FEDERATED STOCK AND BOND FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 31, 1998
1. Please insert the following as the first subsection to the section entitled
"MORTGAGE BACKED SECURITIES" on page 2 of the Statement of Additional
Information:
"The Fund may invest in mortgage-backed securities primarily by investing in
another mutual fund that owns securities and that is advised by an affiliate of
the Adviser. This other mutual fund is managed independently of the Fund and may
incur additional administrative expenses. The Fund may also invest in such
securities directly."
2. Please insert the following as the last subsection to the section entitled
"DERIVATIVE CONTRACTS" which begins on page 4 of the Statement of
Additional Information:
"SWAPS. Swaps are contracts in which two parties agree to pay each other
(swap) the returns derived from underlying assets with differing
characteristics. Most swaps do not involve the delivery of the underlying
assets by either party, and the parties might not own the assets underlying
the swap. The payments are usually made on a net basis so that, on any given
day, the Fund would receive (or pay) only the amount by which its payment
under the contract is less than (or exceeds) the amount of the other party's
payment. Swap agreements are sophisticated instruments that can take many
different forms, and are known by a variety of names including caps, floors,
and collars. Common swap agreements that the Fund may use include:
INTEREST RATE SWAPS. Interest rate swaps are contracts in which one
party agrees to make regular payments equal to a fixed or floating
interest rate times a stated principal amount of fixed income
securities, in return for payments equal to a different fixed or
floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which
fluctuates) on $10 million principal amount in exchange for the right to
receive the equivalent of a stated fixed rate of interest on $10 million
principal amount.
CAPS AND FLOORS. Caps and Floors are contracts in which one party agrees
to make payments only if an interest rate or index goes above (Cap) or
below (Floor) a certain level in return for a fee from the other party.
TOTAL RETURN SWAPS. Total return swaps are contracts in which one party
agrees to make payments of the total return from the underlying asset
during the specified period, in return for payments equal to a fixed or
floating rate of interest or the total return from another underlying
asset."
3. Please insert the following as the third subsection to the section entitled
"SPECIAL TRANSACTIONS" on page 5 of the Statement of Additional
Information:
"SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of money market funds, as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and therefore,
any investment by the Fund in shares of other investment companies may be
subject to such duplicate expenses."
4. Please delete the following from page 8 of the Statement of Additional
Information:
"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 a 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."
February 18, 1999
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Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
www.federatedinvestors.com
Cusip 313911109
Cusip 313911208
Cusip 313911307
G01407-12 (2/99)
