shareholder services fee--Class B Shares 11,101
Shareholder services fee--Class C Shares 2,375
Share registration costs 17,475
Printing and postage 24,968
Insurance premiums 2,724
Taxes 3,268
Miscellaneous 7,529
Total expenses 1,259,641
Waiver of investment advisory fee (107,751)
Net expenses 1,151,890
Net investment income 3,140,433
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 8,121,077
Net change in unrealized appreciation of investments 9,315,427
Net realized and unrealized gain on investments 17,436,504
Change in net assets resulting from operations $ 20,576,937
</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>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
APRIL 30, OCTOBER 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,140,433 $ 4,688,063
Net realized gain (loss) on investments ($8,121,077 and $22,149,236,
respectively, as computed for federal tax purposes) 8,121,077 22,063,804
Net change in unrealized appreciation 9,315,427 4,663,076
Change in net assets resulting from operations 20,576,937 31,414,943
NET EQUALIZATION CREDITS-- 56,133 289,759
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (3,002,446) (4,348,933)
Class B Shares (118,776) (38,375)
Class C Shares (22,035) (9,286)
Distributions from net realized gains
Class A Shares (21,222,534) (13,236,606)
Class B Shares (737,810) (45,261)
Class C Shares (149,001) (10,132)
Change in net assets resulting from distributions to shareholders (25,252,602) (17,688,593)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME)--
Proceeds from sale of shares 43,574,399 60,106,988
Net asset value of shares issued to shareholders in payment of
distributions declared 21,532,066 14,484,711
Cost of shares redeemed (25,012,543) (50,881,341)
Change in net assets resulting from share transactions 40,093,922 23,710,358
Change in net assets 35,474,390 37,726,467
NET ASSETS:
Beginning of period 168,515,393 130,788,926
End of period (including undistributed net investment income
of $626,837 and $573,526, respectively) $ 203,989,783 $ 168,515,393
</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>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $20.46 $18.96 $18.38 $16.25 $16.87 $15.91
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.34 0.63 0.61 0.63 0.51 0.55
Net realized and unrealized
gain (loss) on investments 1.84 3.34 1.81 2.21 (0.59) 1.58
Total from investment 2.18 3.97 2.42 2.84 (0.08) 2.13
operations
LESS DISTRIBUTIONS
Distributions from net
investment income (0.35) (0.56) (0.63) (0.62) (0.54) (0.56)
Distributions from net
realized gain on investments (2.65) (1.91) (1.21) (0.09) -- (0.61)
Total distributions (3.00) (2.47) (1.84) (0.71) (0.54) (1.17)
NET ASSET VALUE, END OF PERIOD $19.64 $20.46 $18.96 $18.38 $16.25 $16.87
TOTAL RETURN(A) 11.94% 23.02% 14.57% 17.99% (0.48%) 14.10%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.22%* 1.21% 1.10% 1.07% 1.06% 1.04%
Net investment income 3.51%* 3.06% 3.44% 3.71% 3.23% 3.49%
Expense waiver/reimbursement(b) 0.12%* 0.16% 0.27% 0.31% 0.07% 0.20%
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $185,890 $162,780 $130,694 $134,669 $125,382 $124,583
Average commission rate $0.0494 $0.0496 $0.0307 -- -- --
paid(c)
Portfolio turnover 35% 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.
(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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, OCTOBER 31,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.45 $18.96 $17.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.51 0.02
Net realized and unrealized gain (loss) on investments 1.84 3.34 1.05
Total from investment operations 2.11 3.85 1.07
LESS DISTRIBUTIONS
Distributions from net investment income (0.30) (0.45) --
Distributions from net realized gain on investments (2.65) (1.91) --
Total distributions (2.95) (2.36) --
NET ASSET VALUE, END OF PERIOD $19.61 $20.45 $18.96
TOTAL RETURN(B) 11.54% 22.20% 5.98%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.99%* 1.96% 1.96%*
Net investment income 2.73%* 2.31% 3.52%*
Expense waiver/reimbursement(c) 0.12%* 0.16% 0.15%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $14,754 $4,622 $94
Average commission rate paid(d) $0.0494 $0.0496 $0.0307
Portfolio turnover 35% 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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, OCTOBER 31,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.42 $18.96 $17.89
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.47 0.04
Net realized and unrealized gain (loss) on investments 1.82 3.35 1.03
Total from investment operations 2.10 3.82 1.07
LESS DISTRIBUTIONS
Distributions from net investment income (0.29) (0.45) --
Distributions from net realized gain on investments (2.65) (1.91) --
Total distributions (2.94) (2.36) --
NET ASSET VALUE, END OF PERIOD $19.58 $20.42 $18.96
TOTAL RETURN(B) 11.50% 22.08% 5.98%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.99%* 1.96% 2.03%*
Net investment income 2.69%* 2.31% 1.94%*
Expense waiver/reimbursement(c) 0.12%* 0.16% 0.15%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $3,346 $1,114 $2
Average commission rate paid(d) $0.0494 $0.0496 $0.0307
Portfolio turnover 35% 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
APRIL 30, 1998 (UNAUDITED)
1. ORGANIZATION
Federated Stock and Bond Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. The Fund offers three classes of shares: Class A
Shares, Class B Shares, and Class C Shares. The investment objective of the Fund
is 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. Investments in other
open-end regulated investment companies are valued at net asset 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 Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- 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"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
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 Directors.
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 April 30, 1998 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Amvescap PLC 4/30/1998 $ 499,246
Den Danske Bank 1/7/1998 525,631
Equitable Life 10/17/1996 993,806
Hutchison Whampoa Finance 8/5/1997 496,651
Israel Electric Corp. Ltd. 12/16/1997 770,250
Life Re Capital Trust 6/6/1997 500,000
Reliance Industries Ltd. 1/10/1997 1,250,000
SMFC Trust 2/4/1998 272,574
Swedbank 1/7/1998 522,169
Tenaga Nasional Berhad 3/3/1997 474,926
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 April 30, 1998, par value shares ($0.001 per share) authorized were as
follows:.
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 750,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,653,411 $ 31,351,272 2,977,985 $ 54,558,231
Shares issued to shareholders in payment
of distributions declared 1,134,635 20,638,270 809,532 14,391,854
Shares redeemed (1,280,197) (24,112,559) (2,721,403) (50,579,473)
Net change resulting from Class A Shares
transactions 1,507,849 $ 27,876,983 1,066,114 $ 18,370,612
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 514,261 $ 9,825,129 229,204 $ 4,445,960
Shares issued to shareholders in payment
of distributions declared 41,441 754,089 4,184 76,944
Shares redeemed (29,440) (561,314) (12,259) (243,127)
Net change resulting from Class B Shares
transactions 526,262 $ 10,017,904 221,129 $ 4,279,777
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C>> <C> <C> <C>
Shares sold 126,256 $ 2,397,998 56,460 $ 1,102,797
Shares issued to shareholders in payment
of distributions declared 7,686 139,707 870 15,913
Shares redeemed (17,601) (338,670) (2,889) (58,741)
Net change resulting from Class C Shares
transactions 116,341 $ 2,199,035 54,441 $ 1,059,969
Net change resulting from share
transactions 2,150,452 $ 40,093,922 1,341,684 $ 23,710,358
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to (a) a maximum of 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, Inc. 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 period ended April 30, 1998, Class A Shares 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 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 FServ 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. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1998, were as follows:
PURCHASES $78,981,222
SALES $62,415,153
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
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
Nicholas J. Seitanakis
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 the 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.
[Graphic]
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313911109
Cusip 313911208
Cusip 313911307
8080105 (6/98)
[Graphic]
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 December
31, 1968 to April 30, 1998. The "y" axis is measured in increments of $50,000
ranging from $0 to $450,000 and indicates that the ending value of a
hypothetical initial investment of $30,000 in Federated Stock and Bond Fund,
Inc. Class A Shares, assuming a 5.50% sales charge and the reinvestment of all
capital gains and dividends, would have grown to $383,438 on April 30, 1998.
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 fo the
narrative text above it. The "x" axis reflects computation periods from December
31, 1968 to April 30, 1998. The "y" axis is measured in increments of $50,000
ranging from $0 to $250,000 and indicates that the ending value of hypothetical
yearly investments of $1,000 in Federated Stock and Bond Fund, Inc. Class A
Shares, assuming the reinvestment of all capital gains and dividends, would have
grown to $214,287 on April 30, 1998.
A3. 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 April
30, 1988 to April 30, 1998. The "y" axis is measured in increments of $10,000
ranging from $0 to $80,000 and indicates that the ending value of a hypothetical
initial investment of $5,000 and subsequent monthly investments of $250 over 10
years in Federated Stock and Bond Fund, Inc. Class A Shares would have grown to
$72,060 on April 30, 1998.
