SEMI-ANNUAL REPORT
[Graphic]
JOHN F. DONAHUE
President
Federated Stock and Bond Fund, Inc.
President's Message
Dear Shareholder:
I am pleased to present the Semi-Annual Report for Federated Stock and Bond
Fund, Inc., which is in its 65th year of operation. The fund's assets were
$274.6 million as of April 30, 1999, and its 86 high-quality stocks were
balanced by 93 high-quality bond issues. The fund's stock and bond professionals
manage and select the portfolio for growth of principal and income.
This report covers the first half of the fund's fiscal year which is the
six-month period from November 1, 1998 through April 30, 1999. It begins with an
interview with Michael P. Donnelly, Senior Vice President, who co-manages the
fund with Joseph Balestrino, Senior Vice President, both of Federated Investment
Management Company. Following their discussion, detailing both the stock and
bond markets and the fund's strategies, are three additional items of
shareholder interest. First is a series of graphs showing the fund's long-term
investment performance. Second is a complete listing of the fund's holdings, and
third is the publication of the fund's financial statements.
Federated Stock and Bond Fund, Inc. gives shareholders the opportunity to
participate in two fundamental financial markets. This balanced approach to
stock and bond investing helps to reduce risk in uncertain economic times as you
pursue growth of capital and income. The fund's balanced portfolio of more than
170 stock and bond issues reflects an emphasis on diversification and quality.
At the end of the reporting period, approximately 60% of the fund's assets were
allocated to stocks with 30% in bonds. As of April 30, 1999, the fund's three
largest stock positions were Sun Microsystems, Inc., Lexmark International Group
and Bristol-Meyers Squibb Co. - easily recognizable names. Our bond portfolio's
top bond holdings were in U.S. Treasuries and CNA Financial Corp., Deb., 7.25%
due 11/15/2023.
Amid a stock market that continued its upward momentum and a slightly negative
bond market due to a higher interest rate environment, the fund produced
positive total returns through good income distributions and a modest increase
in share price. Individual share class total return performance for the
six-month reporting period, including capital appreciation, realized gains and
income distributions, follows. 1
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS CAPITAL GAINS NET ASSET VALUE INCREASE
<S> <C> <C> <C> <C>
Class A Shares 9.49% $0.27 $0.90 $19.14 to $19.71 = 3%
Class B Shares 9.10% $0.20 $0.90 $19.10 to $19.67 = 3%
Class C Shares 9.06% $0.20 $0.90 $19.07 to $19.63 = 3%
</TABLE>
Thank you for participating in the growth and income potential of Federated
Stock and Bond Fund, Inc. Remember, if you are not already doing so, it is easy
to increase your participation in the performance potential of this diversified
stock and bond portfolio by reinvesting your quarterly earnings automatically in
additional fund shares.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[Graphic]
John F. Donahue
President
June 15, 1999
1 Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The total returns for the period for Class A,
B, and C Shares, based on offering price (i.e., less any applicable sales
charge), were 3.49%, 3.60%, and 8.06%, respectively.
[Graphic]
MICHAEL P. DONNELLY
Senior Vice President
Federated Investment Management Company
[Graphic]
JOSEPH BALESTRINO
Senior Vice President
Federated Investment Management Company
Investment Review
[Shareholders' Note: This fund is jointly managed by Mr. Donnelly, who is
primarily responsible for the stock portion of the fund's portfolio, and
Mr. Balestrino, who is primarily responsible for the bond portion of the
fund's portfolio.]
WHAT ARE YOUR COMMENTS ON THE STOCK AND BOND MARKETS DURING THE FIRST HALF OF
THE FUND'S FISCAL YEAR?
STOCKS
The six-month reporting period ended April 30, 1999, provided equity investors
with another solid period of returns, as evidenced by the Standard & Poor's
("S&P") 500 Index's total return of 22.32%. 1 A healthy economy, subdued
inflation, and continued euphoric investor sentiment drove the market's returns.
This investor sentiment allowed the equity markets to absorb a 50 basis point
increase in long-term interest rates without any negative consequences.
The reporting period started with the continuation of the disturbing trends of
narrow market participation and poor breadth. However, at the beginning of April
1999, these trends reversed dramatically as cyclical and value stocks rallied
dramatically. These signals showed that the fears of a global economic
recession, which haunted the markets last summer, are now history. This
improvement in the relative performance of value stocks, which have lagged
growth stocks for some time, was exemplified by the Russell 1000 Value Index, 2
which returned 20.02% for the six-month reporting period.
1 The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
Investments cannot be made in an index.
2 The Russell 1000 Value Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth values.
The index is unmanaged and investments cannot be made in an index.
BONDS
The bond market's total return performance for the reporting period, as
represented by the Lehman Brothers Government/Corporate Total Bond Index, 3 was
(0.12%). Bonds began the reporting period with a performance pattern far
different than the extreme conditions exhibited throughout the third quarter of
1998. During the fourth quarter of 1998, interest rate levels rose across the
entire maturity spectrum with the 5-year Treasury yield rising the most, up 32
basis points. All "spread" sectors generated positive returns, with significant
appreciation in the highest yielding asset classes - high-yield corporate bonds
and emerging markets.
Given that the fund is significantly weighted toward the spread products, the
fund's portfolio was in a position to benefit from that improved environment.
Partially offsetting the spread emphasis was the fact that the fund's duration
was positioned slightly longer than a neutral position; thus the fund did feel
the negative impact of slightly higher interest rates in the intermediate-term
to long-term maturity bonds.
Over the early part of 1999, the U.S. economy demonstrated surprising strength
and growth characteristics, but still within the context of very low inflation.
Generally speaking, the global equity markets turned in very strong first
quarter returns. On the other hand, U.S. interest rates rose significantly as
the "flight to quality" scenario during the summer of 1998 disappeared. Given a
stronger growth and rising interest rate backdrop, the various high-quality bond
sectors delivered small positive returns (short on the curve) to significant
negative returns (long on the curve). All spread products outperformed in the
first quarter of 1999, as yield spreads continued to narrow from the excessively
wide levels of October 1998. Agency securities and high-quality corporate bonds
generally had negative returns, but far less than U.S. Treasuries.
Mortgage-backed securities and asset- backed securities, on the other hand,
impressively generated positive total returns in a rising interest rate
environment.
HOW DID THE FUND PERFORM FOR ITS SHAREHOLDERS DURING THE SIX-MONTH REPORTING
PERIOD ENDED APRIL 30, 1999?
For the six-month reporting period, the fund's Class A, B, and C Shares produced
total returns of 9.49%, 9.10%, and 9.06%, respectively, based on net asset
value. 4 These returns were less than the 11.67% total return of the average
balanced fund as represented by the Lipper Balanced Funds Average.5
3 The Lehman Brothers Government/Corporate Total Bond Index is an unmanaged
index 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; publicly issued, fixed-rate,
non-convertible, domestic bonds of companies in industry, public utilities, and
finance. Investments cannot be made in an index.
4 Performance quoted is based on net asset value, represents past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The total returns for Class A, B, and C shares
based on offering price, (i.e., less any applicable sales charge), were 3.49%,
3.60%, and 8.06%, respectively.
5 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. Lipper returns do not take sales charges into account.
WHAT WERE SOME OF THE FUND'S RECENT STOCK PURCHASES?
Our recent purchases included the following:
BANK ONE CORP. (1.0% of stock portfolio): Despite possessing one of the largest
credit card businesses in the banking industry, this national franchise trades
at a significant discount to the banking group. The successful integration of
First Chicago NBD and better business line disclosure by management should serve
as the catalyst to bring valuation in line with the group.
LINCOLN NATIONAL CORP. (1.0% of stock portfolio): This life insurance and wealth
accumulation products company has undergone a recent restructuring including a
change in top management. Trading at half of the market multiple and twice its
yield, this undervalued franchise should rebound to a more normal valuation as
current changes are implemented.
CIT GROUP, INC. (1.5% of stock portfolio): CIT is a diversified finance company
with an extremely attractive valuation. We acquired the shares in a secondary
offering from Dai-Ichi Kangyo Bank, which reduced its holding to under 50%. This
change in ownership status and increase in float should attract other value
investors to this well run, disciplined company.
TENNECO, INC. (0.8% of stock portfolio): Despite a challenging near term
operating environment, this diversified global manufacturing company possesses
an extremely attractive valuation based on its assets. The catalyst for the
realization of this value is management's commitment to complete the
restructuring which it began three years ago.
JOSEPH, DID YOU MAKE ANY ADJUSTMENTS TO THE DURATION OF THE FUND'S BOND
HOLDINGS?
The fund did move from a slightly positive to a neutral duration target early in
January 1999; however, this rate rise did cause a negative total return in the
bond portion. The fund fortunately continued to overweight the spread, or
non-Treasury, sectors, thus performance was relatively positive versus what a
pure Treasury portfolio would have delivered. In short, the fund gained from the
advantage of higher coupons and tighter spreads. No significant portfolio
changes are anticipated over the near term. The fund will continue to emphasize
a higher income/neutral duration posture, in what appears to be a trading range
environment for Treasury yields.
WHAT WERE THE FUND'S TOP 10 HOLDINGS IN STOCKS AND BONDS AS OF APRIL 30, 1999,
AND HOW WERE THE FUND'S HOLDINGS DIVERSIFIED BY INDUSTRY AND QUALITY?
STOCKS
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME STOCK PORTFOLIO
<S> <C>
Sun Microsystems, Inc. 4.0%
Lexmark Intl. Group, Class A 2.2%
Bristol-Myers Squibb Co. 2.0%
CIGNA Corp. 2.0%
Pharmacia & Upjohn, Inc. 2.0%
Ingersoll-Rand Co. 1.8%
First Data Corp. 1.8%
News Corp., Ltd., ADR 1.7%
IBM Corp. 1.7%
Conseco, Inc. 1.7%
TOTAL 20.9%
</TABLE>
STOCKS
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
SECTOR STOCK PORTFOLIO S&P 500 INDEX
<S> <C> <C>
Financials 19.2% 16.5%
Technology 15.4% 20.1%
Capital Goods 12.5% 8.2%
Health Care 11.5% 10.9%
Energy 9.8% 9.0%
Consumer Staples 9.0% 13.2%
Consumer Cyclicals 8.8% 9.0%
Utilities 5.0% 2.8%
Communication Services 4.5% 8.5%
Basic Materials 2.8% 3.6%
Transportation 1.3% 1.1%
</TABLE>
BONDS
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME/COUPON/MATURITY BOND PORTFOLIO
<S> <C>
U.S. Treasury Note, 5.625%
due 05/15/2008 3.69%
U.S. Treasury Note, 7.875%
due 08/11/2004 3.52%
U.S. Treasury Bond, 6.375%
due 08/15/2027 2.03%
CNA Financial Corp., 7.250%
due 11/15/2023 1.84%
Figgie International Inc., 9.875%
due 10/01/1999 1.75%
Trans Ocean Container Corp., 12.25% due
07/01/2004 1.54%
TKR Cable Inc., 10.500% due 10/30/2007 1.39%
Shopko Stores, 9.250% due 03/15/2022 1.23%
Inco Ltd., 9.60% due 06/15/2022 1.23%
U.S. Treasury Bond, 11.625%
due 11/15/2004 1.23%
TOTAL 19.45%
</TABLE>
BONDS
<TABLE>
<CAPTION>
PERCENTAGE OF
BOND PORTFOLIO
<S> <C>
AAA 32.49%
AA 2.35%
A 23.30%
BBB 28.39%
BB 8.83%
B 4.64%
</TABLE>
AS WE APPROACH MID YEAR, WHAT IS YOUR OUTLOOK FOR THE STOCK AND BOND MARKETS?
STOCKS
Our stock market outlook remains basically unchanged. The market appears
overvalued by all traditional measures, but no visible catalyst is positioned to
derail this bull move. Given the recent upswing in interest rates, it is
surprising to see the market hold so strongly. The dividend discount models
maintained by the Federal Reserve Board and leading market strategists show that
the S&P 500 Index is now more than 20% overvalued given the increase in interest
rates. Given the strength apparent in the economy, the market is betting on
continued earnings strength offsetting these higher interest rates. The market's
April 1999 rotation towards cyclical and small capitalization stocks is both
encouraging and frightening at the same time.
On the plus side, an improvement in market breadth and the revival of some of
the market's worst performing sectors indicates that the global economy is
recovering, and a new overall market base is building from which future market
advances can move. On the negative side, the rotation indicates that the low
interest rates that have driven the performance of large growth stocks are no
longer accepted as the norm, and one of the market's major underpinnings, low
inflation, may be in question. We believe that the valuation disparities between
the ultra-large growth stocks and the rest of the market, combined with a strong
near term earnings outlook, can fuel a continuation of this rotation. Therefore,
we believe that the value style of investing should continue its catch-up run.
BONDS
Over the past year, the bond market has been subject to relatively large
valuation changes, as the global economic marketplace has swung from regional
recessions and currency disruptions to activity rebounds and stock market
appreciation. Domestic interest rates have increased thus far in calendar year
1999, as the domestic economy has surpassed most market expectations. The
combination of a stronger economy fueled by continued consumer spending and
higher rates now seems more in balance. Thus, a neutral position on the bond
market seems appropriate given that neither a recession nor an inflationary boom
appears likely over the near term. As such, the fund will look to add
incremental value through security and sector selection, as opposed to interest
rate anticipation strategies.
Last Meeting of Shareholders
An Annual Meeting of the Fund's shareholders was held on March 26, 1999. On
January 25, 1999, the record date for shareholders voting at the meeting, there
were 12,969,611 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
Election of Directors:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
NAMES FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C> <C>
Thomas G. Bigley 8,682,109 - - 193,162
John T. Conroy, Jr. 8,682,735 - - 192,536
Nicholas P. Constantakis 8,682,735 - - 192,536
John F. Cunningham 8,682,887 - - 192,384
J. Christopher Donahue 8,682,887 - - 192,384
Peter E. Madden 8,682,887 - - 192,384
Charles F. Mansfield, Jr. 8,682,887 - - 192,384
John E. Murray, Jr., J.D., S.J.D. 8,682,887 - - 192,384
John S. Walsh 8,682,887 - - 192,384
</TABLE>
1 The following Directors of the Trust continued their terms as Directors of
the Trust: John F. Donahue, Lawrence D. Ellis, and Marjorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the Fund's Independent
Auditors.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C>
8,655,676 15,748 203,846 -
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies.
a. To approve amending the Fund's fundamental investment policy with regard to
diversification of its investments.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C>
6,543,601 568,433 1,763,237 -
</TABLE>
b. To approve amending the Fund's fundamental investment policy regarding
borrowing to permit the purchase of securities while borrowings are outstanding.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C>
6,448,142 625,573 1,801,556 -
</TABLE>
c. To approve making non-fundamental the prohibition of the Fund's investments
in securities to exercise control of an issuer.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C>
6,670,641 385,399 1,819,231 -
</TABLE>
d. To approve amending the Fund's fundamental policy to allow investments in
real estate investment trusts.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C>
6,425,651 684,815 1,764,805 -
</TABLE>
AGENDA ITEM 4
To approve removing the Fund's fundamental investment policy regarding selling
securities.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C>
6,631,574 448,046 1,795,651 -
</TABLE>
AGENDA ITEM 5
To approve amendments to the Fund's Amended and Restated Articles of
Incorporation to permit the Board of Directors to liquidate assets of a series
or class without shareholder approval to the extent permitted under Maryland
law.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C>
6,527,097 538,414 1,809,760 -
</TABLE>
Two Ways You May Seek To Invest For Success:
INITIAL INVESTMENT
IF YOU HAD MADE AN INITIAL INVESTMENT OF $31,000 IN THE CLASS A SHARES OF
FEDERATED STOCK AND BOND FUND, INC. ON 12/31/68, REINVESTED YOUR DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$430,426 ON 4/30/99. YOU WOULD HAVE EARNED A 9.06% 1 AVERAGE ANNUAL TOTAL RETURN
FOR THE INVESTMENT LIFESPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 3/31/99, Class A Shares' average annual 1-year, 5-year, and 10-year total
returns were (0.68%), 13.54%, and 10.95%, respectively. Class B Shares' average
annual 1-year and since inception (8/30/96) total returns were (0.97%) and
15.74%, respectively. Class C Shares' average annual 1-year, 5-year, and since
inception (4/19/93) total returns were 3.35%, 13.95% and 11.89%, respectively. 2
The graphic presentation here displayed consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 12/31/68 to 4/30/99.
The "y" axis is measured in increments of $100,000 ranging from $0 to $500,000
and indicates that the ending value of a hypothetical initial investment of
$31,000 (2,064 Shares) in the Class A Shares of the fund, assuming the
reinvestment of capital gains and dividends, would have grown to $430,426
(21,838 Shares) on 4/30/99.
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.50% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 5.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 30
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $234,228.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
Stock and Bond Fund, Inc. on 12/31/68, reinvested your dividends and capital
gains, and did not redeem any shares, you would have invested only $31,000, but
your account would have reached a total value of $234,228 1 by 4/30/99. You
would have earned an average annual total return of 11.09%.
A practical investment plan helps you pursue long term growth of capital and
income through a balanced portfolio of stocks and bonds. Through systematic
investing, you buy shares on a regular basis and reinvest all earnings. An
investment plan works for you when you invest only $1,000 annually. You can take
it one step at a time. Put time, money and compounding to work.
The graphic presentation here displayed consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 12/31/68 to 4/30/99.
The "y" axis is measured in increments of $50,000 ranging from $0 to $250,000
and indicates that the ending value of a hypothetical initial investment of
$1,000 and subsequent yearly investments of $1,000 in the Class A Shares of the
fund for 30 years, assuming the reinvestment of capital gains and dividends,
would have grown to $234,228 (11,884 Shares) on 4/30/99.
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
Hypothetical Investor Profile-
Investing for a College Education
David and Joan Rice are a fictional couple who, like many shareholders, are
searching for a way to make their money grow over time.
David and Joan are planning for the college education of their child. On April
30, 1989, they invested $5,000 in the Class A Shares of Federated Stock and Bond
Fund, Inc. Since then, David and Joan have made additional investments of $250
every month.
As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to $70,868.
This represents a 11.97% average annual total return. For the Rices, a dedicated
program of monthly investment has really paid off.
The graphic presentation here displayed consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 4/30/89 to 4/30/99. The
"y" axis is measured in increments of $10,000 ranging from $0 to $80,000 and
indicates that the ending value of a hypothetical initial investment of $5,000
and additional monthly investments of $250 in the Class A Shares of the fund,
assuming the reinvestment of capital gains and dividends, would have grown to
$70,868 (3,596 Shares) on 4/30/99.
This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Portfolio of Investments
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-59.8%
BASIC MATERIALS-1.7%
89,300 Archer-Daniels-Midland Co. $ 1,339,500
14,600 Dow Chemical Co. 1,915,337
216,900 LTV Corp. 1,382,737
TOTAL 4,637,574
CAPITAL GOODS-7.4%
30,700 Allied-Signal, Inc. 1,803,625
49,400 Crown Cork & Seal Co., Inc. 1,605,500
33,000 Deere & Co. 1,419,000
44,700 Ingersoll-Rand Co. 3,092,681
24,700 Johnson Controls, Inc. 1,801,556
24,400 Koninklijke (Royal) Philips Electronics
NV, ADR 2,083,150
18,500 Northrop Grumman, Corp. 1,182,844
46,800 Parker-Hannifin Corp. 2,196,675
38,200 Tenneco, Inc. 1,031,400
28,156 Tyco International Ltd. 2,287,675
35,100 Waste Management, Inc. 1,983,150
TOTAL 20,487,256
COMMUNICATION SERVICES-2.6%
37,050 AT&T Corp. 1,871,025
31,200 Bell Atlantic Corp. 1,797,900
24,600 GTE Corp. 1,646,662
37,600 U.S. West, Inc. 1,966,950
TOTAL 7,282,537
CONSUMER CYCLICALS-5.4%
30,000 Block (H&R), Inc. 1,443,750
64,000 Cooper Tire & Rubber Co. 1,404,000
58,200 Dillards, Inc., Class A 1,611,412
23,900 General Motors Corp. 2,125,606
60,300 Hasbro, Inc. 2,057,737
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
CONSUMER CYCLICALS-CONTINUED
93,200 1 K Mart Corp. $ 1,386,350
93,200 News Corp. Ltd., ADR 2,848,425
43,200 Wal-Mart Stores, Inc. 1,987,200
TOTAL 14,864,480
CONSUMER STAPLES-5.4%
32,700 Kimberly-Clark Corp. 2,004,919
53,200 1 King World Productions, Inc. 1,875,300
38,000 Philip Morris Cos., Inc. 1,332,375
47,200 RJR Nabisco Holdings Corp. 1,215,400
52,600 Sara Lee Corp. 1,170,350
31,600 1 Tricon Global Restaurants, Inc. 2,034,250
85,600 UST, Inc. 2,386,100
15,900 Unilever N.V., ADR 1,032,506
45,400 1 Viacom, Inc., Class A 1,841,538
TOTAL 14,892,738
ENERGY-5.8%
13,000 Atlantic Richfield Co. 1,091,187
16,700 Chevron Corp. 1,665,825
114,500 ENSCO International, Inc. 2,125,406
29,700 Exxon Corp. 2,466,956
27,400 Royal Dutch Petroleum Co., ADR 1,608,038
50,400 Sunoco, Inc. 1,801,800
20,900 Texaco, Inc. 1,311,475
68,600 USX Corp. 2,143,750
38,900 YPF Sociedad Anonima, ADR 1,633,800
TOTAL 15,848,237
FINANCIALS-11.5%
143,500 ABB AB, ADR 2,009,000
24,100 Allmerica Financial Corp. 1,381,231
50,100 Allstate Corp. 1,822,387
47,100 Bank One Corporation 2,778,900
53,760 Bear Stearns Cos., Inc. 2,506,560
38,000 CIGNA Corp. 3,313,125
76,600 CIT Group, Inc., Class A 2,489,500
88,000 Conseco, Inc. 2,777,500
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
FINANCIALS-CONTINUED
26,600 Hartford Financial Services Group, Inc. $ 1,567,737
17,500 Lincoln National Corp. 1,681,094
30,700 Loews Corp. 2,246,856
21,600 MBIA Insurance Corp. 1,452,600
24,000 Marsh & McLennan Cos., Inc. 1,837,500
21,300 Morgan Stanley, Dean Witter & Co. 2,112,694
38,400 Washington Mutual, Inc. 1,579,200
TOTAL 31,555,884
HEALTH CARE-7.0%
55,500 Abbott Laboratories 2,688,281
32,900 Baxter International, Inc. 2,072,700
178,600 1 Beverly Enterprises, Inc. 1,160,900
53,200 Bristol-Myers Squibb Co. 3,381,525
129,300 1 HEALTHSOUTH, Corp. 1,737,469
32,200 Merck & Co., Inc. 2,262,050
58,600 Pharmacia & Upjohn, Inc. 3,281,600
45,500 United Healthcare Corp. 2,553,688
TOTAL 19,138,213
TECHNOLOGY-9.1%
14,200 1 Computer Sciences Corp. 845,787
21,700 Eastman Kodak Co. 1,619,362
44,100 Electronic Data Systems Corp. 2,370,375
68,400 First Data Corp. 2,902,725
13,600 International Business Machines Corp. 2,844,950
29,100 1 Lexmark Intl. Group, Class A 3,593,850
23,900 Raytheon Co., Class A 1,653,581
44,500 1 Seagate Technology, Inc. 1,240,437
71,300 1 Storage Technology Corp. 1,376,981
108,600 1 Sun Microsystems, Inc. 6,495,638
TOTAL 24,943,686
TRANSPORTATION-0.8%
35,000 KLM Royal Dutch Airlines, ADR 1,056,562
45,300 Ryder Systems, Inc. 1,194,787
TOTAL 2,251,349
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMON STOCKS-continued
UTILITIES-3.1%
65,300 Entergy Corp. $ 2,040,625
28,500 FPL Group, Inc. 1,606,687
55,400 P G & E Corp. 1,720,862
40,400 Public Service Enterprises Group, Inc. 1,616,000
49,300 Reliant Energy, Inc. 1,395,806
TOTAL 8,379,980
TOTAL COMMON STOCKS (IDENTIFIED COST
$125,370,620) 164,281,934
PREFERRED STOCKS-0.5%
FINANCIALS-0.3%
1,000 Highwoods Properties, Inc., REIT
Perpetual Pfd. Stock, Series A, $86.25 887,100
TECHNOLOGY-0.2%
6,371 Microsoft Corp., Cumulative Conv. Pfd.,
Series A, $2.20 633,118
TOTAL PREFERRED STOCKS (IDENTIFIED
COST $1,566,542) 1,520,218
ASSET-BACKED SECURITIES-0.6%
1,250,000 2, 3 125 Home Loan Owner Trust 1998-1A, Class
B1, 9.26%, 2/15/2029 1,116,800
299,981 Green Tree Home Equity Loan Trust 1999-
A, Class B2A, 7.44%, 2/15/2029 299,981
293,418 2 SMFC Trust Asset-Backed Certificates,
Series 1997-A, Class 4, 7.7191%,
1/28/2025 252,616
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $1,817,776) 1,669,397
CORPORATE BONDS-23.4%
AUTOMOBILE-0.6%
$ 800,000 Hertz Corp., Sr. Note, 7.00%, 1/15/2028 779,488
1,000,000 Meritor Automotive, Inc., Note, 6.80%,
2/15/2009 991,477
TOTAL 1,770,965
BANKING-0.8%
500,000 2, 3 Den Danske Bank Group, Note, 7.40%,
6/15/2010 518,135
100,000 2, 3 Den Danske Bank Group, Sub. Note, 7.25%,
6/15/2005 104,261
1,000,000 Merita Bank PLC, Sub. Note, 6.50%,
4/1/2009 989,985
500,000 2, 3 Swedbank, Sub., 7.50%, 11/29/2049 497,149
TOTAL 2,109,530
BASIC INDUSTRY-1.8%
1,000,000 Barrick Gold Corp., Deb., 7.50%,
5/1/2007 1,049,140
1,325,000 Inco Ltd., Note, 9.60%, 6/15/2022 1,296,354
500,000 2, 3 Normandy Finance Ltd., Company
Guarantee, 7.50%, 7/15/2005 492,250
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BASIC INDUSTRY-CONTINUED
$ 1,000,000 Placer Dome, Inc., Bond, 8.50%,
12/31/2045 $ 998,776
150,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 138,155
200,000 Santa Fe Pacific Gold, Note, 8.375%,
7/1/2005 201,946
680,000 Southdown, Inc., Sr. Sub. Note, 10.00%,
3/1/2006 757,180
TOTAL 4,933,801
CHEMICALS-0.4%
1,250,000 2, 3 Reliance Industries Ltd., Bond, 8.25%,
1/15/2027 984,550
CONSUMER DURABLES-0.8%
1,000,000 Arvin Industries, Inc., 9.50%, 2/1/2027 1,061,540
400,000 Dana Corp., Note, 6.25%, 3/1/2004 400,516
850,000 Dana Corp., Note, 7.00%, 3/15/2028 820,233
TOTAL 2,282,289
CONSUMER NON-DURABLES-0.8%
1,281,000 Philip Morris Cos., Inc., Deb., 6.00%,
7/15/2001 1,283,690
750,000 Philip Morris Cos., Inc., Deb., 7.75%,
1/15/2027 795,090
TOTAL 2,078,780
EDUCATION-0.4%
1,000,000 Boston University, 7.625%, 7/15/2097 1,047,850
ENERGY-0.5%
500,000 Occidental Petroleum Corp., Note, 8.50%,
9/15/2004 505,065
750,000 Sun Co., Inc., 9.00%, 11/1/2024 857,010
TOTAL 1,362,075
ENERGY - OIL & GAS-0.4%
1,250,000 Husky Oil Ltd., Sr. Note, 7.125%,
11/15/2006 1,218,438
FINANCE-5.9%
2,000,000 CNA Financial Corp., Deb., 7.25%,
11/15/2023 1,935,600
450,000 Conseco, Inc., Note, 6.40%, 2/10/2003 439,605
1,000,000 Conseco, Inc., Sr. Note, 10.50%,
12/15/2004 1,141,310
1,250,000 Delphi Financial Group, Inc., 9.31%,
3/25/2027 1,187,350
250,000 Delphi Financial Group, Inc., Note,
8.00%, 10/1/2003 255,128
750,000 FirstBank Puerto Rico, Sub. Note,
7.625%, 12/20/2005 738,113
1,000,000 Ford Motor Credit Corp., Unsub., 6.875%,
6/5/2001 1,011,557
300,000 General Motors Corp., Note, 9.45%,
11/1/2011 373,725
1,000,000 Green Tree Financial Corp., Sr. Sub.
Note, 10.25%, 6/1/2002 1,070,330
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FINANCE-CONTINUED
$ 1,225,000 Lehman Brothers Holdings, Inc., Bond,
6.20%, 1/15/2002 $ 1,220,602
750,000 Merrill Lynch & Co., Inc., Sr. Unsub.,
6.00%, 2/17/2009 724,253
500,000 National Australia Bank, Ltd.,
Melbourne, Sub. Note, Series B, 6.60%,
12/10/2007 503,330
375,000 Provident Cos., Inc., Bond, 7.405%,
3/15/2038 360,379
1,000,000 Republic New York Corp., Sub. Note,
7.75%, 5/15/2009 1,087,860
1,000,000 Santander Finance Issuance, Bank
Guarantee, 7.875%, 4/15/2005 1,067,120
600,000 SunAmerica, Inc., Sr. Note, 6.20%,
10/31/1999 602,904
1,500,000 Trans Ocean Container Corp., Sr. Sub.
Note, 12.25%, 7/1/2004 1,613,940
750,000 USF&G Corp., Company Guarantee, 8.47%,
1/10/2027 782,798
TOTAL 16,115,904
FINANCE - INSURANCE-0.6% 750,000 2, 3 Life Re Capital Trust
I, Company
Guarantee, 8.72%, 6/15/2027 808,035
750,000 2, 3 Union Central Life Insurance Co., Note,
8.20%, 11/1/2026 804,105
TOTAL 1,612,140
FOREST PRODUCTS & PUBLISHING-0.5%
1,000,000 Donohue Forest Products, 7.625%,
5/15/2007 1,045,620
250,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 266,628
TOTAL 1,312,248
HEALTH CARE-0.4%
550,000 Tenet Healthcare Corp., Sr. Note, 8.00%,
1/15/2005 556,875
500,000 2, 3 Tenet Healthcare Corp., Sr. Sub.,
8.125%, 12/1/2008 497,500
TOTAL 1,054,375
PRINTING & PUBLISHING-0.4%
1,000,000 News America Holdings, Inc., 10.125%,
10/15/2012 1,155,210
PRODUCER MANUFACTURING-1.0%
1,000,000 Anixter International, Inc., Company
Guarantee, 8.00%, 9/15/2003 1,038,940
1,815,000 Figgie International Holdings, Inc., Sr.
Note, 9.875%, 10/1/1999 1,840,319
TOTAL 2,879,259
REAL ESTATE-1.2%
1,000,000 Price REIT, Inc., Sr. Note, 7.50%,
11/5/2006 1,011,760
500,000 Simon Property Group, Inc., Note,
7.125%, 2/9/2009 492,905
500,000 Storage USA, 8.20%, 6/1/2017 492,935
750,000 Storage USA, Deb., 7.50%, 12/1/2027 673,208
600,000 Sun Communities, Inc., Medium Term Note,
6.77%, 5/16/2005 575,520
TOTAL 3,246,328
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
RETAIL TRADE-1.7%
$ 1,000,000 Harcourt General, Inc., Sr. Deb., 7.20%,
8/1/2027 $ 963,750
1,123,339 K Mart Corp., Pass Thru Cert., 8.54%,
1/2/2015 1,177,439
1,000,000 May Department Stores Co., Deb., 8.125%,
8/15/2035 1,080,840
1,250,000 Shopko Stores, Inc., Sr. Note, 9.25%,
3/15/2022 1,464,088
TOTAL 4,686,117
SERVICES-2.1%
1,000,000 Comcast Corp., Note, 8.50%, 5/1/2027 1,187,790
1,000,000 Continental Cablevision, Sr. Deb.,
9.50%, 8/1/2013 1,192,210
1,200,000 TKR Cable, Inc., Deb., 10.50%,
10/30/2007 1,296,396
1,000,000 USA Waste Services, Inc., Sr. Note,
7.125%, 10/1/2007 1,040,080
1,000,000 WMX Technologies, Inc., Deb., 8.75%,
5/1/2018 1,097,800
TOTAL 5,814,276
SOVEREIGN GOVERNMENT-0.7%
1,000,000 Quebec, Province of, Deb., 13.25%,
9/15/2014 1,073,430
250,000 Quebec, Province of, Deb., 9.125%,
8/22/2001 265,938
500,000 Sweden, Government of, Deb., 10.25%,
11/1/2015 645,700
TOTAL 1,985,068
TECHNOLOGY-0.8%
100,000 Adaptec, Inc., Conv. Bond, 4.75%,
2/1/2004 84,106
1,000,000 Dell Computer Corp., Deb., 7.10%,
4/15/2028 998,480
700,000 Lucent Technologies, Inc., Global Bond,
6.45%, 3/15/2029 676,340
600,000 National Semiconductor Corp., Conv.
Bond, 6.50%, 10/1/2002 509,718
TOTAL 2,268,644
TRANSPORTATION-0.1%
255,000 Southwest Airlines Co., Deb., 7.375%,
3/1/2027 262,714
UTILITIES - TELEPHONE-0.5%
300,000 BellSouth Telecommunications, Inc.,
Deb., 7.625%, 5/15/2035 307,944
900,000 Paramount Communications, Inc., Sr.
Deb., 8.25%, 8/1/2022 948,186
TOTAL 1,256,130
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-continued
UTILITIES-1.0%
$ 1,000,000 Enersis SA, Note, 7.40%, 12/1/2016 $ 938,040
750,000 2, 3 Israel Electric Corp. Ltd., Sr. Note,
7.875%, 12/15/2026 714,120
100,000 2, 3 Israel Electric Corp. Ltd., Sr. Secd.
Note, 7.75%, 3/1/2009 102,685
600,000 Puget Sound Energy, Inc., Medium Term
Note, 7.02%, 12/1/2027 602,718
500,000 2, 3 Tenaga Nasional Berhad, Deb., 7.50%,
1/15/2096 401,030
TOTAL 2,758,593
TOTAL CORPORATE BONDS (IDENTIFIED
COSTS $64,068,454) 64,195,284
GOVERNMENTS AGENCIES-5.2%
FEDERAL HOME LOAN BANK-0.3%
1,000,000 Federal Home Loan Bank System, Sr. Note,
5.80%, 9/2/2008 989,370
TREASURY SECURITIES-4.9%
1,000,000 United States Treasury Bond, 11.625%,
11/15/2004 1,295,620
1,100,000 United States Treasury Bond, 5.25%,
2/15/2029 1,032,537
400,000 United States Treasury Bond, 6.125%,
11/15/2027 413,304
2,000,000 United States Treasury Bond, 6.375%,
8/15/2027 2,132,180
750,000 United States Treasury Bond, 8.125%,
5/15/2021 949,823
3,800,000 United States Treasury Note, 5.625%,
5/15/2008 3,854,150
3,300,000 United States Treasury Note, 7.875%,
11/15/2004 3,696,825
TOTAL 13,374,439
TOTAL GOVERNMENT AGENCIES (IDENTIFIED
COSTS $14,829,368) 14,363,809
MUNICIPALS-1.1%
500,000 Atlanta & Fulton County, GA Recreation
Authority, Taxable Revenue Bonds, Series
1997, 7.00% Bonds (Downtown Arena
Project)/(FSA INS), 12/1/2028 499,360
1,000,000 Harvard University, Revenue Bonds,
8.125% Bonds, 4/15/2007 1,123,450
1,000,000 Kansas City, MO Redevelopment Authority,
7.65% Bonds (FSA LOC), 11/1/2018 1,047,840
250,000 McKeesport, PA, Taxable GO Series B
1997, 7.30% Bonds (MBIA INS), 3/1/2020 252,228
TOTAL MUNICIPALS (IDENTIFIED COST
$2,804,628) 2,922,878
MUTUAL FUNDS-8.2%
1,585,164 Federated Mortgage Core Portfolio 15,804,086
692,394 The High Yield Bond Portfolio 6,598,514
TOTAL MUTUAL FUNDS (IDENTIFIED COST
$22,335,184) 22,402,600
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
REPURCHASE AGREEMENT-0.7%4
$ 1,775,000 ABN AMRO, Inc., 4.94%, dated 4/30/1999,
due 5/3/1999 (at amortized cost) $ 1,775,000
TOTAL INVESTMENTS (IDENTIFIED COST
$234,567,572) 5 $ 273,131,120
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At April 30, 1999, these securities amounted to
$7,293,236 which represents 2.7% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $7,040,620 which represents
2.6% of net assets.
3 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's board of directors.
4 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreement is through participation in a joint
account with other Federated funds.
5 The cost of investments for federal tax purposes amounts to $234,567,572. The
net unrealized appreciation of investments on a federal tax basis amounts to
$38,563,548 which is comprised of $46,104,475 appreciation and $7,540,927
depreciation at April 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($274,628,732) at April 30, 1999.
The following acronyms are used throughout this portfolio:
ADR -American Depositary Receipt FSA -Financial Security Assurance GO -General
Obligation INS -Insured LOC -Letter of Credit MBIA -Municipal Bond Investors
Assurance PLC -Public Limited Company REIT -Real Estate Investment Trust SA
- -Support Agreement
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at
value (identified and tax cost
$234,567,572) $ 273,131,120
Income receivable 2,209,039
Receivable for shares sold 955,625
TOTAL ASSETS 276,295,784
LIABILITIES:
Payable for investments purchased $ 1,224,696
Payable for shares redeemed 105,953
Payable to Bank 286,794
Accrued expenses 49,609
TOTAL LIABILITIES 1,667,052
Net assets for 13,941,806 shares
outstanding $ 274,628,732
NET ASSETS CONSIST OF:
Paid in capital $ 231,870,349
Net unrealized appreciation of
investments and translation of assets
and liabilities in foreign currency 38,563,548
Accumulated net realized gain on
investments and foreign currency
transactions 3,819,225
Undistributed net investment income 375,610
TOTAL NET ASSETS $ 274,628,732
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share ($216,956,993
/ 11,008,214 shares outstanding) $19.71
Offering Price Per Share (100/94.50 of
$19.71) 1 $20.86
Redemption Proceeds Per Share $19.71
CLASS B SHARES:
Net Asset Value Per Share ($40,652,536 /
2,066,505 shares outstanding) $19.67
Offering Price Per Share $19.67
Redemption Proceeds Per Share (94.50/100
of $19.67) 2 $18.59
CLASS C SHARES:
Net Asset Value Per Share ($17,019,203 /
867,087 shares outstanding) $19.63
Offering Price Per Share $19.63
Redemption Proceeds Per Share (99.00/100
of $19.63) 2 $19.43
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld
of $12,353) $ 1,677,740
Interest 3,447,756
TOTAL INCOME 5,125,496
EXPENSES:
Investment advisory fee $ 912,452
Administrative personnel and services
fee 93,219
Custodian fees 8,350
Transfer and dividend disbursing agent
fees and expenses 107,568
Directors'/Trustees' fees 6,040
Auditing fees 7,979
Legal fees 1,677
Portfolio accounting fees 45,011
Distribution services fee-Class B Shares 120,404
Distribution services fee-Class C Shares 51,215
Shareholder services fee-Class A Shares 252,723
Shareholder services fee-Class B Shares 40,135
Shareholder services fee-Class C Shares 17,072
Share registration costs 24,652
Printing and postage 20,575
Insurance premiums 1,432
Taxes 8,268
Miscellaneous 7,947
TOTAL EXPENSES 1,726,719
Net investment income 3,398,777
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and
foreign currency transactions 3,993,309
Net change in unrealized appreciation
(depreciation) of investments and
translation of assets and liabilities in
foreign currency 15,475,681
Net realized and unrealized gain on
investments and foreign currency 19,468,990
Change in net assets resulting from
operations $ 22,867,767
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
APRIL 30, OCTOBER 31,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 3,398,777 $ 6,563,690
Net realized gain on investments and
foreign currency transactions
($3,993,309 and $11,035,163,
respectively, as computed for federal
tax purposes) 3,993,309 11,035,163
Net change in unrealized
appreciation/depreciation of investments
and translation of assets and
liabilities in foreign currency 15,475,681 1,575,841
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 22,867,767 19,174,694
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Class A Shares (2,856,210) (6,313,087)
Class B Shares (321,239) (396,588)
Class C Shares (133,268) (114,568)
Distributions from net realized gains on
investments and foreign
currency transactions
Class A Shares (9,293,762) (21,222,534)
Class B Shares (1,272,602) (737,810)
Class C Shares (512,145) (149,001)
CHANGE IN NET ASSETS RESULTING FROM
DISTRIBUTIONS TO SHAREHOLDERS (14,389,226) (28,933,588)
SHARE TRANSACTIONS:
Proceeds from sale of shares 53,709,432 100,669,369
Net asset value of shares issued to
shareholders in payment of
distributions declared 12,268,530 24,499,769
Cost of shares redeemed (32,776,274) (50,977,134)
CHANGE IN NET ASSETS RESULTING FROM
SHARE TRANSACTIONS 33,201,688 74,192,004
Change in net assets 41,680,229 64,433,110
NET ASSETS:
Beginning of period 232,948,503 168,515,393
End of period (including undistributed
net investment income of $341,894 and
$253,834, respectively) $ 274,628,732 $ 232,948,503
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
APRIL 30, YEAR ENDED OCTOBER 31,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.14 $20.46 $18.96 $18.38 $16.25 $16.87
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.27 0.65 0.63 0.61 0.63 0.51
Net realized and unrealized gain
on investments 1.47 1.37 3.34 1.81 2.21 (0.59)
TOTAL FROM INVESTMENT OPERATIONS 1.74 2.02 3.97 2.42 2.84 (0.08)
LESS DISTRIBUTIONS:
Distributions from net investment income (0.27) (0.69) (0.56) (0.63) (0.62) (0.54)
Distributions from net realized gain
on investments (0.90) (2.65) (1.91) (1.21) (0.09) -
TOTAL DISTRIBUTIONS (1.17) (3.34) (2.47) (1.84) (0.71) (0.54)
NET ASSET VALUE, END OF PERIOD $19.71 $19.14 $20.46 $18.96 $18.38 $16.25
TOTAL RETURN 1 9.49% 11.09% 23.02% 14.57% 17.99% (0.48%)
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 1.26% 3 1.32% 1.37% 1.37% 1.38% 1.13%
Net investment income 2 2.88% 3 3.23% 2.90% 3.17% 3.40% 3.16%
Expenses (after waivers) 1.26% 3 1.25% 1.21% 1.10% 1.07% 1.06%
Net investment income (after waivers) 2.88% 3 3.30% 3.06% 3.44% 3.71% 3.23%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $216,957 $196,149 $162,780 $130,694 $134,669 $125,382
Portfolio turnover 21% 53% 87% 74% 68% 45%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
APRIL 30, YEAR ENDED OCTOBER 31,
1999 1998 1997 1996 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.10 $20.45 $18.96 $17.89
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.22 0.50 0.51 0.02
Net realized and unrealized gain on
investments 1.45 1.37 3.34 1.05
TOTAL FROM INVESTMENT OPERATIONS 1.67 1.87 3.85 1.07
LESS DISTRIBUTIONS:
Distributions from net investment income (0.20) (0.57) (0.45) -
Distributions from net realized gain on
investments (0.90) (2.65) (1.91) -
TOTAL DISTRIBUTIONS (1.10) (3.22) (2.36) -
NET ASSET VALUE, END OF PERIOD $19.67 $19.10 $20.45 $18.96
TOTAL RETURN 2 9.10% 10.26% 22.20% 5.98%
RATIOS TO AVERAGE NET ASSETS:
Expenses 3 2.01% 4 2.07% 2.12% 2.11% 4
Net investment income 3 2.11% 4 2.48% 2.15% 3.37% 4
Expenses (after waivers) 2.01% 4 2.00% 1.96% 1.96% 4
Net investment income (after waivers) 2.11% 4 2.55% 2.31% 3.52% 4
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $40,653 $26,487 $4,622 $94
Portfolio turnover 21% 53% 87% 74%
</TABLE>
1 Reflects operations for the period from August 30, 1996 (date of initial
public investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
APRIL 30, YEAR ENDED OCTOBER 31,
1999 1998 1997 1996 1
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.07 $20.42 $18.96 $17.89
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.22 0.50 0.47 0.04
Net realized and unrealized gain on
investments 1.44 1.37 3.35 1.03
TOTAL FROM INVESTMENT OPERATIONS 1.66 1.87 3.82 1.07
LESS DISTRIBUTIONS:
Distributions from net investment income (0.20) (0.57) (0.45) -
Total distributions from net realized
gain on investments (0.90) (2.65) (1.91) -
TOTAL DISTRIBUTIONS (1.10) (3.22) (2.36) -
NET ASSET VALUE, END OF PERIOD $19.63 $19.07 $20.42 $18.96
TOTAL RETURN 2 9.06% 10.21% 22.08% 5.98%
RATIOS TO AVERAGE NET ASSETS:
Expenses 3 2.01% 4 2.07% 2.12% 2.18% 4
Net investment income 3 2.10% 4 2.48% 2.15% 1.79% 4
Expenses (after waivers) 2.01% 4 2.00% 1.96% 2.03% 4
Net investment income (after waivers) 2.10% 4 2.55% 2.31% 1.94% 4
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $17,019 $10,312 $1,114 $2
Portfolio turnover 21% 53% 87% 74%
</TABLE>
1 Reflects operations for the period from August 30, 1996 (date of initial
public investment) to October 31, 1996.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
APRIL 30, 1999 (UNAUDITED)
ORGANIZATION
Federated Stock and Bond Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers three classes of shares:
Class A Shares, Class B Shares and Class C Shares. The investment objective of
the Fund is to provide relative safety of capital with the possibility of
long-term growth of capital and income.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
U.S. government securities, listed corporate bonds, (other fixed income and
asset-backed securities), and unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Listed equity securities are valued
at the last sale price reported on a national securities exchange. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of 60 days or less at
the time of purchase may be valued at amortized cost, which approximates fair
market value. Investments in other open-end regulated investment companies are
valued at net asset value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for paydown of
certain debt instruments.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Trustees. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at April 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Acquisition Acquisition
SECURITY Date Cost
<S> <C> <C>
SMFC Trust Asset-Backed Certificates 2/4/1998 $270,651
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At April 30, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE
CAPITAL STOCK
CLASS NAME AUTHORIZED
<S> <C>
Class A Shares 750,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
TOTAL 1,750,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,664,638 $ 31,628,537 3,542,424 $ 67,544,429
Shares issued to shareholders in payment
of distributions declared 548,641 10,187,168 1,276,278 23,272,273
Shares redeemed (1,454,417) (27,585,508) (2,526,870) (48,035,912)
NET CHANGE RESULTING FROM CLASS A
SHARE TRANSACTIONS 758,862 $ 14,230,197 2,291,832 $ 42,780,790
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 784,613 $ 14,859,161 1,213,089 $ 23,170,632
Shares issued to shareholders in payment
of distributions declared 78,122 1,449,849 54,776 999,932
Shares redeemed (182,791) (3,483,129) (107,363) (2,039,916)
NET CHANGE RESULTING FROM CLASS B
SHARE TRANSACTIONS 679,944 $ 12,825,881 1,160,502 $ 22,130,648
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 381,620 $ 7,221,734 520,556 $ 9,954,308
Shares issued to shareholders in payment
of distributions declared 34,086 631,513 12,508 227,564
Shares redeemed (89,312) (1,707,637) (46,910) (901,306)
NET CHANGE RESULTING FROM CLASS C
SHARE TRANSACTIONS 326,394 $ 6,145,610 486,154 $ 9,280,566
NET CHANGE RESULTING FROM SHARE
TRANSACTIONS 1,765,200 $ 33,201,688 3,938,488 $ 74,192,004
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
(a) a maximum of 0.55% of the average daily net assets of the Fund, and (b) 4.5%
of the gross income of the Fund, excluding capital gains or losses.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's shares.
The Plan provides that the Fund may incur distribution expenses of the average
daily net assets of each class as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
For the period ended April 30, 1999, Class A Shares did not incur a distribution
service fee.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, FSSC serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
GENERAL
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 75,479,262
Sales $ 52,429,891
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
NICHOLAS J. SEITANAKIS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF APRIL 30, 1999
Federated Stock and Bond Fund, Inc.
Incorporated 1934
SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Stock and Bond Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 313911109
Cusip 313911208
Cusip 313911307
8080105 (6/99)
[Graphic]
