[Graphic]
Federated Investors
Federated
Stock and Bond Fund, Inc.
Annual Report
October 31, 1998
INCORPORATED 1934
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the 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 12-month period from November 1, 1997
through October 31, 1998. It begins with an interview with Joseph Balestrino,
Senior Vice President, who co-manages the fund with Michael P. Donnelly, Vice
President, both of 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, and third is the publication of the fund's financial statements.
Federated Stock and Bond Fund, Inc. gives shareholders the opportunity to
participate in the benefits of two key financial markets. This diversification
helps to reduce risk as you pursue growth of capital and income. The fund's
"best of both worlds" approach has served shareholders extremely well since the
fund began operation, as the following total returns, based on net asset value,
indicate.*
Class A Shares (Since December 31, 1968), 11.09%
Class B Shares (Since August 30, 1996), 10.26%
Class C Shares (Since August 30, 1996), 10.21%
The fund's balanced portfolio continues to emphasize diversification and
quality. At the end of the reporting period, the fund's $234 million portfolio
was diversified across more than 190 securities. During the fiscal year, the
securities markets experienced more than usual volatility as the table below
indicates. Nevertheless, the Fund experienced a total return of more than 10%
for all share classes.**
TOTAL CAPITAL NET ASSET
RETURN INCOME GAINS VALUE CHANGE
Class A Shares 11.09% $0.69 $2.65 $20.46 to $19.14 = (6%)
Class B Shares 10.26% $0.57 $2.65 $20.45 to $19.10 = (6%)
Class C Shares 10.21% $0.57 $2.65 $20.42 to $19.07 = (6%)
* 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. The fund's total returns since the fund began
operation through October 31, 1998, based on offering price (i.e., less any
applicable sales charge), were: Class A Shares, 8.89%; Class B Shares, 16.29%;
and Class C Shares, 9.28%.
** Total returns for the reporting period for Class A, B, and C Shares, based on
offering price (i.e., less any applicable sales charge), were 4.98%, 5.12%, and
9.28%, respectively.
Thank you for participating in the growth and income potential of Federated
Stock and Bond Fund, Inc. You can easily increase your participation in the
performance potential of this diversified stock and bond portfolio by
reinvesting your quarterly earnings automatically in additional fund shares.
As always, we welcome your comments, questions, and suggestions.
Sincerely,
[Graphic]
John F. Donahue
President
December 15, 1998
INVESTMENT REVIEW
[Graphic]
Joseph Balestrino
Senior Vice President
Federated Management
[Graphic]
Michael P. Donnelly
Vice President
Federated Management
[Shareholders' Note: This fund is co-managed by Michael P. Donnelly,
who is primarily responsible for the "stock" portion of the fund's
portfolio, and Joseph Balestrino, who is primarily responsible for the
"bond" portion of the fund's portfolio.]
[Graphic]
WHAT ARE YOUR COMMENTS ON THE STOCK AND BOND MARKETS DURING THE REPORTING
PERIOD?
STOCKS
The past 12 months have been marked by increased volatility and a "flight to
quality" in the markets. The "Asian contagion," economic uncertainty, the
unwinding of hedge fund leverage, lower commodity prices, and general investor
unrest caused the equity markets to favor ultra-large, high-quality, growth
stocks over the past fiscal year.
This narrow market participation, despite overall healthy market returns, made
it very difficult for active value managers to provide competitive total returns
relative to the Standard & Poor's ("S&P") 500 Index,* which returned 21.99% for
the 12-month reporting period. In fact, the majority of the markets' return has
been focused in the 45 largest companies that account for one-half of the S&P
500 Index's market weighting. The dominance of the "Nifty Fifty" is shown by the
fact that the average stock in the S&P 500 Index returned only 9.20% for the
12-month period. The difference between the total return of the S&P 500 Index
and the return of the average stock in the S&P 500 Index is the largest seen
since the early 1970s. Value stocks also struggled over the past year as
economically sensitive and commodity-exposed stocks lost favor. For the fiscal
year ended October 31, 1998, the S&P 500/Barra Value Index returned 11.50%.*
* The S&P 500 Index is comprised of stocks in industry, transportation,
financial, and public utility companies. The S&P 500/Barra Value Index is a
market-capitalization weighted index of the stocks in the S&P 500 Index having
the highest book-to-price ratios. The index consists of approximately half of
the S&P 500 Index on a market capitalization basis. These indices are unmanaged
and investments cannot be made in an index.
BONDS
The fiscal year ended October 31, 1998 was positive for most fixed-income
investors, particularly those in the highest quality debt sectors. Interest rate
levels declined significantly over the period for all points along the U.S.
Treasury maturity spectrum. The largest interest rate decrease occurred in the
two-year Treasury maturity, which fell approximately 150 basis points in yield.
There were two predominant reasons for the interest rate decline: 1) a slower
growth economic environment; and 2) dramatic economic/financial marketplace
volatility in non-U.S. markets.
Throughout much of calendar year 1998, corporate earnings were considerably
below initial Wall Street analysts' expectations. The corresponding concern over
the future growth potential of the U.S. economy, in combination with sustained
low inflation, caused U.S. Treasury yields to fall. Additionally, the global
financial marketplace became far more unstable over the fiscal year. Problems
emanating out of Asia in the second half of 1997 quickly spread to Russia and
Latin America during the first three quarters of 1998. The result was a
worldwide "flight to quality" into U.S. Treasury securities. As the fiscal year
was coming to a close, the Federal Reserve Board reversed monetary policy and
twice decreased the Fed Funds Target Rate, creating a further rally in
high-quality bonds.
In terms of relative performance within the various fixed-income sectors, the
general rule over the past year was that higher quality bonds outperformed lower
quality bonds, and domestic bonds outperformed international bonds. The star
performers were U.S. Treasuries, perceived to be the highest quality investment
worldwide. All other investment-grade sectors (corporate bonds, mortgage-backed
securities, asset-backed securities) produced positive rates of return, but fell
short of U.S. Treasuries. As one moved into below investment-grade and
international emerging market debt securities, the returns were modestly
positive or negative over the fiscal year.
[Graphic]
HOW DID FEDERATED STOCK AND BOND FUND, INC. PERFORM FOR ITS
SHAREHOLDERS DURING THE 12-MONTH REPORTING PERIOD?
For the fiscal year ended October 31, 1998, the fund's Class A, B, and C Shares
produced total returns of 11.09%, 10.26%, and 10.21%, respectively, based on net
asset value.* These returns all outpaced the 9.13% average total return of the
balanced funds tracked by Lipper Analytical Services, Inc.+
[Graphic]
MICHAEL, WHAT IS YOUR STRATEGY IN A MARKET THAT HAS BEEN FAVORING
GROWTH-ORIENTED STOCKS?
Looking ahead, despite the recent underperformance of the "value" style of
investing, we remain committed to our investment disciplines. Over time, we
believe that our proprietary valuation models and security selection process can
add value for our investors. Our focus is to identify leading companies which
are temporarily out of favor and appear inexpensive relative to their history
and the market, as well as to their expected growth. We will continue to add
these undervalued securities to the portfolio and eliminate those which appear
overvalued. History has shown that after periods of narrow market leadership
dominated by a handful of growth stocks, active value management can provide
opportunities for superior returns.
* Performance quoted is based on net asset value, represents 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 reporting period, based
on offering price (i.e., less any applicable sales charge), for Class A, B, and
C Shares were 4.98%, 5.12%, and 9.28%, respectively.
+ 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 category indicated. Lipper returns do not take sales charges into account.
[Graphic]
WHAT WERE SOME OF THE FUND'S RECENT STOCK PURCHASES?
Our recent purchases included the following:
ELECTRONIC DATA SYSTEMS CORP. (0.67% of net assets)-Electronic Data is a leading
player in the information technology outsourcing industry. The company is
trading at an all-time low relative valuation due to fears of decelerating
profitability. However, margins in the fast- growing non-General Motors business
have stabilized, and the overall business mix is becoming less reliant on the
low-margin General Motors relationships.
FPL GROUP, INC. (0.56% of net assets)-FPL is a top-quality electric
utility run by a strong management team in an extremely attractive
service territory. The electric utility industry, in general, appears
undervalued on our disciplines.
HASBRO, INC. (0.53% of net assets)-Hasbro is an attractively valued
leading toy manufacturer. Fueled by Star Wars, Tiger Interactive, and
Teletubbies, the company is leveraging its portfolio of brands and
improving profitability.
KING WORLD PRODUCTIONS, INC. (0.52% of net assets)-This free cash flow machine
possesses a valuable programming franchise anchored by Oprah Winfrey. A
consolidating entertainment industry and a new stable of shows led by the new
Hollywood Squares show makes this an attractive addition to the portfolio.
SUN MICROSYSTEMS, INC. (1.17% of net assets)-This is a rare example of a company
selling at a historically low valuation without the usual decline in
fundamentals associated with such events. We established a position in this
company due to continued strength in their core business, and the belief that
Unix will retain its choke-hold on the core of the enterprise, despite the much
feared threat of Microsoft NT making inroads into their market.
[Graphic]
JOSEPH, DID YOU MAKE ANY ADJUSTMENTS TO THE DURATION AND QUALITY OF THE FUND'S
BOND HOLDINGS?
The fund's bond portfolio composition was purposefully and consistently adjusted
toward a longer duration and higher quality average over the fiscal year. Fund
management held a macro-economic view that the rate of corporate earnings growth
would meaningfully slow, and inflation would not become a significant threat. In
this environment, which essentially played out over the past year, interest
rates tend to fall, and higher quality bonds tend to outperform lower quality
bonds. Thus, the portfolio duration was approximately six months longer than the
target of a year ago, and the percentage of assets in high-yield corporate
securities was reduced from levels of a year ago.
[Graphic]
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF OCTOBER 31, 1998, AND HOW WERE THE
FUND'S HOLDINGS DIVERSIFIED BY INDUSTRY AND QUALITY?
PERCENTAGE OF
STOCKS STOCK PORTFOLIO
Sun Microsystems, Inc. 2.3%
CIGNA Corp. 2.0%
Bristol-Myers Squibb Co. 1.9%
Lexmark Int'l. Group 1.9%
Pharmacia & Upjohn, Inc. 1.9%
Wal-Mart 1.9%
Loews Corp. 1.7%
UST, Inc. 1.7%
Ingersoll Rand Co. 1.6%
News Corp., Ltd. 1.6%
TOTAL 18.5%
PERCENTAGE OF PERCENTAGE OF
SECTOR STOCK PORTFOLIO S&P 500 INDEX
Finance 13.4% 15.2%
Technology 13.2% 17.1%
Utilities 11.2% 11.2%
Producer Manufacturing 11.3% 7.1%
Health Care 10.3% 13.0%
Energy/Minerals 9.5% 7.1%
Consumer Non-Durables 7.2% 10.5%
Services 7.2% 4.9%
Consumer Durables 5.2% 3.0%
Basic Industry 4.2% 4.0%
Retail Trade 3.6% 5.9%
Transportation 2.4% 1.0%
PERCENTAGE OF
BONDS BOND PORTFOLIO
U.S. Treasury Note, 5.250% due 08/15/2003 5.89%
U.S. Treasury Note, 5.625% due 05/15/2008 3.99%
U.S. Treasury Note, 7.875% due 11/15/2004 3.78%
U.S. Treasury Bond, 6.375% due 08/15/2027 2.24%
Federal Home Loan Bank, 5.800%
due 9/02/2008 2.03%
CNA Financial Corp., 7.250% due 11/15/2023 1.87%
Figgie International, 9.875% due 10/01/2099 1.82%
Trans Ocean Container Corp., 12.250%
due 07/01/2004 1.62%
INCO Ltd., 9.600% due 06/15/2022 1.51%
Shopko Stores, 9.250% due 3/15/2022 1.47%
TOTAL 26.22%
PERCENTAGE OF
THE BOND
BOND QUALITY PORTFOLIO
AAA 31.70%
AA 2.71%
A 24.38%
B 3.43%
BBB 26.78%
BB 10.23%
CCC 0.18%
[Graphic]
AS WE PREPARE TO GREET 1999, WHAT IS YOUR OUTLOOK FOR THE STOCK AND BOND
MARKETS?
STOCKS
Excessive valuation continues to be our major concern as we look into 1999. Over
the second half of 1998, the interest rate and inflation outlook significantly
improved, making stocks more attractive as long-term savings vehicles relative
to fixed-income alternatives. However, as powerful as lower interest rates are
in aiding valuations, the deterioration in prospective earnings seems to offset
much of this positive influence. Wall Street's earnings estimates for 1999
remain too high, and the prospects of a flat earnings year are real. However,
considering the market's tremendous rebound off the low on October 8, 1998, it
seems that ample liquidity will continue to rule the day. Given that we see no
recession in 1999, we remain cautiously optimistic about the market's outlook.
We do believe that large-cap "value" stocks should provide better returns than
large-cap "growth" stocks given the extremes in relative valuation and 1998
performance. The broader market should also perform more positively relative to
the major indices as valuation disparities are addressed.
BONDS
Our basic bond market outlook remains largely unchanged. Over the coming year,
it appears reasonable to expect continued moderation in economic activity and
corporate earnings growth. The domestic economic fundamentals point to a
conclusion that the United States may be in the latter stages of the business
cycle. Given this outlook, our expectation is for a favorable year ahead in the
bond market. Having said that, the bond market may have already experienced the
major "flight to quality" technical move upward in price, and we expect economic
fundamentals may dominate the bond market going forward.
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 DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$378,993 ON 10/31/98. YOU WOULD HAVE EARNED AN 8.87%* AVERAGE ANNUAL TOTAL
RETURN FOR THE INVESTMENT LIFE SPAN.
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 9/30/98, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (0.05%), 11.18%, and 10.42%, respectively. Class B Shares'
average annual 1-year and since-inception (8/30/96) total returns were (0.76%)
and 14.55%, respectively. Class C Shares' average annual 1-year and
since-inception (8/30/96) total returns were 3.96% and 8.77%, respectively.**
[Graphic]
* Total return represents the change in the value of an investment after
investing 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
1.00% contingent deferred sales charge for Class C Shares.
FEDERATED STOCK AND BOND FUND, INC.
ONE STEP AT AT TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH
YEAR FOR 29 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$212,323.
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 $212,323* by 10/31/98. You
would have earned an average annual total return of 10.89%.
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]
* 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 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 children. On
October 31, 1988, they invested $5,000 in 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
$68,097. This represents an 11.31% average annual total return. For the Rices, a
dedicated program of monthly investments really paid off.
[Graphic]
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 AND BOND FUND, INC.
(CLASS A SHARES)
The graph below illustrates the hypothetical investment of $25,000* in Federated
Stock and Bond Fund, Inc. (Class A Shares) (the "Fund") from October 31, 1988 to
October 31, 1998, compared to Standard & Poor's 500 Index (S&P 500),+ the Lehman
Brothers Governement /Corporate Bond Index (LBGCBI)+ and the Lipper Balanced
Funds Average (LBFA).++
[Graphic]
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 THEIR 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% ($25,000 investment minus $1,375 sales charge
= $23,625). The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500, LBGCBI and the LBFA have been adjusted to reflect
reinvestment of dividends on securities in the indices and average.
** Total return quoted reflects all applicable 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 indicated, 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 AND BOND FUND, INC.
(CLASS B SHARES)
The graph below illustrates the hypothetical investment of $25,000* in Federated
Stock and Bond Fund, Inc. (Class B Shares) (the "Fund") from August 30, 1996
(start of performance) to October 31, 1998, compared to Standard & Poor's 500
Index (S&P 500),+ the Lehman Brothers Government/Corporate Bond Index (LBGCBI)+
and the Lipper Balanced Funds
Average (LBFA).++
[Graphic]
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 THEIR 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 4.00% contingent deferred sales charge on any redemption
less than three years from the purchase date. The maximum contingent deferred
sales charge is 5.50% on any redemption less than one year from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500, LBGCBI and the 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 indicated, 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 AND BOND FUND, INC.
(CLASS C SHARES)
The graph below illustrates the hypothetical investment of $25,000* in the
Federated Stock and Bond Fund, Inc. (Class C Shares) (the "Fund") from August
30, 1996 to October 31, 1998, compared to Standard & Poor's 500 Index (S&P
500),+ the Lehman Brothers Government/Corporate Bond Index (LBGCBI)+ and the
Lipper Balanced Funds Average (LBFA).++
[Graphic]
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 THEIR 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 maximum
contingent deferred sales charge is 1.00% on any redemption less than one year
from the purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 500, LBGCBI, and the 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 indicated, 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.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES
VALUE
<C>
<S> <S>
COMMON STOCKS-51.3%
BASIC
INDUSTRY-2.2%
77,200 Archer-Daniels-Midland Co. $ 1,288,275
43,800 Crown Cork & Seal Co., Inc. 1,396,125
13,000 Dow Chemical Co. 1,217,125
189,500 LTV Corp. 1,160,687
Total 5,062,212
CONSUMER
DURABLES-2.7%
64,000 Cooper Tire & Rubber Co. 1,064,000
19,000 Eastman Kodak Co. 1,472,500
20,700 General Motors Corp. 1,305,394
35,000 Hasbro, Inc. 1,227,187
38,000 Rubbermaid, Inc. 1,261,125
Total 6,330,206
CONSUMER
NON-DURABLES-3.7%
24,500 Kimberly-Clark Corp. 1,182,125
33,000 Philip Morris Cos., Inc. 1,687,125
35,100 RJR Nabisco Holdings Corp. 1,002,544
20,000 Sara Lee Corp. 1,193,750
60,500 UST, Inc. 2,057,000
20,800 Unilever N.V.,
ADR 1,565,200
Total 8,687,744
ENERGY
MINERALS-5.0%
11,500 Atlantic Richfield Co. 792,062
14,500 Chevron Corp. 1,181,750
114,500 ENSCO International, Inc. 1,538,594
20,700 Exxon Corp. 1,474,875
35,000 Occidental Petroleum Corp. 695,625
16,500 Royal Dutch Petroleum Co.,
ADR 812,625
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES
VALUE
<C>
<S> <C>
COMMON STOCKS-CONTINUED
ENERGY
MINERALS-CONTINUED
44,000 Sun Co., Inc. $ 1,509,750
18,500 Texaco, Inc. 1,097,281
44,500 USX Marathon Group, Inc. 1,454,594
33,700 YPF Sociedad Anonima,
ADR 975,194
Total 11,532,350
FINANCE-7.0%
21,000 Allmerica Financial Corp. 1,050,000
29,900 Allstate Corp. 1,287,569
23,500 Bear Stearns Cos., Inc. 838,656
26,000 Block (H&R), Inc. 1,165,125
37,000 Boston Properties, Inc. 1,054,500
32,900 CIGNA Corp. 2,399,644
41,700 Conseco, Inc. 1,446,469
5,300 General RE Corp. 1,164,344
23,500 Hartford Financial Services Group, Inc. 1,248,437
16,500 MBIA
INS 1,008,562
21,000 Marsh & McLennan Cos., Inc. 1,165,500
18,500 Morgan Stanley, Dean Witter & Co. 1,197,875
33,000 Washington Mutual, Inc. 1,235,438
Total 16,262,119
HEALTH
CARE-5.4%
38,800 Abbott
Laboratories 1,821,175
21,500 Baxter International, Inc. 1,288,656
102,500 (a) Beverly Enterprises, Inc. 691,875
20,900 Bristol-Myers Squibb Co. 2,310,756
11,000 Merck & Co., Inc. 1,487,750
43,100 Pharmacia & Upjohn, Inc. 2,281,606
20,000 Smithkline Beecham Corp.,
ADR 1,275,000
29,900 United Healthcare Corp. 1,302,519
Total 12,459,337
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES
VALUE
<C>
<S> <C>
COMMON STOCKS-CONTINUED
PRODUCER
MANUFACTURING-5.9%
29,000 Deere & Co. $ 1,025,875
39,000 Ingersoll-Rand Co. 1,969,500
28,000 Johnson Controls, Inc. 1,575,000
33,000 (a) Lexmark Intl. Group, Class
A 2,307,937
22,000 Loews Corp. 2,066,625
41,000 Parker-Hannifin Corp. 1,465,750
21,100 Philips Electronics N.V.,
ADR 1,157,863
34,500 Tenneco, Inc. 1,047,938
18,000 Tyco International Ltd. 1,114,875
Total 13,731,363
RETAIL
TRADE-1.9%
33,500 Dillards, Inc., Class
A 1,040,594
76,000 (a) K Mart Corp. 1,073,500
32,500 Wal-Mart Stores, Inc. 2,242,500
Total 4,356,594
SERVICES-3.7%
12,500 ABB AB,
ADR 1,312,500
46,500 (a) King World Productions, Inc. 1,220,625
80,600 News Corp. Ltd.,
ADR 1,949,512
41,600 (a) Tricon Global Restaurants, Inc. 1,809,600
20,500 (a) Viacom, Inc., Class
A 1,217,188
26,400 Waste Management, Inc. 1,191,300
Total 8,700,725
TECHNOLOGY-6.8%
37,507 AMP, Inc. 1,540,131
38,500 Electronic Data Systems Corp. 1,566,469
70,500 First Data Corp. 1,868,250
12,000 International Business Machines Corp. 1,781,250
16,000 Northrop Gruman Corp. 1,276,000
87,500 (a) Novell, Inc. 1,301,562
21,000 Raytheon Co., Class
A 1,176,000
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES
VALUE
<C>
<S> <C>
COMMON STOCKS-CONTINUED
TECHNOLOGY-CONTINUED
39,000 (a) Seagate Technology, Inc. $ 1,028,625
49,000 (a) Storage Technology Corp. 1,638,438
47,000 (a) Sun Microsystems, Inc. 2,737,750
Total 15,914,475
TRANSPORTATION-1.2%
32,500 CNF Transportation, Inc. 983,125
31,000 KLM Royal Dutch Airlines,
ADR 935,812
39,500 Ryder Systems, Inc. 972,688
Total 2,891,625
UTILITIES-5.8%
21,500 AT&T Corp. 1,338,375
27,000 Bell Atlantic Corp. 1,434,375
30,000 Coastal Corp. 1,057,500
57,000 Entergy Corp. 1,638,750
21,000 FPL Group, Inc. 1,313,812
20,600 GTE Corp. 1,208,962
41,500 Houston Industries, Inc. 1,289,094
48,500 P G & E Corp. 1,476,219
35,500 Public Service Enterprises Group, Inc. 1,349,000
25,500 U.S. West, Inc. 1,463,063
Total 13,569,150
TOTAL COMMON STOCKS (IDENTIFIED COST
$97,888,013) 119,497,900
PREFERRED STOCKS-0.7%
FINANCE-0.4%
1,000 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock,
Series A,
$8.625
895,980
TECHNOLOGY-0.3%
6,371 Microsoft Corp., Cumulative Conv. Pfd., Series A,
$2.20 622,765
TOTAL PREFERRED STOCKS (IDENTIFIED COST
$1,589,865) 1,518,745
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C> ASSET-BACKED SECURITIES-0.6% $ 1,250,000 (b) 125 Home Loan Owner Trust
1998-1A, Class B1, 9.26%, 2/15/2029 $ 1,114,850
295,895 (b) SMFC Trust Asset-Backed Certificates, Series 1997-A, Class
4, 7.7191%,
1/28/2035 266,953
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST
$1,520,065) 1,381,803
CORPORATE BONDS-29.1%
AUTOMOBILE-0.3%
800,000 Hertz Corp., Sr. Note, 7.00%,
1/15/2028 774,448
BANKING-0.9%
500,000 (b) Den Danske Bank, Note, 7.40%,
6/15/2010 528,015
1,000,000 National Bank of Canada, Montreal, Sub. Note, 8.125%,
8/15/2004 1,150,310
500,000 (b) Swedbank, Sub., 7.50%,
11/1/2049 485,435
Total 2,163,760
BASIC
INDUSTRY-2.6%
1,000,000 Barrick Gold Corp., Deb., 7.50%,
5/1/2007 1,100,630
1,325,000 INCO Ltd., Note, 9.60%,
6/15/2022 1,547,468
500,000 (b) Normandy Finance Ltd., Company Guarantee, 7.50%,
7/15/2005 511,270
1,000,000 Placer Dome, Inc., Deb., 8.50%,
12/31/2045 971,740
150,000 Pope & Talbot, Inc., Deb., 8.375%,
6/1/2013 139,111
200,000 Santa Fe Pacific Gold, Deb., 8.375%,
7/1/2005 227,440
680,000 Southdown, Inc., Sr. Sub. Note, Series B, 10.00%,
3/1/2006 766,700
500,000 Sweden, Kingdom of, Deb., 10.25%,
11/1/2015 714,885
Total 5,979,244
CHEMICALS-0.4%
1,250,000 (b) Reliance Industries Ltd., Note, 8.25%,
1/15/2027 953,125
CONSUMER
DURABLES-0.9%
500,000 Arvin Industries, Inc., 9.50%,
2/1/2027 542,245
675,000 Arvin Industries, Inc., Note, 6.75%,
3/15/2008 675,905
850,000 Dana Corp., Note, 7.00%,
3/15/2028 858,907
Total 2,077,057
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
CONSUMER
NON-DURABLES-0.9%
$ 1,281,000 Philip Morris Cos., Inc., Deb., 6.00%,
7/15/2001 $ 1,301,458
750,000 Philip Morris Cos., Inc., Deb., 7.75%,
1/15/2027 820,065
Total 2,121,523
EDUCATION-0.3%
750,000 Boston University, 7.625%,
7/15/2097 814,583
ENERGY
MINERALS-0.6%
500,000 Occidental Petroleum Corp., Note, 8.50%,
9/15/2004 511,690
750,000 Sun Co., Inc., Deb., 9.00%,
11/1/2024 891,908
Total 1,403,598
FINANCE-8.1%
500,000 Amvescap PLC, Sr. Note, 6.60%,
5/15/2005 510,335
1,000,000 Santander Finance Issuance, Ltd. Bank Guarantee, 7.875%,
4/15/2005 1,068,690
2,000,000 CNA Financial Corp., Deb., 7.25%,
11/15/2023 1,919,520
450,000 Conseco, Inc., Note, 6.40%,
2/10/2003 440,033
1,000,000 Conseco, Inc., Sr. Note, 10.50%,
12/15/2004 1,172,040
250,000 Continental Corp., Note, 8.25%,
4/15/1999 252,848
1,250,000 Delphi Funding Series A, Note, 9.31%,
3/25/2027 1,364,525
250,000 Delphi Financial Group, Inc., Sr. Note, 8.00%,
10/1/2003 265,800
1,000,000 (b) Equitable Life, Note, 7.70%,
12/1/2015 1,078,280
750,000 FirstBank Puerto Rico, Sub. Note, 7.625%,
12/20/2005 767,490
1,000,000 Ford Motor Credit Corp., Unsub., 6.875%,
6/5/2001 1,036,810
1,000,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%,
6/1/2002 1,111,160
1,225,000 Lehman Brothers Holdings, Inc., Bond, 6.20%,
1/15/2002 1,200,475
750,000 (b) Life Re Capital Trust I, Company Guarantee, 8.72%,
6/15/2027 831,705
500,000 National Australia Bank, Ltd., Melbourne, Sub. Note, Series B,
6.60%,
12/10/2007 506,875
375,000 Provident Cos., Inc., Bond, 7.405%,
3/15/2038 362,921
1,000,000 Republic New York Corp., Sub. Note, 7.75%,
5/15/2009 1,135,100
600,000 SunAmerica, Inc., Sr. Note, 6.20%,
10/31/1999 605,574
650,000 SunAmerica, Inc., Sr. Note, 9.00%,
1/15/1999 655,096
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
FINANCE-CONTINUED
$ 1,500,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%,
7/1/2004 $ 1,663,020
750,000 USF&G Corp., Company Guarantee, 8.47%,
1/10/2027 837,990
Total 18,786,287
FOREST
PRODUCTS-0.6%
1,000,000 Donohue Forest Products, 7.625%,
5/15/2007 1,067,490
250,000 Quno Corp., Sr. Note, 9.125%,
5/15/2005 273,365
Total 1,340,855
HEALTH
CARE-0.5%
550,000 Tenet Healthcare Corp., Sr. Note, 8.00%,
1/15/2005 559,592
500,000 (b) Tenet Healthcare Corp., Sr. Sub., 8.125%,
12/1/2008 512,500
Total 1,072,092
OIL &
GAS-0.5%
1,250,000 Husky Oil Ltd., Sr. Note, 7.125%,
11/15/2006 1,292,287
PRINTING &
PUBLISHING-0.5%
1,000,000 News America Holdings, Inc., 10.125%,
10/15/2012 1,181,690
PRODUCER
MANUFACTURING-1.5%
1,000,000 Anixter International, Inc., Company Guarantee, 8.00%,
9/15/2003 1,053,540
550,000 Cummins Engine Co., Inc., Deb., 7.125%,
3/1/2028 510,312
1,815,000 Figgie International Holdings, Inc., Sr. Note, 9.875%,
10/1/1999 1,873,225
Total 3,437,077
REAL
ESTATE-1.2%
1,000,000 Price REIT, Inc., Sr. Note, 7.50%,
11/5/2006 1,015,300
500,000 Storage USA, Note, 8.20%,
6/1/2017 481,865
750,000 Storage USA, Deb., 7.50%,
12/1/2027 652,035
600,000 Sun Communities, Inc., Medium Term Note, 6.77%,
5/16/2005 611,280
Total 2,760,480
RETAIL
TRADE-2.5%
1,000,000 Harcourt General, Inc., Sr. Deb., 7.20%,
8/1/2027 947,690
1,130,550 K Mart Corp., Pass Thru Cert., 8.54%,
1/2/2015 1,108,866
1,000,000 May Department Stores Co., Deb., 8.125%,
8/15/2035 1,167,490
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
RETAIL
TRADE-CONTINUED
$ 1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%,
8/15/2016 $ 1,053,760
1,250,000 Shopko Stores, Inc., Sr. Note, 9.25%,
3/15/2022 1,513,775
Total 5,791,581
SERVICES-3.8%
750,000 California Energy Co., Inc., Sr. Disc. Note, 10.25%,
1/15/2004 792,188
1,000,000 Comcast Corp., Note, 8.50%,
5/1/2027 1,201,330
1,000,000 Continental Cablevision, Sr. Deb., 9.50%,
8/1/2013 1,206,590
1,300,000 Loewen Group Int'l., Sr. Note, 8.25%,
4/15/2003 1,007,500
1,200,000 TKR Cable, Inc., Deb., 10.50%,
10/30/2007 1,327,776
1,000,000 USA Waste Services, Inc., Sr. Note, 7.125%,
10/1/2007 1,039,710
1,250,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%,
3/15/1999 1,270,775
1,000,000 Waste Management, Inc., Deb., 8.75%,
5/1/2018 1,119,140
Total 8,965,009
SOVEREIGN
GOVERNMENT-0.6%
250,000 Quebec, Province of, Notes, 9.125%,
8/22/2001 278,172
1,000,000 Quebec, Province of, Deb., 13.25%,
9/15/2014 1,115,500
Total 1,393,672
TRANSPORTATION-0.8%
1,000,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4B,
6.90%,
1/2/2017 1,054,630
700,000 Southwest Airlines Co., Deb., 7.375%,
3/1/2027 726,306
Total 1,780,936
UTILITIES-1.6%
1,000,000 BellSouth Telecommunications, Inc., Deb., 7.00%,
12/1/2095 1,088,780
300,000 BellSouth Telecommunications, Inc., Deb., 7.625%,
5/15/2035 325,611
1,000,000 Enersis S.A., Note, 7.40%,
12/1/2016 781,110
750,000 (b) Israel Electric Corp. Ltd., Sr. Note, 7.875%,
12/15/2026 746,730
600,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%,
12/1/2027 623,880
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
UTILITIES-CONTINUED
$ 500,000 (b) Tenaga Nasional Berhad, Deb., 7.50%,
1/15/2096 $ 208,180
Total 3,774,291
TOTAL CORPORATE BONDS (IDENTIFIED COST
$66,691,012) 67,863,595
GOVERNMENT AGENCIES-13.0%
MORTGAGE BACKED
SECURITIES-4.5%
1,000,000 Federal Home Loan Bank System, 5.905%,
7/22/2008 1,040,840
2,000,000 Federal Home Loan Bank System, Sr. Note, 5.80%,
9/2/2008 2,082,020
742,500 Federal Home Loan Mortgage Corp., Pool E72530, 6.50%,
9/1/2013 753,407
1,000,000 Federal Home Loan Mortgage Corp., Pool TBA, 6.50%,
11/1/1999 1,008,130
1,010,000 Federal Home Loan Mortgage Corp., Pool C15694, 7.00%,
10/1/2028 1,030,200
505,000 Federal National Mortgage Association, Pool 445522, 6.00%,
10/1/2028 499,001
1,000,000 Federal National Mortgage Association, Pool TBA, 6.00%,
12/1/1999 1,004,060
505,000 Federal National Mortgage Association, Pool 441253, 6.50%,
12/1/1999 508,944
24,014 Federal National Mortgage Association, Pool 50796, 7.50%,
9/1/2023 24,644
315,647 Federal National Mortgage Association, Pool 124009, 9.00%,
11/1/2021 335,078
1,000,000 Government National Mortgage Association, Pool TBA, 7.00%,
11/1/2099 1,023,440
750,000 Government National Mortgage Association, Pool 483195, 7.50%,
10/15/2028 772,965
495,001 Government National Mortgage Association, Pool 456589,
8.00%,
7/15/2028 512,944
Total 10,595,673
TREASURY
SECURITIES-8.5%
2,000,000 United States Treasury Bond, 6.375%,
8/15/2027 2,304,520
750,000 United States Treasury Bond, 8.125%,
5/15/2021 1,014,165
1,000,000 United States Treasury Bond, 11.625%,
11/15/2004 1,367,650
5,800,000 United States Treasury Note, 5.25%,
8/15/2003 6,052,822
</TABLE>
FEDERATED STOCK AND BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
GOVERNMENT AGENCIES-CONTINUED
TREASURY
SECURITIES-CONTINUED
$ 3,800,000 United States Treasury Note, 5.625%,
5/15/2008 $ 4,094,500
1,000,000 United States Treasury Note, 7.75%,
11/30/1999 1,034,740
3,300,000 United States Treasury Note, 7.875%,
11/15/2004 3,878,589
Total 19,746,986
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST
$29,816,916) 30,342,659
MUNICIPAL SECURITIES-1.3%
1,000,000 Harvard University, Revenue Bonds, 8.125% Bonds,
4/15/2007 1,184,230
500,000 Atlanta & Fulton County, GA Recreation Authority, Taxable
Revenue Bonds, Series 1997, 7.00% Bonds (Downtown Arena
Project)/(FSA INS),
12/1/2028 533,345
250,000 McKeesport, PA, Taxable G.O. Series B 1997, 7.30% Bonds
(MBIA INS),
3/1/2020 263,982
1,000,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds
(FSA LOC),
11/1/2018 1,151,900
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST
$2,807,755) 3,133,457
MUTUAL FUNDS-2.5%
647,877 The High Yield Bond Portfolio (IDENTIFIED COST
$6,148,122) 5,811,456
(C)REPURCHASE AGREEMENT-1.9%
4,450,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 10/30/
1998, due 11/2/1998 (AT AMORTIZED
COST) 4,450,000
TOTAL INVESTMENTS (IDENTIFIED COST
$210,911,748)(D) $ 233,999,615
</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, 1998, these securities
amounted to $7,237,043 which represents 3.1% 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
investments in the repurchase agreement is through articipation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $211,084,518.
The net unrealized appreciation of investments on a federal tax basis amounts to
$22,915,097 which is comprised of $30,218,728 appreciation and $7,303,631
depreciation at October 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($232,948,503) at October 31, 1998.
The following acronyms are used throughout this portfolio:
ADR -American Depositary 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 TBA -To Be Announced
(See Notes which are an integral part of the Financial Statements)
FEDERATED STOCK AND BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
<C>
ASSETS:
Total investments in securities, at value (identified cost $210,911,748 and tax
cost $211,084,518) $ 233,999,615 Income receivable 2,272,513 Receivable for
shares sold 691,749 Total assets 236,963,877 LIABILITIES: Payable for
investments purchased $ 3,728,109 Payable for shares redeemed 78,251 Payable to
Bank 67,672 Payable for taxes withheld 691 Accrued expenses 140,651 Total
liabilities 4,015,374 NET ASSETS: 12,176,606 shares outstanding $ 232,948,503
NET ASSETS CONSIST OF: Paid in capital $ 198,668,661 Net unrealized appreciation
of investments and translation of assets and liabilities in foreign currency
23,087,867 Accumulated net realized gain on investments and foreign currency
transactions 10,904,425 Undistributed net investment income 287,550 Total net
assets $ 232,948,503 NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS
PER SHARE: CLASS A SHARES: Net Asset Value Per Share ($196,149,337 / 10,249,352
shares outstanding) $19.14 Offering Price Per Share (100/94.50 of $19.14)*
$20.25 Redemption Proceeds Per Share $19.14 CLASS B SHARES: Net Asset Value Per
Share ($26,487,330 / 1,386,561 shares outstanding) $19.10 Offering Price Per
Share $19.10 Redemption Proceeds Per Share (94.50/100 of $19.10)* $18.05 CLASS C
SHARES: Net Asset Value Per Share ($10,311,836 / 540,693 shares outstanding)
$19.07 Offering Price Per Share $19.07 Redemption Proceeds Per Share (99.00/100
of $19.07)** $18.88
</TABLE>
* See "What do 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, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $16,035) $3,223,014
Interest 5,955,393
Total income 9,178,407
EXPENSES:
Investment advisory fee $1,476,808
Administrative personnel and services fee 185,000
Custodian fees 21,970
Transfer and dividend disbursing agent fees and expenses 198,597
Directors'/Trustees' fees 12,075
Auditing fees 16,092
Legal fees 3,211
Portfolio accounting fees 81,009
Distribution services fee-Class B Shares 108,597
Distribution services fee-Class C Shares 32,704
Shareholder services fee-Class A Shares 451,137
Shareholder services fee-Class B Shares 36,199
Shareholder services fee-Class C Shares 10,901
Share registration costs 58,258
Printing and postage 36,879
Insurance premiums 4,110
Taxes 10,300
Miscellaneous 15,671
Total expenses 2,759,518
Waivers-
Waiver of investment advisory fee (144,801)
Net expenses 2,614,717
Net investment income 6,563,690
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on investments and foreign currency
transactions
11,035,163
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency
1,575,841
Net realized and unrealized gain on investments and
foreign currency
12,611,004
Change in net assets resulting from operations $
19,174,694
</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 OCTOBER 31,
1998 1997
<S>
<C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $
6,563,690 $ 4,688,063
Net realized gain on investments and foreign currency
transactions ($11,079,396 and $22,149,236, respectively, as
computed for federal tax purposes)
11,035,163 22,063,804
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency
1,575,841 4,663,076
Change in net assets resulting from operations
19,174,694 31,414,943
NET EQUALIZATION CREDITS-
- - 289,759
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment
income
Class A Shares
(6,313,087) (4,348,933)
Class B Shares
(396,588) (38,375)
Class C Shares
(114,568) (9,286)
Distributions from net realized gains on investments and
foreign currency
transactions
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
(28,933,588) (17,688,593)
SHARE TRANSACTIONS-
Proceeds from sale of shares
100,669,369 60,106,988
Net asset value of shares issued to shareholders in payment
of distributions declared
24,499,769 14,484,711
Cost of shares redeemed
(50,977,134) (50,881,341)
Change in net assets resulting from share transactions
74,192,004 23,710,358
Change in net assets
64,433,110 37,726,467
NET ASSETS:
Beginning of period
168,515,393 130,788,926
End of period (including undistributed net investment income
of $287,550 and $573,528, respectively) $
232,948,503 $ 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>
YEAR ENDED OCTOBER 31,
1998
1997 1996 1995 1994
<S> <C>
<C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.46
$18.96 $18.38 $16.25 $16.87
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.65
0.63 0.61 0.63 0.51
Net realized and unrealized gain (loss) on investments 1.37
3.34 1.81 2.21 (0.59)
Total from investment operations 2.02
3.97 2.42 2.84 (0.08)
LESS
DISTRIBUTIONS
Distributions from net investment income (0.69)
(0.56) (0.63) (0.62) (0.54)
Distributions from net realized gain on investments (2.65)
(1.91) (1.21) (0.09) -
Total distributions (3.34)
(2.47) (1.84) (0.71) (0.54)
NET ASSET VALUE, END OF PERIOD $19.14
$20.46 $18.96 $18.38 $16.25
TOTAL RETURN(A) 11.09%
23.02% 14.57% 17.99% (0.48% )
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.25%
1.21% 1.10% 1.07% 1.06%
Net investment income 3.30%
3.06% 3.44% 3.71% 3.23%
Expense waiver/reimbursement(b) 0.07%
0.16% 0.27% 0.31% 0.07%
SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted) $196,149
$162,780 $130,694 $134,669 $125,382
Portfolio turnover 53%
87% 74% 68% 45%
</TABLE>
(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.
(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
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 0.50
0.51 0.02
Net realized and unrealized gain on investments 1.37
3.34 1.05
Total from investment operations 1.87
3.85 1.07
LESS
DISTRIBUTIONS
Distributions from net investment income (0.57)
(0.45) -
Distributions from net realized gain on investments (2.65)
(1.91) -
Total distributions (3.22)
(2.36) -
NET ASSET VALUE, END OF PERIOD $19.10
$20.45 $18.96
TOTAL RETURN(B) 10.26%
22.20% 5.98%
RATIOS TO AVERAGE NET
ASSETS
Expenses 2.00%
1.96% 1.96% *
Net investment income 2.55%
2.31% 3.52% *
Expense waiver/reimbursement(c) 0.07%
0.16% 0.15% *
SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted) $26,487
$4,622 $94
Portfolio turnover 53%
87% 74%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 30, 1996 (date of initial
public investment) 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.
(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 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 0.50
0.47 0.04
Net realized and unrealized gain on investments 1.37
3.35 1.03
Total from investment operations 1.87
3.82 1.07
LESS
DISTRIBUTIONS
Distributions from net investment income (0.57)
(0.45) -
Total distributions from net realized gain on investments (2.65)
(1.91) -
Total distributions (3.22)
(2.36) -
NET ASSET VALUE, END OF PERIOD $19.07
$20.42 $18.96
TOTAL RETURN(B) 10.21%
22.08% 5.98%
RATIOS TO AVERAGE NET
ASSETS
Expenses 2.00%
1.96% 2.03% *
Net investment income 2.55%
2.31% 1.94% *
Expense waiver/reimbursement(c) 0.07%
0.16% 0.15% *
SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted) $10,312
$1,114 $2
Portfolio turnover
53% 87% 74%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 30, 1996 (date of initial
public investment) 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STOCK AND BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
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-ended 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.
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.
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 paydown of
certain debt instruments. The following reclassification was made to the
financial statements.
UNDISTRIBUTED NET ACCUMULATED NET
PAID-IN CAPITAL INVESTMENT INCOME REALIZED GAINS
$114,198 ($25,425) ($88,773)
FEDERAL TAXES-It is the Funds' policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders
each year substantially all of their income. Accordingly, no provisions for
federal tax are necessary.
EQUALIZATION-Effective November 1, 1997 the Fund discontinued its use of
equalization. Equalization is an accounting practice whereby a portion of the
proceed of sales and costs of redemptions of Fund shares is credited or charged
to undistributed net investment income on a per share basis, as determined on
the date of transaction. This change in accounting policy does not effect the
Fund's net assets, net asset value per share, or net investment income.
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 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 October 31, 1998 is
as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
125 Home Loan Owner Trust 8/3/1998 $1,249,414
Den Danske Bank 1/7/1998 524,499
Equitable Life 10/17/1996 993,878
Israel Electric Corp. 12/16/1997 770,164
Life Re Capital Trust I 7/15/1998 768,126
Normandy Finance Ltd. 7/2/1998 499,720
Reliance Industries Ltd. 1/10/1997 1,250,000
SMFC Trust Asset-Backed Certificates 2/4/1998 270,651
Swedbank 1/7/1998 520,659
Tenaga Nasional Berhad 3/3/1997 474,927
Tenet Healthcare 5/8/1998 498,060
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, 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
TOTAL 1,750,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
CLASS A SHARES
SHARES AMOUNT SHARES AMOUNT
<S> <C>
<C> <C> <C>
Shares sold 3,542,424
$ 67,544,429 2,977,985 $ 54,558,231
Shares issued to shareholders in
payment of distributions declared
1,276,278 23,272,273 809,532 14,391,854
Shares redeemed (2,526,870)
(48,035,912) (2,721,403) (50,579,473)
Net change resulting from Class A Share transactions 2,291,832
$ 42,780,790 1,066,114 $ 18,370,612
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
<S> <C>
<C> <C> <C>
CLASS B SHARES
SHARES AMOUNT SHARES AMOUNT
Shares sold 1,213,089
$ 23,170,632 229,204 $ 4,445,960
Shares issued to shareholders in payment of distributions
declared
54,776 999,932 4,184 76,944
Shares redeemed
(107,363) (2,039,916) (12,259) (243,127)
Net change resulting from Class B Share transactions 1,160,502
$ 22,130,648 221,129 $ 4,279,777
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
CLASS C SHARES
SHARES AMOUNT SHARES AMOUNT
<S> <C>
<C> <C> <C>
Shares sold 520,556
$ 9,954,308 56,460 $ 1,102,797
Shares issued to shareholders in payment of distributions
declared
12,508 227,564 870 15,913
Shares redeemed
(46,910) (901,306) (2,889) (58,741)
Net change resulting from Class C Share transactions 486,154
$ 9,280,566 54,441 $ 1,059,969
Net change resulting from share transactions 3,938,488
$ 74,192,004 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
SHARE CLASS NAME NET ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
For the year ended October 31, 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 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 is based on
the size, type, and number of accounts and transactions made by shareholders.
GENERAL-Certain of the Officers and Directors 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, 1998, were as follows:
PURCHASES $154,176,581
SALES $103,544,116
6. YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Funds' service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Funds' 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 Funds' 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.
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, 1998, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended October 31, 1998 and
1997, 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, 1998, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Stock and
Bond Fund, Inc. as of October 31, 1998, 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 16, 1998
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
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 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 Investors
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
G01454-01 (12/98)
[Graphic]
FEDERATED STOCK AND BOND FUND, INC.
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 10/31/98. The "y" axis is measured in increments of $70,000 ranging from $0
to $420,000 and indicates that the ending value of hypothetical initial
investment of $30,000 in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $378,993 on10/31/98.
FEDERATED STOCK AND BOND FUND, INC
APPENDIX
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 10/31/98. The "y" axis is measured in increments of $70,000 ranging from $0
to $420,000 and indicates that the ending value of hypothetical yearly
investments of $1,000 in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $212,323 on 10/31/98.
FEDERATED STOCK AND BOND FUND, INC.
APPENDIX
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 beneath it. The "x" axis reflects computation periods from
10/31/88 to 10/31/98. 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 would have grown to $68,097 on 10/31/98.
FEDERATED STOCK AND BOND FUND, INC
APPENDIX
A4. 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 10/31/88
to 10/31/98. The "y" axis is measured in increments of $20,000 ranging from $0
to $140,000 and indicates that the ending value of hypothetical initial
investment of $25,000 in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $72,583 on 10/31/98.
FEDERATED STOCK AND BOND FUND, INC.
APPENDIX
A5. 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 8/30/96
to 10/31/98. The "y" axis is measured in increments of $8,000 ranging from $0 to
$48,000 and indicates that the ending value of hypothetical initial investment
of $25,000 in the fund's Class B Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $34,215 on 10/31/98.
