1933 Act File No. 2-10415
1940 Act File No. 811-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ....................
Post-Effective Amendment No. 97 .................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 37 ................................... X__
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FEDERATED STOCK AND BOND FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900 (Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
__ immediately upon filing pursuant to paragraph (b).
__ on __________________pursuant to paragraph (b).
_ 60 days after filing pursuant to paragraph (a)(i). X on DECEMBER 31, 1998
pursuant to paragraph (a)(i).
75 days after filing pursuant to paragraph (a)(ii).
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
_ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
PROSPECTUS DECEMBER 31, 1998
FEDERATED STOCK AND BOND FUND, INC.
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES
A mutual fund seeking to provide relative safety of capital with the possibility
of long-term growth of capital and income by allocating investments primarily
between equity and fixed income securities.
FUND SHARES ARE NOT BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY
LOSE VALUE. As with all mutual funds, the Securities and Exchange Commission has
not approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN SUMMARY
WHAT ARE THE FUND'S FEES AND EXPENSES?
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
ACCOUNT AND SHARE INFORMATION
WHO MANAGES THE FUND?
FINANCIAL INFORMATION
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide relative safety of capital with
the possibility of long-term growth of capital and income. Consideration is also
given to current income.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a diversified portfolio that is allocated between equity and
fixed income securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
STOCK MARKET RISKS. The value of the stocks in the Fund's portfolio will go up
and down. These fluctuations could be a sustained trend or a drastic movement.
Fluctuations in the Fund's portfolio may reflect changes in individual portfolio
stocks or general changes in stock valuations and will result in changes in the
Fund's share price. The Fund's investment adviser (Adviser) attempts to manage
market risk through diversification by limiting the amount the Fund invests in
each stock.
FIXED INCOME SECURITIES RISKS. The primary factors that may reduce the
Fund's returns include: a general rise in interest rates, and defaults or an
increase in the risk of defaults on portfolio securities.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Class A Shares of Federated Stock
and Bond Fund, Inc. as of the calendar year-end for each of ten years.
The `y' axis reflects the "% Total Return" beginning with (5) and
increasing in increments of 5 up to 30.
The `x' axis represents calculation periods for the last ten calendar
years of the Fund's Class A Shares beginning with 1988. The light gray
shaded chart features ten distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for
the calendar year stated directly at its base. The calculated total return
percentage for the Fund's Class A Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1988
through 1997, are 9.28%, 12.46%, 0.19%, 18.52%, 7.33%, 10.50%, (1.92%),
25.06%, 13.69%, and 23.92%.
The total returns displayed for the Fund's Class A Shares do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
The Fund's Class A Shares' total return from January 1, 1998, to September 31,
1998, was 5.77%.
Within the period shown in the Chart, the Fund's Class A Shares' highest
quarterly return was 6.58%. Its lowest quarterly return was (7.58%).
Average Annual Total Returns for the Fund's Class A Shares, Class B Shares,
and Class C Shares compared to Standard & Poors 500 Index (S&P 500), the Lehman
Brothers Government/Corporate Bond Index (LBGCBI), and the Lipper Balanced Funds
Average (LBFA) for the calendar periods ending December 31, 1997.
Calendar Period Class A Class B Class C S&P 500 LBGCBI LBFA
10 Year __ % __% __% __% __% __%
5 Year __ % __% __% __% __% __%
1 Year __ % __% __% __% __% __%
The bar chart shows the variability of the Class A Shares' actual total return
on a yearly basis.
The table shows the Fund's Class A Shares, Class B Shares, and Class C Shares
total returns averaged over a period of years relative to the S&P 500, and the
LBGCBI, broad-based market indexes and the LBFA, an average of funds with
similar investment objectives. While past performance does not necessarily
predict future performance, this information provides you with historical
performance information so that you can analyze whether the Fund's investment
risks are balanced by its potential rewards.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
FEDERATED STOCK AND BOND FUND, INC.
FEES AND EXPENSES
<TABLE>
<CAPTION>
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND'S CLASS A, B, AND C SHARES.
SHAREHOLDER FEES ( FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 5.50% None
None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............... 0.00% 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
( as a percentage of offering price)........................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee................................................... None None None
Maximum Account Fee.......................... None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) (as
a percentage of average net assets)
Management Fee (2)............................................. 0.75% 0.75% 0.75%
Shareholder Services Fee ...................................... 0.25% 0.25% 0.25%
Distribution (12b-1) Fee....................................... 0.25% 0.75% 0.75%
Other Expenses ................................................ ____% ____% ____%
Total Annual Fund Operating Expenses (before waivers).......... ____% ____% ____%
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ALTHOUGH NOT CONTRACTUALLY OBLIGATED TO DO SO, THE ADVISER WAIVED AND
DISTRIBUTOR REIMBURSED CERTAIN AMOUNTS. THESE ARE SHOWN BELOW ALONG WITH THE NET
EXPENSES THE FUND ACTUALLY PAID FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998.
WAIVER OF FUND EXPENSES (3) (4) ..........................................................................................
- ---% ---% ---%
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS).... ____% ____% ( 5) ____%
</TABLE>
(1) Shareholders who purchased $1 million or more of Class A Shares through an
investment professional on or after August 3, 1998 may be charged a contingent
deferred sales charge (load) of 0.75% for redemptions made within 24 months of
purchase if the investment professional received an advance payment. For
shareholders of Class B Shares, the maximum deferred sales charge (load) is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred sales
charge ( load) assessed is 1.00% of the lesser of the original purchase price or
the net asset value of Shares redeemed within one year of their purchase date.
(2)The maximum management fee is 0.55% of average daily net assets plus 4.50% of
gross income, excluding capital gains or losses.
(3) The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee paid
by the Fund ( after the voluntary waiver) was ____% for the year ended October
31, 1998.
(4) Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended October 31, 1998. Class A Shares has no present intention of paying
or accruing the distribution (12b-1) fee during the year ended October 31, 1999.
(5) Class B Shares convert to Class A Shares ( which pay lower ongoing expenses)
approximately eight years after purchase.
The following Example is intended to help you compare the cost of investing in
the Fund's Class A, Class B, and Class C Shares with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Class A, Class B, and
Class C Shares for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund's Class A, Class B, and Class C Shares
operating expenses are BEFORE WAIVERS as shown above and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
EXAMPLE:
CLASS A CLASS B CLASS C
Payment of the maximum sales charge:
1 Year
3 Years
5 Years
10 Years
Expenses assuming no redemption:
1 Year
3 Years
5 Years
10 Years
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Adviser's Strategy Committee determines the Fund portfolio's allocation
between equity securities and fixed income securities based upon an analysis of
general market and economic conditions. During normal market conditions, the
equity allocation ranges from 50% to 70% of the portfolio and the fixed income
allocation ranges from 30% to 50% of the portfolio.
With regard to the portion of the Fund allocated to equity securities, the Fund
pursues its investment objective by investing primarily in equity securities of
companies that are generally leaders in their industries, characterized by sound
management and have the ability to finance expected growth. The Adviser attempts
to identify good long-term values by its disciplined investment process and
careful fundamental research. The Fund's holdings ordinarily will be in the top
25% of their industries with regard to revenues.
Using its own quantitative process, the Adviser rates the future performance
potential of companies. The Adviser evaluates each company's earnings quality in
light of their current valuation to narrow the list of attractive companies. The
Adviser then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, the Adviser selects the most promising companies for the
Fund's portfolio.
Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the S&P 500 Index. Within the equity portion of the portfolio, the Fund's
allocation to a sector will not be less than 50% or more than 200% of the
Index's allocation to that sector.
With regard to the fixed income securities allocation, the Fund invests
primarily in investment grade fixed income securities. The Adviser allocates the
Fund's portfolio among business sectors and adjusts the credit quality of the
portfolio by analyzing current economic and securities market conditions,
particularly changes in interest rates and expected trends in corporate
earnings. These factors also guide the selection of maturity and duration of
portfolio securities. Duration measures the price sensitivity of a fixed income
security to changes in interest rates. In selecting a portfolio security, the
Adviser analyzes the business, competitive position, and financial condition of
the issuer to assess whether the security's risk is commensurate with its
potential return.
TEMPORARY INVESTMENTS. The Fund may temporarily depart from its principal
investment strategies by investing its assets in cash, cash items, and
shorter-term, higher quality debt securities. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause the Fund to give up greater investment
returns to maintain the safety of principal, that is, the original amount
invested by shareholders.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
CORPORATE DEBT SECURITIES are fixed income securities issued by businesses.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Notes,
bonds, debentures and commercial paper are the most prevalent types of corporate
debt securities.
INVESTMENT RATINGS. Investment grade securities include fixed income securities
rated AAA, the highest rating category, through BBB by a Nationally Recognized
Ratings Service (Ratings Service) or, if unrated, those securities determined to
be of equilavent quality by the Adviser. Noninvestment grade fixed income
securities are rated BB or below by a Ratings Service or unrated. When the Fund
invests in fixed income securities some will be rated noninvestment grade at the
time of purchase. Unrated securities will be determined by the Adviser to be of
like quality and may have greater risk but a higher yield than comparable rated
securities.
Securities rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
The specific risks associated with equity securities are as follows:
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
LIQUIDITY RISKS
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
SECTOR RISK
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. As the adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
LEVERAGE RISK
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
The specific risks associated with fixed income securities are as follows:
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations. Duration measures the price sensitivity of a fixed income
security to changes in interest rates.
CREDIT RISK
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment
of the likelihood of default by the issuer. The lower the rating of the fixed
income security, the greater the credit risk.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
CALL RISK
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
other securities. This may increase the price volatility of these securities.
RISK OF FOREIGN INVESTING
Foreign securities pose additional risks over domestic securities because
foreign economic or political conditions may be less favorable than those of
the United States. Foreign financial markets may also have fewer investor
protections. Securities in foreign markets may also suffer from taxation
policies that reduce returns for U.S. investors. Due to these risk factors,
foreign securities may be more volatile and less liquid than similar
securities traded in the U.S.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next determined public offering price.
The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open..
The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.
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MAXIMUM SALES CHARGE
SHARES OFFERED MINIMUM FRONT-END CONTINGENT
INITIAL/SUBSEQUENT SALES DEFERRED
INVESTMENT CHARGE(2) SALES
AMOUNTS(1) CHARGE(3)
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CLASS A $1500/$100 5.50% None
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CLASS B $1500/$100 None 5.50%
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CLASS C $1500/$100 None 1.00%
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(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be invested
in Class A Shares instead of Class B Shares in order to maximize your return
and to minimize the sales charges and marketing fees. Accounts held in the
name of an investment professional may be treated differently. Class B Shares
will convert to Class A Shares at NAV approximately eight years after
purchase.
(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.
(3) See Sales Charge When You Redeem below.
<PAGE>
SALES CHARGE WHEN YOU PURCHASE
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CLASS A SHARES
PURCHASE AMOUNT SALES CHARGE AS SALES CHARGE
A PERCENTAGE OF AS A
PUBLIC OFFERING PERCENTAGE OF
PRICE NAV
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Less than $50,000 5.50% 5.82%
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$50,000 but less than 4.50% 4.71%
$100,000
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$100,000 but less than 3.75% 3.90%
$250,000
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$250,000 but less than 2.50% 2.56%
$500,000
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$500,000 but less than 2.00% 2.04%
$1 million
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$1 million or greater(1) 0.00% 0.00%
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(1) A contingent deferred sales charge of 0.75% of the redemption amount
applies to Class A Shares redeemed up to 24 months after purchase under
certain investment programs where an investment professional received an
advance payment on the transaction.
THE SALES CHARGE AT PURCHASE MAY BE REDUCED OR ELIMINATED BY: Opurchasing
Shares in greater quantities to reduce the applicable sales charge;
Ocombining concurrent purchases of Shares:
Oby you, your spouse, and your children under age 21; or
Oof the same class of two or more Federated Funds (other than money
market funds);
oaccumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or
osigning a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES: owithin 120
days of redeeming Shares of an equal or lesser amount; oas a Federated
Life Member; oby exchanging shares from the same share class of another
Federated Fund (other than a money market fund); othrough wrap accounts or
other investment programs where you pay the investment professional
directly for services; or othrough investment professionals that receive
no portion of the sales charge.
If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional must notify the Fund's
Distributor, Federated Securities Corp., at the time of purchase. You will
receive the reduced sales charge only on additional purchases, and not
retroactively on previous purchases.
<PAGE>
SALES CHARGE WHEN YOU REDEEM
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
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CLASS B SHARES
SHARES HELD UP TO: CDSC
------------------------------------------------------------
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1 year 5.50%
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2 years 4.75%
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3 years 4.00%
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4 years 3.00%
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5 years 2.00%
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6 years 1.00%
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7 years or more 0.00%
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CLASS C SHARES
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You will pay a 1% CDSC if you redeem Shares within one year of the
purchase date.
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YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
opurchased with reinvested dividends or capital gains;
o purchased within 120 days of redeeming Shares of an equal or lesser
amount;
othat you exchange into the same share class of another Federated Fund
where the original shares were held for seven years or more (other than a
money market fund);
opurchased through investment professionals that did not receive advanced
sales payments; or oif you have certain disabilities as defined by the
IRS.
<PAGE>
In addition, you will not be charged a CDSC:
owhen the Fund redeems your Shares and closes your account for failing to
meet the minimum balance requirement; oif your redemption is a required
retirement plan distribution; oupon the death of the shareholder(s) of the
account or the redemption of Shares by a designated beneficiary.
If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.
TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE FUND REDEEMS YOUR SHARES
IN THIS ORDER:
oShares that are not subject to a CDSC;
oShares held the longest (to determine the number of years your Shares
have been held, include the time you held shares of other Federated Funds
that have been exchanged for Shares of this Fund); and
othen, the CDSC is based on the NAV at the time you purchased or redeemed
those Shares, whichever is lower.
HOW IS THE FUND SOLD?
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through investment professionals. When
the Distributor receives sales charges and marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares, and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.
Where the Fund offers more than one Share Class and you do not specify the Class
choice on your form of payment, you automatically will receive Class A Shares.
<PAGE>
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Fund
on the same day and the Fund receives payment within three business days. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
w Establish your account with the Fund by submitting a completed New Account
Form; and w Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the NAV on
the day the Fund receives your wire or your check. If your check does not clear,
your purchase will be canceled and you could be liable for any losses or fees
the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the NAV on the day the Fund receives the order.
BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number; Nominee/Institution Name;
Fund Name and Number and Account Number.
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK. Make your check payable to The Federated Funds, note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program
section of the New Account Form or by contacting the Fund or your investment
professional.
<PAGE>
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be charged an annual IRA
account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or o directly from the Fund if you purchased Shares
directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE. You may redeem or exchange Shares by calling the Fund once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
BY MAIL. You may redeem or exchange Shares by mailing a written request to
the Fund. You will receive a redemption amount based on the NAV on the day the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600, Boston, MA 02266-8600.
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY to: Federated Shareholder
Services Company 1099 Hingham Street, Rockland, MA 02370-3317.
ALL REQUESTS MUST INCLUDE:
o Fund Name and Share Class, account number and account registration; o amount
to be redeemed or exchanged; o signatures of all Shareholders exactly as
registered; and
o IF EXCHANGING, the Fund Name and Share Class, account number and account
registration into which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption will be sent to an address other than the address of record;
w your redemption will be sent to an address of record that was changed within
the last thirty days; w a redemption is payable to someone other than the
shareholder(s) of record; or w IF EXCHANGING (TRANSFERRING) into another fund
with a different shareholder registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or trust company, savings association or credit union) or a
broker/dealer that is a domestic stock exchange member, BUT NOT BY A NOTARY
PUBLIC.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established prior to
redeeming Shares:
o an electronic transfer to your account at a financial institution that is an
ACH member; or o wire payment to your account at a domestic commercial bank that
is a Federal Reserve System member.
REDEMPTION IN KIND. Although the Fund intends to pay Share redemptions in cash,
it reserves the right to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
w to allow your purchase to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund. If
those checks are undeliverable and returned to the Fund, the proceeds will be
reinvested in Shares.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must: w ensure that the Share registrations are
identical; w meet any minimum initial investment requirements; and w receive a
prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.
SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange Shares on a regular basis by completing
the appropriate section of the New Account Form or an Account Service Options
Form or by contacting your investment professional or the Fund. Your account
value must meet the minimum initial investment amount at the time the program is
established. This program may reduce, and eventually deplete, your account.
Payments should not be considered yield or income. Generally, it is not
advisable to continue to purchase Shares subject to a sales charge while
redeeming Shares using this program.
<PAGE>
SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES. You will not be
charged a CDSC on SWP redemptions if: w you redeem 12% or less of your
account value in a single year; w your account is at least one year old; w
you reinvest all dividends and capital gains distributions; and w your
account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to
meet this minimum balance).
You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually.
CHECKWRITING
You may request a checking account to redeem your Fund Shares. Your account will
continue to receive the daily dividend declared on the Shares to be redeemed
until the check is presented for payment. Checks may be made payable only to
third-parties and may not be used to redeem Shares or to close your account.
DEBIT CARD
You may request a debit card account which will permit you to redeem Shares for
purchases. A fee will be charge to your account for this service.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Fund will record your telephone instructions. If the
Fund does not follow reasonable procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Fund will notify you if
it changes telephone transaction privileges.
SHARE CERTIFICATES. The Fund no longer issues share certificates. If you are
redeeming or exchanging Shares represented by certificates previously issued by
the Fund, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends quarterly to shareholders. Dividends
are paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own shares in order to
earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment will be
reinvested in Shares and your distribution option will convert to automatic
reinvestment. If any distribution check remains uncashed for six months the
check will no longer be honored, the check amount will be reinvested in Shares,
and you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
the shareholder will be notified and allowed 30 days to purchase additional
Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividend and capital gains distributions are taxable at
different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax preparer
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUND?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The Fund's
portfolio managers are:
Michael P. Donnelly has been a portfolio manager of the Fund since December
1997 and is responsible for managing the equity portion of the Fund. Mr.
Donnelly joined Federated Investors, Inc. or its predecessor in 1989 as an
Investment Analyst and has been a Vice President of the Fund's adviser and
Federated Research Corp. since 1994. He served as an Assistant Vice President of
the Fund's adviser and Federated Research Corp. from 1992 to 1994. Mr. Donnelly
is a Chartered Financial Analyst and received his M.B.A. from the University of
Virginia.
Charles A. Ritter has been the Fund's portfolio manager since October 1998.
Mr. Ritter joined Federated Investors, Inc. or its predecessor in 1983 and has
been a Vice President of the Fund's investment adviser since 1992. Mr. Ritter is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Chicago and his M.S. in Economics from Carnegie Mellon University.
Joseph M. Balestrino has been a portfolio manager of the Fund since May
1994 and is responsible for managing the overall allocation of the Fund's assets
within the corporate sector. Mr. Balestrino also manages the investment grade
portion of the Fund. Mr. Balestrino joined Federated Investors, Inc. or its
predecessor in 1986 and has been a Vice President of the Fund's investment
adviser and Federated Research Corp. since 1995. Mr. Balestrino served as an
Assistant Vice President of the investment adviser and Federated Research Corp.
from 1991 to 1995. Mr. Balestrino is a Chartered Financial Analyst and received
his Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.
Mark E. Durbiano has been a portfolio manager of the Fund since September
1996 and is responsible for managing the high yield portion of the Fund. Mr.
Durbiano joined Federated Investors, Inc. or its predecessor in 1982 and has
been a Senior Vice President of the Fund's investment adviser and Federated
Research Corp. since January 1996. From 1988 through 1995, Mr. Durbiano was a
Vice President of the Fund's investment adviser and Federated Research Corp. Mr.
Durbiano is a Chartered Financial Analyst and received his M.B.A. in Finance
from the University of Pittsburgh.
The Adviser and other subsidiaries of Federated advise and/or provide
administrative services to more than 300 mutual funds and private accounts,
which total over $120 billion in assets as of December 31, 1997. Federated was
established in 1955 and is one of the largest mutual fund investment managers in
the United States with more than 2,000 employees. Over 4,000 investment
professionals make Federated Funds available to their customers.
The Adviser receives an annual investment advisory fee equal to 0.55% of the
Fund's average daily net assets plus 4.50% of the Fund's gross income. The
Adviser may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses.
Gross income includes, in general, discount earned on U.S. Treasury bills and
agency discount notes, interest earned on all interest-bearing obligations, and
dividend income recorded on the ex-dividend date but does not include capital
gains or losses or reduction for expenses.
YEAR 2000 READINESS. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following financial highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and capital
gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
To be filed by Amendment.
<PAGE>
FEDERATED STOCK AND BOND FUND
CLASS A SHARES, CLASS B SHARES, CLASS C SHARES
A Statement of Additional Information (SAI) dated December 31, 1998, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Fund's annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge call your investment professional or the Fund at
1-800-341-7400.
Internet Address: www.federatedinvestors.com
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Cusip 313911109
Cusip 313911208
Cusip 313911307
8012905
811-1
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 31, 1998
FEDERATED STOCK AND BOND FUND, INC.
CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Stock and Bond
Fund, Inc. (Fund), dated December 31, 1998.
This SAI incorporates by reference the Fund's Annual Report. Obtain the
prospectuses or the Annual Report without charge by calling 1-800-341-7400.
TABLE OF CONTENTS
HOW IS THE FUND ORGANIZED?
SECURITIES IN WHICH THE FUND INVESTS
WHAT DO SHARES COST?
HOW IS THE FUND SOLD?
SUBACCOUNTING SERVICES
REDEMPTION IN KIND
ACCOUNT AND SHARE INFORMATION
TAX INFORMATION
WHO MANAGES AND PROVIDES
SERVICES TO THE FUND?
HOW DOES THE FUND MEASURE PERFORMANCE?
WHO IS FEDERATED INVESTORS, INC.?
INVESTMENT RATINGS
[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
CUSIP 313911109
CUSIP 313911208
CUSIP 313911307
8012905 (12/98)
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on October 31, 1934. The
Corporation may offer separate series of shares representing interests in
separate portfolios of securities. The Corporation changed its name from Stock
and Bond Fund, Inc. on February 26, 1996.
The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all of the above-mentioned Shares.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES represent a share of the issuer's earnings and assets, after
the issuer pays its liabilities. Generally, issuers have discretion as to the
payment of any dividends or distributions. As a result, investors cannot predict
the income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities,
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. The Fund may treat such redeemable preferred stock as a fixed
income security.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES. Corporations typically issue
stocks. Other types of entities may issue securities comparable to common or
preferred stocks. These entities include limited partnerships, limited
liability companies, business trusts and companies organized outside the
United States.
REITS are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. RIGHTS are the same as warrants, except they are
typically issued to existing stockholders.
FIXED INCOME SECURITIES pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
A security's YIELD measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.
The Fund may invest in noninvestment grade fixed income securities. Although the
selection of noninvestment grade securities involves the same factors as
investment grade securities, the Adviser gives greater emphasis to its analysis
of the issuer. The Fund will invest in noninvestment grade securities primarily
by investing in another mutual fund advised by an affiliate of the Adviser. The
other mutual fund is managed independently of the Fund and may incur additional
expenses. The Fund may also invest directly in noninvestment grade securities.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risk.
AGENCY SECURITIES are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risk, but not as low
as Treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does
not reduce the market and prepayment risks of these mortgage backed
securities.
CORPORATE DEBT SECURITIES are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The credit risks of corporate debt securities vary
widely among issuers.
MUNICIPAL SECURITIES are fixed income securities issued by states, counties,
cities and other political subdivisions and authorities. Although many
municipal securities are exempt from federal income tax, the Fund intends to
invest in taxable municipal securities.
MORTGAGE BACKED SECURITIES represent interests in pools of mortgages. The
underlying mortgages normally have similar interest rates, maturities and
other terms. Mortgages may have fixed or adjustable interest rates. Interests
in pools of adjustable rate mortgages are know as "ARMS."
Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high rate mortgages when
mortgage rates fall. This results in the prepayment of mortgage backed
securities, which deprives holders of the securities of the higher yields.
Conversely, prepayments due to refinancings decrease when mortgage rates
increase. This extends the life of mortgage backed securities with lower
yields. As a result, increases in prepayments of premium mortgage backed
securities, or decreases in prepayments of discount mortgage backed
securities, may reduce their yield and price.
This relationship between interest rates and mortgage prepayments makes the
price of mortgage backed securities more volatile than most other types of
fixed income securities with comparable credit risks. Mortgage backed
securities tend to pay higher yields to compensate for this volatility.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
"PASS-THROUGH CERTIFICATES." Holders of pass-through certificates receive a
pro rata share of the payments from the underlying mortgages. Holders also
receive a pro rata share of any prepayments, so they assume all the
prepayment risk of the underlying mortgages.
Collateralized mortgage obligations ("CMOS"), including interests in real
estate mortgage investment conduits ("REMICS"), allocate payments and
prepayments from an underlying pass-through certificate among holders of
different classes of mortgage backed securities. This creates different
prepayment and market risks for each CMO class. For example, in a SEQUENTIAL
PAY CMO, one class of CMOs receives all principal payments (including
prepayments). The next class of CMOs receives all principal payments after
the first class is paid off. This process repeats for each sequential class
of CMO. As a result, each class of sequential pay CMOs reduces the prepayment
risk of subsequent classes.
More sophisticated CMOs include planned amortization classes ("PACS") and
targeted amortization classes ("TACS"). PACs and TACs are issued with
COMPANION classes. PACs and TACs receive principal payments and prepayments
at a specified rate. The companion classes receive principal payments and any
prepayments in excess of this rate. In addition, PACs will receive the
companion classes' share of principal payments if necessary to cover a
shortfall in the prepayment rate. This helps PACs and TACs to control
prepayment risk by increasing the risk to their companion classes.
In addition, CMOs may allocate interest payments to one class ("IOS") and
principal payments to another class ("POS"). POs increase in value when
prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs prices tend to increase when interest rates rise (and
prepayments fall), making IOs a useful hedge against market risk.
Another variant allocates interest payments between two classes of CMOs. One
class ("FLOATERS") receives a share of interest payments based upon a market
index such as LIBOR. The other class ("INVERSE FLOATERS") receives any
remaining interest payments from the underlying mortgages. Floater classes
receive more interest (and Inverse Floater classes receive correspondingly
less interest) as interest rates rise. This shifts prepayment and market
risks from the Floater to the Inverse Floater class, reducing the price
volatility of Floater class and increasing the price volatility of the
Inverse Floater class.
CMOs must allocate all payments received from the underlying mortgages to
some class. To capture any unallocated payments, CMOs generally have an
accrual ("Z") class. Z classes do not receive any payments from the
underlying mortgages until all other CMO classes have been paid off. Once
this happens, holders of Z class CMOs receive all payments and prepayments.
Similarly, REMICs have "RESIDUAL INTERESTS" that receive any mortgage
payments not allocated to another REMIC class.
The degree of increased or decreased prepayment risk depends upon the
structure of the CMOs. Z classes, IOs, POs, and Inverse Floaters are among
the most volatile investment grade fixed income securities currently traded
in the United States. However, the actual returns on any type of mortgage
backed security depends upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools.
ASSET BACKED SECURITIES are payable from pools of obligations other than
mortgages. Almost any type of fixed income assets (including other fixed
income securities) may be used to create an asset backed security. However,
most asset backed securities involve consumer or commercial debts with
maturities of less than ten years. Asset backed securities may take the form
of commercial paper or notes, in addition to pass through certificates. Asset
backed securities may also resemble some types of CMOs, such as Floaters,
Inverse Floaters, IOs and POs.
Historically, borrowers are more likely to refinance their mortgage than any
other type of consumer debt or short term commercial debt. In addition, some
asset backed securities use prepayment to buy addition assets, rather than
paying off the securities. Therefore, although asset backed securities may
have some prepayment risks, they generally do not present the same degree of
risk as mortgage backed securities.
ZERO COUPON SECURITIES do not pay interest or principal until final maturity.
Most debt securities provide periodic payments of interest (referred to as a
"coupon payment"). In contrast, investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the price
and the amount paid at maturity represents interest on the zero coupon
security. This increases the market and credit risk of a zero coupon
security, because an investor must wait until maturity before realizing any
return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or
"capital appreciation" bonds. Others are created by separating the right to
receive coupon payments from the principal due at maturity, a process known
as "coupon stripping." Treasury STRIPs, IOs and POs are the most common forms
of "stripped" zero coupon securities. In addition, some securities give the
issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are
referred to as "pay-in-kind" or "PIK" securities.
COMMERCIAL PAPER is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to Fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The short maturity of commercial paper reduces both the market and credit
risk as compared to other debt securities of the same issuer.
BANK INSTRUMENTS are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Instruments denominated in U.S. dollars and
issued by Non-U.S. branches of U.S. or foreign banks are commonly referred
to as EURODOLLAR instruments. Instruments denominated in U.S. dollars and
issued by U.S. branches of foreign banks are referred o as YANKEE
instruments.
DEMAND INSTRUMENTS are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Fund
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.INSURANCE CONTRACTS include guaranteed
investment contracts, funding agreements and annuities.
CREDIT ENHANCEMENT consists of an arrangement in which one company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the other company makes all payments directly to the security holders
and receives reimbursement from the issuer. Normally, the company providing
such credit enhancement has greater financial resources and liquidity than
the issuer. This may lead the Adviser to evaluate the credit risk of a fixed
income security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes
arrangements where securities or other liquid assets secure payment of a
fixed income security. Following a default, these assets may be sold and the
proceeds paid to security's holders. Either form of credit enhancement
reduces credit risk by providing another source of payment for a fixed income
security.
CONVERTIBLE SECURITIES are fixed income securities that the Fund has the option
to exchange for equity securities at a specified CONVERSION PRICE. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities convertible into shares of common stock at a conversion price
of $10 per share. If the market value of the shares reached $12, the Fund could
realize an additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income securities
to compensate for the value of the conversion option. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
DERIVATIVE CONTRACTS are financial instruments that require payments based upon
changes in the values of designated (or "underlying") securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a "counterparty."
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all of the terms of the contract except for the
price. Investors make any payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to "close out" their contracts by entering into offsetting
contracts.
For example, a Fund could close out an open purchase (or sale) contract by
entering into an offsetting sale (or purchase) contract for the same amount of
the same assets and the same delivery date. If the offsetting purchase price is
less than the original sale price, the Fund realizes a gain; if it is more, the
Fund realizes a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. The Fund might not always be able to close out a position when
it wants to; if this happens, the Fund will be required to keep the contract
open (even if it is losing money on the contract ), and to make any payments
required under the contract (even if it has to sell portfolio securities at
unfavorable prices to do so), and the Fund could incur substantial losses.
Inability to close out a contract could also harm the Fund by preventing it from
disposing of or trading any assets it has been using to secure its obligations
under the contract.
Derivative contracts can also be traded "over-the-counter" ("OTC"), in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how they are used and the relationships between the market value
of a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to Market Risk and Currency Risk, and
may also expose the Fund to Liquidity Risk and Leverage Risk. OTC contracts also
expose the Fund to Credit Risk in the event that a counterparty defaults on the
contract.
The Fund may trade in derivative contracts to hedge the portfolio. Hedging
activities are intended to reduce various kinds of risks. For example, in order
to protect against certain events that might cause the value of its portfolio
securities to decline, the Fund can buy or sell a derivative contract (or a
combination of derivative contracts) intended to rise in value under the same
circumstances. Hedging activities will not eliminate risk, even if they work as
they are intended to. In addition, these strategies are not always successful,
and could result in increased expenses and losses to the Fund. The Fund may
trade in the following types of derivative contracts.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date,
and time specified when the contract is made. Futures contracts traded OTC
are frequently referred to as "forward contracts." Entering into a contract
to buy is commonly referred to as buying or purchasing a contract or holding
a long position. Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position. Futures are considered to be
commodity contracts. The Fund can buy or sell futures contracts on portfolio
securities or indexes and engage in foreign currency forward contracts.
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Fund may:
Buy put options on portfolio securities and financial futures contracts
including index futures (in anticipation of a decrease in the value of the
underlying asset).]
Write call options on portfolio securities, financial futures contracts, and
securities which the Fund has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration (to generate income from premiums, and in
anticipation of a decrease or only limited increase in the value of the
underlying asset). If a call written by a Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
HYBRID INSTRUMENTS combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest, and/or the principal amount, payable on a hybrid security is
determined by reference to prices, changes in prices, or differences between
prices, of an underlying asset or by reference to another benchmark (such as
interest rates, currency exchange rates, a commodity index, or a securities
index). Hybrid Instruments may take a variety of forms, such as debt
instruments with interest, principal payments, and/or redemption terms
determined by reference to the value of a currency or commodity or securities
index at a future point in time; preferred stock with dividend rates
determined by reference to the value of a currency; or convertible securities
with the conversion terms related to a particular commodity. Trading in
hybrids is often done in the OTC market.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks that are not associated with a similar
investment in a traditional fixed income instrument. Hybrid instruments are
also potentially more volatile and carry greater Market Risk than traditional
instruments. Moreover, depending on the structure of the particular hybrid,
it may expose the Fund to Leverage Risk or carry Liquidity Risk.
FOREIGN SECURITIES are securities of issuers based outside the U.S. They are
primarily denominated in foreign currencies and traded outside of the U.S. In
addition to the risks normally associated with U.S. securities of the same type,
Foreign Securities are subject to Country Risk and Currency Risk. Trading in
certain foreign markets is also subject to Liquidity Risk.
DEPOSITARY RECEIPTS represent interests in underlying securities issued by a
foreign company, but traded in another market than the underlying security.
The foreign securities underlying American Depositary Receipts (ADRs) are
traded in the U.S. ADRs provide a way to buy shares of foreign-based
companies in the U.S. rather than in overseas markets. ADRs are also traded
in U.S. dollars, eliminating the need for foreign exchange transactions. The
foreign securities underlying European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs), and International Depositary Receipts (IDRs), are
traded globally or outside the U.S. Depositary Receipts involve many of the
same risks of investing directly in foreign securities, including Country
Risk and Currency Risk.
FOREIGN EXCHANGE CONTRACTS. In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, the Fund may
enter into "spot" currency trades. The Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. Use of these
derivative contracts may increase or decrease the Fund's exposure to Currency
Risk.
FOREIGN GOVERNMENT SECURITIES generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy
A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to Credit Risk.
REVERSE REPURCHASE AGREEMENTS are repurchase agreements in which a Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
Repurchase Agreements are subject to Credit Risk. In addition, Reverse
Repurchase Agreements create Leverage Risk because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.
WHEN ISSUED TRANSACTIONS are arrangements in which a Fund purchases
securities for a set price, with payment and delivery scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. The Fund
records the transaction when it agrees to purchase the securities and
reflects their value in determining the price of its shares. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Therefore, when issued transactions create Market Risk for the Fund. When
issued transactions also involve Credit Risk in the event of a counterparty
default.
DOLLAR ROLLS are transactions where the Fund sells mortgage-backed securities
with a commitment to purchase similar, but not identical, mortgage-backed
securities on a future date at a lower price. Often one or both securities
involved are TBA mortgage backed securities. Dollar rolls are subject to
Market Risk and Credit Risk. [Some funds may have Leverage Risk.]
SECURITIES LENDING. A Fund may lend portfolio securities to firms that the
Adviser has determined are creditworthy.. In return,, it will receive either
cash or liquid securities as collateral from the borrower. A Fund will
reinvest cash collateral in securities that qualify as an otherwise
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of any cash collateral. If the market value of the
loaned securities increases, the borrower must furnish additional collateral.
While portfolio securities are on loan, the borrower pays the Fund the
equivalent of any dividends or interest received on them. Loans are subject
to termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to Market Risk and Credit Risk.
ASSET COVERAGE. In order to secure its obligations in connection with futures
contracts, options, foreign exchange agreements, when-issued, and
delayed-delivery transactions, the Fund will "cover" such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities; entering into an offsetting transaction; or segregating,
earmarking, or depositing into an escrow account readily marketable securities
in an amount at all times equal to or exceeding the Fund's commitment with
respect to these instruments or contracts. As a result, use of these instruments
will impede the Fund's ability to freely trade the assets being used to cover
them, which could result in harm to the Fund.
INVESTMENT RISKS
The specific risks associated with equity securities are as follows:
STOCK MARKET RISKS
The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline and you could lose money.
The Fund's investment adviser attempts to manage market risk of investing in
individual securities by limiting the amount the Fund invests in each stock.
LIQUIDITY RISKS
Equity securities that are not widely held may trade less frequently than
more widely held securities. This limits trading opportunity making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the fund may have to lower the price, sell other securities, or
give up an investment opportunity, any of which could have a negative effect
on its performance. Infrequent trading may also lead to greater price
volatility.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of outstanding shares by the current market price per share.
In addition, investing in small capitalization companies entails greater
risk because these companies may have unproven track records, limited product
or service base, limited access to capital and may be more likely to fail
than larger, more established companies.
SECTOR RISK
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a
whole. As the adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
LEVERAGE RISK
Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
The specific risks associated with fixed income securities are as follows:
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.
Interest rate changes have a greater effect on fixed income securities with
longer durations. Duration measures the price sensitivity of a fixed income
security to changes in interest rates.
CREDIT RISK
Credit risk is the possibility that an issuer will default (the issuer fails
to repay interest and principal when due). If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities
receive different credit ratings depending on the rating company's assessment
of the likelihood of default by the issuer. The lower the rating of the fixed
income security, the greater the credit risk.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
CALL RISK
Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price.
An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
Fixed income securities that have noninvestment grade credit ratings, have
not been rated or that are not widely held may trade less frequently than
other securities. This may increase the price volatility of these securities.
RISK OF FOREIGN INVESTING
Foreign securities pose additional risks over domestic securities because
foreign economic or political conditions may be less favorable than those of
the United States. Foreign financial markets may also have fewer investor
protections. Securities in foreign markets may also suffer from taxation
policies that reduce returns for U.S. investors. Due to these risk factors,
foreign securities may be more volatile and less liquid than similar
securities traded in the U.S.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their
prices are more volatile, their values are more negatively impacted by
economic downturns, and their trading market may be more limited.
The Specific risks of investing in derivative contracts include the following:
Liquidity risk [also] refers to the possibility that the Fund may not be
able to sell a security or close out a position when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep
the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as permitted by its investment
objective and policies, and except that the Fund may enter into reverse
repurchase agreements and otherwise borrow up to one-third of the value of its
net assets including the amount borrowed, as a temporary, extraordinary or
emergency measure or to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous. This practice is not for investment
leverage. The Fund will not purchase any portfolio instruments while any
borrowings (including reverse repurchase agreements) are outstanding.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its total assets in the
securities of any one issuer, except U.S. government securities; invest in more
than 10% of the voting securities of one issuer; or invest in more than 10% of
any class of securities of one issuer.
SELLING SECURITIES
The Fund may not sell any security or evidence of interest therein unless it is
owned by the Fund and available for delivery.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts, or real estate.
UNDERWRITING
The Fund will not engage in underwriting or agency distribution of securities
issued by others.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. The purchase of
corporate or government bonds, debentures, notes or other evidences of
indebtedness shall not be considered a loan for purposes of this limitation.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total assets in
securities of companies in any one industry. However, with respect to foreign
governmental securities, the Fund reserves the right to invest up to 25% of its
total assets in fixed income securities of foreign governmental units located
within an individual foreign nation and to purchase or sell various currencies
on either a spot or forward basis in connection with these investments.
The above limitations cannot be changed unless authorized by the vote of a
majority of its outstanding voting securities. The following limitations,
however, may be changed by the Directors without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will limit investments in illiquid securities, including certain
restricted securities determined by the Directors to be illiquid non-negotiable
time deposits, unlisted options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
ACQUIRING SECURITIES
The Fund will not invest in securities issued by any other investment company or
investment trust except in regular open-market transactions or as part of a plan
of merger or consolidation. It will not invest in securities of a company for
the purpose of exercising control or management.
If a percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of such restriction.
The Fund did not borrow money or lend portfolio securities in excess of 5% of
the value of its net assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
Cash items may include short-term obligations such as:
o obligations of the U.S. government or its agencies or instrumentalities; and
o repurchase agreements.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its NAV, the Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
REDUCING OR ELIMINATING THE SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
QUANTITY DISCOUNTS. Larger purchases of the same Share class reduce the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
ACCUMULATED PURCHASES. If you make an additional purchase of Shares, you can
count previous Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.
CONCURRENT PURCHASES. You can combine concurrent purchases of the
corresponding Share class of two or Federated Funds in calculating the
applicable sales charge.
LETTER OF INTENT. You can sign a letter of intent committing to purchase a
certain amount of the same or corresponding class of Shares within a 13 month
period in order to combine such purchases in calculating the applicable sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete your commitment, the escrowed Shares
will be released to your account. If you do not complete your commitment within
13 months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.
REINVESTMENT PRIVILEGE. You may reinvest, within 120 days, your Share redemption
proceeds at the next determined NAV, without any sales charge. This sales charge
elimination is offered because a sales charge was previously assessed.
PURCHASES BY AFFILIATES OF THE FUND. The following individuals and their
immediate family members may buy Shares at NAV without any sales charge because
there are nominal sales efforts associated with their purchases:
o the Directors, employees, and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates; o Employees of State Street Bank
Pittsburgh who started their employment on January 1, 1998, and were employees
of Federated Investors,
Inc. (Federated) on December 31, 1997;
o any associated person of an investment dealer who has a sales agreement with
the Distributor; and o trusts, pension or profit-sharing plans for these
individuals.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling investment professional, the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts
are associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
o following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder and any
designated beneficiary;
o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2;
o representing a total or partial distribution (other than an account transfer,
rollover or other redemption made for purposes of reinvestment) from a
qualified plan, other than an Individual Retirement Account, Keogh Plan, or a
custodial account[,] following retirement;
o which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements; o which are qualifying redemptions of
Class B Shares under a Systematic Withdrawal Program (as described below); o of
Shares that represent a reinvestment within 120 days of a previous redemption
that was assessed a CDSC; o of Shares held by the Directors, employees, and
sales representatives of the Fund, the Adviser, the Distributor and their
affiliates;
employees of any investment professional that sells Shares pursuant to a sales
agreement with the Distributor; and the immediate family members of the
foregoing persons; and
o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or
any other investment professional, to the extent that no payments were
advanced for purchases made through such entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professional for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to a investment professional.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third-parties who have
advanced commissions to investment professional.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
<PAGE>
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professional may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
When a investment professional's customer purchases shares, the investment
professional may receive:
o an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject to
a reclaim from the investment professional should the assets leave the program
within 12 months after purchase.)
o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.
In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.
CLASS A SHARES. Investment professionals purchasing Class A Shares for their
customers are eligible to receive an advance payment from the distributor based
on the following breakpoints:
Advance Payments
as a Percentage of
TRANSACTION AMOUNT PUBLIC OFFERING PRICE
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments resets
annually to the first breakpoint on the anniversary of the first purchase.
Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program. Investment professionals must notify the Fund once an account
reaches $1 million in order to qualify for advance payments.
A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC will be waived
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.
<PAGE>
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Investment professional are encouraged to open single master accounts. However,
certain investment professional may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professional holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the investment professional with regard to
the services provided, the fees charged for those services, and any restrictions
and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Corporation
have equal voting rights, except that in matters affecting only a particular
Fund or class, only Shares of that Fund or class are entitled to vote.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders will be called by the Directors upon
the written request of shareholders who own at least 10% of the Corporation's
outstanding shares of all series entitled to vote.
As of October 9, 1998, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: MLPF&S, Jacksonville, FL, owned 5.08%
of Class C Shares; Ingersoll & Co., Des Moines, IA, owned 10.01% of the Class C
Shares; and Federated Investors Trust Co., Pittsburgh, PA, owned 7.34% of Class
C Shares.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code (Code) applicable to regulated
investment companies and to receive the special tax treatment afforded such
companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS. If the Fund purchases foreign securities, their investment
income may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the Fund would be subject. The effective rate of foreign tax cannot be
predicted since the amount of Fund assets to be invested within various
countries is uncertain. However, the Fund intends to operate so as to qualify
for treaty-reduced tax rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF DIRECTORS
The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Fund,
principal occupations for the past five years, total compensation received as a
Director from the Fund for its most recent fiscal year, and the total
compensation received from the Federated Fund Complex for the most recent
calendar year. The Federated Fund Complex is comprised of 56 funds, whose
investment advisers are affiliated with the Fund's Adviser. As of October 9,
1998, the Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding Class A, B, C Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
JOHN F. DONAHUE*#
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: July 28, 1924
Director and President
Chief Executive Officer and Director or Trustee of the Federated Fund Complex.
Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Corporation.
Compensation from Corporation $0
Compensation from Federated Fund Complex $0
THOMAS G. BIGLEY
15 Old Timber Trail, Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director or Trustee of the Federated Fund Complex; Director, Member of Executive
Committee, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
<PAGE>
JOHN T. CONROY, JR.
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North, Naples, FL
Birthdate: June 23, 1937
Director
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice-President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly, President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
WILLIAM J. COPELAND
One PNC Plaza - 23rd Floor, Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director,
PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United
Refinery; Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman,
Pittsburgh Civic Light Opera.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
JAMES E. DOWD, ESQ.
571 Hayward Mill Road, Concord, MA
Birthdate: May 18, 1922
Director
Director or Trustee of the Federated Fund Complex; Attorney-at-law; Director,
The Emerging Germany Fund, Inc.; formerly, President, Boston Stock Exchange,
Inc.; Regional Administrator, United States Securities and Exchange Commission.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
<PAGE>
LAWRENCE D. ELLIS, M.D.*
3471 Fifth Avenue, Suite 1111, Pittsburgh, PA
Birthdate: October 11, 1932
Director
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center - Downtown, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly, Member, National Board of Trustees, Leukemia
Society of America.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
EDWARD L. FLAHERTY, JR., ESQ.#
Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA
Birthdate: June 18, 1924
Director
Director or Trustee of the Federated Fund Complex; Attorney, Of Counsel, Miller,
Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly,
Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
PETER E. MADDEN
One Royal Palm Way, 100 Royal Palm Way, Palm Beach, FL
Birthdate: March 16, 1942
Director
Director or Trustee of the Federated Fund Complex; formerly, Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation; Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Banker Association;
Director, Depository Trust Corporation.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
JOHN E. MURRAY, JR., J.D., S.J.D.
President, Duquesne University, Pittsburgh, PA
Birthdate: December 20, 1932
Director
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; formerly, Dean and
Professor of Law, University of Pittsburgh School of Law; Dean and Professor of
Law, Villanova University School of Law.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
<PAGE>
WESLEY W. POSVAR
1202 Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA
Birthdate: September 14, 1925
Director
Director or Trustee of the Federated Fund Complex; President, World Society of
Ekistics, Athens; Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S. Space
Foundation; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague;
formerly, Professor, United States Military Academy; Professor, United States
Air Force Academy.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
MARJORIE P. SMUTS
4905 Bayard Street, Pittsburgh, PA
Birthdate: June 21, 1935
Director
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning; formerly, National Spokesperson,
Aluminum Company of America; business owner.
Compensation from Corporation $______
Compensation from Federated Fund Complex $______
J. CHRISTOPHER DONAHUE
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated
Shareholder Services; Director, Federated Services Company;. Mr. Donahue is the
son of John F. Donahue, PRESIDENT and DIRECTOR of the Corporation.
Compensation from Corporation $0
Compensation from Federated Fund Complex $0
<PAGE>
EDWARD C. GONZALES
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Compensation from Corporation $0
Compensation from Federated Fund Complex $0
JOHN W. MCGONIGLE
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President and Secretary of the Federated Fund Complex; Treasurer
of some of the Funds in the Federated Fund Complex; Executive Vice President,
Secretary, and Director, Federated Investors, Inc.; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director, Federated Research Corp.
and Federated Global Research Corp.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.
Compensation from Corporation $0
Compensation from Federated Fund Complex $0
RICHARD B. FISHER
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.;
Compensation from Corporation $0
Compensation from Federated Fund Complex $0
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund. The Adviser is a wholly-owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation.
OTHER RELATED SERVICES. Affiliates of the Adviser may, from time to time,
provide certain electronic equipment and software to institutional customers in
order to facilitate the purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the Adviser or by affiliates of
Federated in advising other accounts. To the extent that receipt of these
services may replace services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting those brokers who
offer brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal year ended, October 31, 1998, the Fund's adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ in brokerage commissions.
On October 31, 1998, the Fund owned securities of the following regular
broker/dealers: [identify issuer name and aggregate dollar amount of debt and
equity securities held by Fund].
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
OCTOBER 31, 1998
1998 1997 1996
Advisory Fee Earned............$............$.............$
Advisory Fee Reduction.........$............$.............$
Brokerage Commissions..........$............$.............$
Administrative Fee.............$............$.............$
12b-1 Fee......................$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Shareholder Services Fee.......$
Class A Shares.............$
Class B Shares.............$
Class C Shares.............$
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and ten-year or since inception
periods
ended October 31, 1998.
Yield given for the 30-day period endedOctober 31, 1998.
- -------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
- -------------------------------------------------------
- -------------------------------------------------------
TOTAL RETURN
- -------------------------------------------------------
- -------------------------------------------------------
One Year: % % %
Five Year: % NA NA
Ten Year: % NA NA
Since Inception: NA %* %*
- -------------------------------------------------------
- -------------------------------------------------------
YIELD
- -------------------------------------------------------
- -------------------------------------------------------
% % %
- -------------------------------------------------------
*Class B Shares and Class C Shares inception date was August 29, 1996.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
<PAGE>
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices; o charts, graphs and illustrations
using the Fund's returns, or returns in general, that demonstrate investment
concepts such as
tax-deferred compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
MORNINGSTAR, INC. An independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
SALOMON BROTHERS AAA-AA CORPORATES calculates total returns of approximately 775
issues, which include long-term, high-grade domestic corporate taxable bonds,
rated AAA-AA, with maturities of twelve years or more. It also includes
companies in industry, public utilities, and finance.
LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of approximately
5,000 issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one-month, three-month,
twelve-month, and ten-year periods and year-to-date.
S&P 500/LEHMAN BROTHERS GOVERNMENT/CORPORATE (WEIGHTED INDEX) AND THE S&P 500/
LEHMAN BROTHERS GOVERNMENT (WEIGHTED INDEX) combine the components of a
stock-oriented index and a bond-oriented index to obtain results which can be
compared to the performance of a managed fund. The indices' total returns will
be assigned various weights depending upon the Fund's current asset allocation.
Investors may also consult the fund evaluation consulting universe listed below.
Consulting universes may be composed of pension, profit-sharing, commingled,
endowment/foundation and mutual funds.
SEI BALANCED UNIVERSE is composed of 916 portfolios managed by 390 managers
representing $86 billion in assets. To be included in the universe, a portfolio
must contain a 5% minimum commitment in both equity and fixed income securities.
WHO IS FEDERATED INVESTORS, INC.?
Federated Investors, Inc. is dedicated to meeting investor needs by making
structured, straightforward and consistent investment decisions. Federated
investment products have a history of competitive performance and have gained
the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is the result of a process that combines the talents of
many individuals with the resources and tools they need. Investment decisions
are made by teams of portfolio managers and analysts which are executed by
traders dedicated to specific market sectors and who handle trillions of dollars
in annual trading volume.
MUNICIPAL FUNDS. In the municipal sector, as of December 31, 1997, Federated
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 billion in total assets. In 1976,
Federated introduced one of the first municipal bond mutual funds in the
industry and is now one of the largest institutional buyers of municipal
securities. The Funds may quote statistics from organizations including The Tax
Foundation and the National Taxpayers Union regarding the tax obligations of
Americans.
EQUITY FUNDS. In the equity sector, Federated has more than 27 years'
experience. As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
CORPORATE BOND FUNDS. In the corporate bond sector, as of December 31, 1997,
Federated managed 11 money market funds and 16 bond funds with assets
approximating $17.1 billion and $5.6 billion, respectively. Federated's
corporate bond decision making--based on intensive, diligent credit analysis--is
backed by over 22 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the industry. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200 billion.
<PAGE>
GOVERNMENT FUNDS. In the government sector, as of December 31, 1997, Federated
manages 9 mortgage-backed, 6 government/ agency and 18 government money market
mutual funds, with assets approximating $5.9 billion, $1.5 billion and $35
billion, respectively. Federated trades approximately $400 million in U.S.
government and mortgage-backed securities daily and places approximately $23
billion in repurchase agreements each day. Federated introduced the first U.S.
government fund to invest in U.S. government bond securities in 1969. Federated
has been a major force in the short- and intermediate-term government markets
since 1982 and currently manages approximately $36 billion in government funds
within these maturity ranges.
MONEY MARKET FUNDS. In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds, a
principal means used by money managers today to value money market fund shares.
Other innovations include the first institutional tax-free money market fund. As
of December 31, 1997, Federated managed more than $63.1 billion in assets across
51 money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET. Thirty-seven percent of American households are pursuing
their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4 trillion to the more than
6,700 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS. Federated meets the needs of approximately 900
institutional clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of purposes, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B.
Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING. Other institutional clients include more than 1,600 banks and
trust organizations. Virtually all of the trust divisions of the top 100 bank
holding companies use Federated Funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES. Federated Funds are
available to consumers through major brokerage firms nationwide--we have over
2,200 broker/dealer and bank broker/dealer relationships across the
country--supported by more wholesalers than any other mutual fund distributor.
Federated's service to financial professionals and institutions has earned it
high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized
as the industry benchmark for service quality measurement. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.
FINANCIAL INFORMATION
To be filed by amendment.
<PAGE>
INVESTMENT RATINGS
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
o Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
o Well established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
FEDERATED STOCK AND BOND FUND, INC.
Class A, Class B, Class C Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Distributor
FEDERATED SECURITIES CORP. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
FEDERATED MANAGEMENT Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Custodian
STATE STREET BANK AND TRUST COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
FEDERATED SHAREHOLDER SERVICES COMPANY P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
DELOITTE & TOUCHE LLP 2500 One PPG Place
Pittsburgh, PA 15222-5401
PART C. OTHER INFORMATION
Item 23.
(a) Conformed copy of Charter of the Registrant as amended;
(14) (b) Copies of By-Laws of the Registrant as amended; (14)
(c) (i) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant; (15)
(ii) Copy of Specimen Certificate for Shares of Capital
Stock for Class B Shares of the Registrant; (16) (iii)
Copy of Specimen Certificate for Shares of Capital Stock
for Class C Shares of the Registrant; (16)
(d) Conformed copy of Investment Advisory Contract of the
Registrant; (13) (e) (i) Conformed copy of Distributors
Contract; (12)
(ii) Conformed copy of Exhibit B to the Distributor's
Contract; (15) (iii) Conformed Copy of Distributor's
Contract; (18) (iv) Conformed Copy of Amendment to the
Distribution Plan; (18)
(v) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement; and Plan
Trustee/Mutual Funds Service Agreement from Item 24 (b)
(6) of the Cash Trust Series II Registration Statement
on Form N-1A, filed with the Commission on July 24,
1995. (File Numbers 33-38550 and 811-6269)
(f) Not applicable;
(g) (i) Conformed copy of Custodian Contract; (13) (ii)
Conformed copy of Custodian Fee Schedule; (17)
(h) (i) Conformed copy of Amended and Restated Shareholder
Services Agreement; (17) (ii) Conformed copy of
Principal Shareholder Services Agreement; (18) (iii)
Conformed copy of Shareholder Services Agreement; (18)
- ----------------------------
+ All exhibits have been filed electronically.
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 83 filed on Form N-1A December 28, 1993.(File Nos. 2-10415
and 811-1)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 85 filed on Form N-1A December 29, 1994.(File Nos. 2-10415
and 811-1)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 87 filed on Form N-1A December 27, 1995. (File Nos. 2-10415
and 811-1)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 88 filed on Form N-1A July 1, 1996. (File Nos. 2-10415 and
811-1)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 91 filed on Form N-1A December 23, 1996. (File Nos. 2-10415
and 811-1)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 94 filed on Form N-1A October 31, 1997. (File Nos. 2-10415
and 811-1)
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 96 filed on Form N-1A December 29, 1997. (File Nos. 2-10415
and 811-1)
<PAGE>
(iv) The responses described in Item 23 (e) (v)
are hereby incorporated by reference.
(v) The Registrant hereby incorporates the
conformed copy of the Shareholder Services Sub-
Contract between Fidelity and Federated
Shareholder Services from Item 24(b)(9)(iii) of
the Federated GNMA Trust Registration Statement
on Form N-1A, filed with the Commission on March 25,
1996. (File Nos. 2-75670 and 811-3375)
(i) Not applicable;
(j) Conformed copy of Consent of Independent Public
Accountants; (not applicable) (k) Not applicable; (l) Not
applicable; (m) Conformed copy of Distribution Plan including
Exhibit A; (15) (n) Copy of Financial Data Schedules;(not
applicable)
(o) The Registrant hereby incorporates by reference the
conformed copy of the specimen Multiple Class Plan from
Item 24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the
Commission on January 26, 1996. (File Nos. 33-52149 and
811-07141);
(p) (i) Conformed copy of Power of Attorney; (16)
(ii) Conformed copy of Limited Power of
Attorney. (16)
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
- -----------------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 49 filed on Form N-1A December 21, 1979. (File Nos.
2-10415 and 811-1)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 88 filed on Form N-1A July 1, 1996. (File Nos. 2-10415 and
811-1)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 91 filed on Form N-1A December 23, 1996. (File Nos. 2-10415
and 811-1)
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 95 filed on Form N-1A December 29, 1997. (File Nos. 2-10415
and 811-1)
<PAGE>
Item 25. Indemnification (13)
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "Fund Information - Management of the Fund"in Part
A. The affiliations with the Registrant of four of the Trustees and one
of the Officers of the investment adviser are included in Part B of
this Registration Statement under "Federated Stock and Bond Fund, Inc.,
Management." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
- ----------------------------
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 85 filed on Form N-1A December 29, 1994.(File Nos. 2-10415
and 811-1)
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Keith J. Sabol
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. Newcamp
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Part B of
this Registration Statement.
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the
following open-end investment companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia
Funds; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds;
Tax-Free Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal FundsTrust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; High Yield Cash Trust; Investment Series Trust; Peachtree
Funds; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH FUND___
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive
Federated Investors Tower President, Vice President
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to
the Agent for service at the
above address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder
Services Company P.O. Box 8600
("Transfer Agent, and Dividend Boston, MA 02266-8600
Disbursing Agent ")
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank
and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
Item 29. Management Services: Not applicable
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED STOCK AND BOND FUND,
INC., has duly caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 30th day of October 1998.
FEDERATED STOCK AND BOND FUND, INC.
BY: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis, Assistant Secretary
Attorney in Fact for John F. Donahue
October 30, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis Attorney In Fact October 30, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* President and Director
(Chief Executive Officer)
John W. McGonigle* Treasurer, Executive
Vice President and Secretary
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
