FEDERATED STOCK & BOND FUND INC /MD/
N-30D, 2000-12-28

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Federated Investors
World-Class Investment Manager

Federated Stock and Bond Fund, Inc.

ANNUAL REPORT

October 31, 2000

Established 1934

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

John F. Donahue

President

Federated Stock and Bond Fund, Inc.

President's Message

Dear Shareholder:

I am pleased to present the Annual Report for Federated Stock and Bond Fund, Inc. This balanced fund had its origins in the Income Foundation Fund, which was created in 1934. For more than six decades, the fund has maintained a balanced position with high-quality common stocks and various types of bonds--both U.S. government and corporate issues. Stocks are selected for capital appreciation, and the bonds are selected for income. At the end of the reporting period, approximately 54% of the fund's assets were allocated to stocks. At the end of the 12-month reporting period, the fund's $245.1 million portfolio was diversified across 135 equity and 99 debt securities, and served 6,815 shareholders.

This report covers the 12-month reporting period from November 1, 1999 through October 31, 2000. It begins with an interview with equity manager John Harris, Vice President, who co-manages the fund with bond manager 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 stock and bond holdings, and third is the publication of the fund's financial statements.

Please review this report and the fund's stock and bond holdings. Most of the holdings are easy to recognize as they provide goods and services that impact our lives daily, for example: Sun Microsystems, Bristol-Myers Squibb Co., Allstate Corp. and Abbott Laboratories.

The stock and bond markets in the year 2000 demonstrated to investors the rewards of balance and diversification. Stocks were halted in their ascent to exorbitant levels, and bonds produced income as they have always done. "Balancing" portfolios and shifting allocations are back in fashion. Individuals and institutions that invested 100% in stocks have seen the value of holding a balanced investment. The fund's balanced approach has served shareholders well since the fund began operation.

During the fund's fiscal year, stocks experienced significant volatility, and the return on high-quality bonds began a healthy upward trend. During the 12-month reporting period, the fund produced competitive returns and its net asset value increased modestly. Individual share class total return performance for the 12-month reporting period, including income distributions and realized gains, follows.¹

	Total Return	Income	Capital Gains	Net Asset Value Change
Class A Shares	5.79%	$0.540	$0.417	$18.71 to $18.78 = 0.37%
Class B Shares	5.02%	$0.406	$0.417	$18.68 to $18.75 = 0.37%
Class C Shares	5.04%	$0.407	$0.417	$18.63 to $18.70 = 0.38%

Thank you for participating in the growth and income potential of Federated Stock and Bond Fund, Inc. You can easily increase your participation in the performance potential of this diversified stock and bond portfolio by reinvesting your quarterly dividends automatically in additional fund shares.

As always, we welcome your comments, questions and suggestions.

Sincerely,

John F. Donahue

John F. Donahue
President
December 15, 2000

1 Performance quoted is based on net asset value, reflects past performance and is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. The fund's total returns for the reporting period for Class A, B and C Shares, based on offering price (i.e., less any applicable sales charge), were (0.03%), (0.48%) and 4.04%, respectively.

John Harris

Vice President

Federated Investment Management
Company

Joseph Balestrino

Senior Vice President

Federated Investment Management
Company

Investment Review

What are your comments on the stock and bond markets over the fund's fiscal year?

STOCKS

Overall the fund's fiscal year was a period of positive performance for stocks, as the Standard and Poor's 500 Index ("S&P 500") returned 6.8%.¹ However, this performance was delivered in a year in which returns for individual sectors varied considerably. The year began with a strong rally in technology stocks that was followed by steep price declines. From its peak on March 10, 2000, the Nasdaq Composite Index ("Nasdaq") declined 39.1% to its low on October 12, 2000.² During the latter portion of the year, leadership shifted to sectors normally favored by "value" style managers, such as the finance and utility sectors.

The transition from a market enamored with New Economy "growth" stocks to the more realistic expectations that exist today has resulted largely from the slowing growth rate of the U.S. economy and declining forecasts of future earnings growth for many of the market favorites. Since many of these favorites were priced for perfection, the adoption of more realistic expectations has often been followed by steep price declines. In an age of instant information, single day declines of 20% or more have become commonplace.

Starting in July, market leadership turned to the more traditional value sectors. For example, the utility and financial sectors were the best performing sectors in the last four months of the reporting period. These interest-sensitive sectors benefited from the decline in bond yields during the reporting period. Value style managers also benefited from lower exposure to some of the worst performing sectors which included technology and communication services stocks.

1 The S&P 500 Index is an unmanaged index of common stocks in industry, transportation, finance and public utilities. Investments cannot be made in an index.

2 The Nasdaq Composite Index is an unmanaged index that measures all domestic and non-U.S. based common stocks listed on the Nasdaq stock market. Investments cannot be made in an index.

BONDS

The U.S. economy appears to be in a transition from booming growth to a growth slowdown. The main drivers of the slowdown: the four interest rate increases we have had in the past year; continuing pressure on corporate earnings; a correction in technology stocks; and a significant increase in the price of oil.

The transformation of the American economy through enhanced business efficiency--due in large part to technology driven gains in productivity--is beneficial to bonds because business efficiency promotes disinflation. From a secular point of view, we see a bull market for financial assets continuing with lower lows in both interest rates and inflation.

Ten plus years into the business cycle, it is fair to say we are in the latter stages of the current business cycle, or at least much closer to the end than the beginning. In a business cycle context, every asset class has its day in the sun when it outperforms all others. Historically, the sun generally shines on high-quality bonds at the very end of the cycle and in the first year or two of the next cycle.

For the 12-month reporting period, the bond market, as represented by the Lehman Brothers Government/Corporate Total Bond Index,³ produced a 7.13% total return. In terms of relative fixed-income sector performance, many spread sector securities outperformed pure U.S. Treasury securities and generated attractive total returns. Included among the better performing sectors were mortgage-backed and asset-backed issues.

Indeed, during the third quarter and throughout October 2000, the higher quality spread sector products continued to be in vogue. This was due to investors favoring higher quality securities, as worries of lower corporate profits were reinforced by a sharp decline in equity prices. We expect to remain positive on the spread sectors and view high-quality corporate securities as offering the best values.

How did the fund perform during the 12-month reporting period?

As of October 31, 2000, the fund's Class A, B and C Shares produced one-year total returns of 5.79%, 5.02% and 5.04%, respectively, based on net asset value.⁴ These returns were less than the 7.88% total return of the Lipper Balanced Funds Average.⁵

3 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, reflects past performance and is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The total returns for the fund's Class A, B and C Shares, based on offering price (i.e., less any applicable sales charge), were (0.03%), (0.48%) and 4.04%, 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.

The fund continued to show solid, long-term results. For example, the fund's average annual total returns, based on net asset value, for Class A Shares for the 5-year and 10-year periods ended October 31, 2000 were 11.78% and 11.88%, respectively.⁶

What is your current strategy for selecting stocks?

Our strategy in managing the fund has remained consistent over the past year. We continued to add names to the portfolio that looked attractive on our valuation disciplines and had favorable fundamentals (such as Cendant; 0.4% of net assets and Kerr-McKee Corp.; 0.4% of net assets), while eliminating those names with diminishing prospects or unattractive valuations such as K-Mart Corp. and Hasbro, Inc. This strategy proved beneficial in the latter part of the reporting period.

Effective November 1, 2000, fund management was given greater latitude in its style of management, for example, restrictions against purchasing growth stocks were removed. In the future, the performance in the equity portion of the fund should more closely mirror the broader market.

What were some of the fund's recent stock purchases?

Recent stock additions included the following companies:

Cendant Corp. (0.7% of stock portfolio): Cendant is the world's leading franchiser of hotels and real estate brokerage offices. The stock's price appeared attractive on our valuation disciplines, and the problems of two years ago have been resolved. Cendant's management team is focused on creating shareholder value.

Kerr-McGee Corp. (0.7% of stock portfolio): In July, we purchased this leading exploration and energy production company. Trading at less than nine times earnings with very positive earnings visibility, this misunderstood name helped us build our exposure in the energy sector.

PNC Financial Services Group. (1.8% of stock portfolio): We purchased PNC when it was trading at nine times this year's earnings. Company fundamentals are improving, and the company is transforming itself into a high fee income bank, but with the valuation of a spread income bank. This valuation gap, compared to other high-quality peers, will close as investors understand the transformation going on at the company.

TRW, Inc. (0.7% of stock portfolio): We acquired TRW after they had been unjustly beaten down with other auto parts suppliers. We believe the company's investments in technology, specifically telecommunications and Internet security, are sources of hidden value.

6 Total returns for the fund's Class A Shares, based on offering price (i.e., less any applicable sales charge), for the 5-year and 10-year period ended October 31, 2000 were 10.52% and 11.25%, respectively.

With respect to the fund's bond holdings, did you make any adjustments to the fund's duration and quality?

Very little adjustment was made relative to the duration target, while we maintained a modestly positive bond market outlook, and thus a slightly longer average maturity target. In terms of quality, the average bond quality composition was significantly increased over the past year given a much slower growth environment. In particular, a majority of the high-yield bond position was eliminated, thus removing the risk of underperformance in the high-yield sector.

What were the fund's top ten holdings as of October 31, 2000, and what was the fund's diversification by industry and quality?

The top holdings and sector weightings were as follows:

STOCKS

Name		Percentage of Stock Portfolio
Sun Microsystems, Inc.		2.2%
Verizon Communications		2.2%
Morgan Stanley, Dean Witter, Discover & Co.		2.0%
Bristol-Myers Squibb Co.		2.0%
Tyco International, Ltd.		1.9%
PNC Financial Services Group		1.8%
First Data Corp.		1.8%
Baxter International, Inc.		1.7%
Abbott Laboratories		1.7%
Allstate Corp.		1.7%
TOTAL		19.0%

Sector	Percentage of Stock Portfolio	Percentage of S&P 500 Index
Finance	21.5%	15.7%
Technology	14.6%	28.0%
Consumer Staples	11.6%	10.8%
Health Care	11.1%	11.9%
Energy	10.0%	5.8%
Capital Goods	9.0%	8.8%
Consumer Cyclicals	6.9%	6.7%
Utilities	6.6%	3.3%
Communication Services	3.8%	6.5%
Basic Materials	3.0%	2.0%
Transportation	1.1%	0.6%

BONDS

Security Name/Coupon/Maturity		Percentage of Bond Portfolio
U.S. Treasury Note, 5.875% due 11/15/2004		6.04%
U.S. Treasury Note, 5.250% due 05/15/2004		4.45%
U.S. Treasury Note, 5.625% due 05/15/2008		3.62%
U.S. Treasury Note, 7.875% due 11/15/2004		2.38%
Federal Home Loan Mortgage Corp., 5.75% due 04/15/2008		1.37%
Unisys Corp, 11.75% due 10/15/2004		1.21%
Husky Oil Ltd., 7.125% due 11/15/2004		1.18%
U.S. Treasury Bond, 11.625%, due 11/15/2004		1.16%
125 Home Loan Owner Trust 1998-1A, Class B1, 9.26%, 2/15/2029		1.14%
News America Holdings, 10.125%, 10/15/2012		1.05%
TOTAL		23.60%

Credit Quality		Percentage of Bond Portfolio
AAA		63.46%
AA		0.70%
A		12.24%
BBB		18.67%
BB		2.69%
B		2.14%
CCC		0.10%

What is your outlook for stocks and bonds for 2001?

STOCKS

Although the U.S. economy is clearly slowing, the likelihood of a recession with a bear market still seems fairly low. The most likely outcome is slower, but still reasonable growth by historical standards. Slower growth improves the outlook for inflation, but inflationary pressures such as the tight job markets remain. In this environment, further interest rate increases by the Federal Reserve Board seem unlikely.

Most stock indexes have declined in 2000, with the Nasdaq the most volatile. What the lower stock price may be telling us is slower growth for the U.S. economy, especially in the fourth quarter of 2000 and first quarter of 2001, and returns for stocks are likely to be more in line with historical norms than with the spectacular returns of recent years.

With slower economic growth, fundamentals and valuation have become more important factors. While this bodes well for the broader market, it is not clear what the future holds for the technology sector. Although these stocks have experienced significant price declines, valuations remain higher than for the broader market. Higher valuations may be warranted for some of these companies due to the superior long-term growth potential; however, the near-term outlook remains uncertain.

BONDS

We are now in a situation in U.S. high-quality bonds where the fundamentals are falling into place. The U.S. economy's growth slowdown is good fundamentally for bonds, and to the extent that foreign currencies continue to depreciate in value versus the U.S. dollar, we could see a safe haven position that could result in U.S. bond yields falling lower and bond prices going up. That's good news for bond investors as we turn the corner into a new year.

Two Ways You May Seek to Invest for Success:

INITIAL INVESTMENT

If you had made an initial investment of $32,000 in the Class A Shares of Federated Stock and Bond Fund, Inc. on 12/31/68, reinvested dividends and capital gains, and did not redeem any shares, your account would have been worth $452,250 on 10/31/00. You would have earned an 8.68%¹ average annual total return for the investment life span.

One key to investing wisely is to reinvest all distributions in fund shares. This increases the shares on which you can earn future dividends, and you gain the benefit of compounding.

[Graphic Representation Omitted - See Appendix]

As of 9/30/00, the Class A Shares' average annual 1-year, 5-year, and 10-year total returns were (0.43%), 10.18% and 10.97%, respectively. Class B Shares' average annual 1-year and since-inception (8/30/96) total returns were (0.93%) and 10.81%, respectively. Class C Shares' average annual 1-year, 5-year and since-inception (4/19/93) total returns were 3.64%, 10.59%, and 9.80%, respectively.²

1 Total return represents the change in the value of an investment after investing all income and capital gains, and takes into account the 5.50% sales charge applicable to an initial investment in Class A Shares. Performance quoted represents past performance and is no guarantee 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.

2 The total returns stated take into account all applicable sales charges. The maximum sales charges and contingent deferred sales charge 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 31 years (reinvesting all dividends and capital gains) grew to $241,164.

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 $32,000, but your account would have reached a total value of $241,164¹ by 10/31/00. You would have earned an average annual total return of 10.48%.

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 can work for you when you invest only $1,000 annually. You can take it one step at a time. Put time, money, and compounding to work.

[Graphic Representation Omitted - See Appendix]

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.

Investing for College Education

David and Joan Rice are a fictional couple who, like many shareholders, are searching for a way to make their money grow over time.

David and Joan are planning for the college education of their children. On October 31, 1990, 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 either additional monthly $250 investments totaling $35,000, has grown to $64,517. This represents a 10.41% average annual total return.¹ For the Rices, a dedicated program of monthly investments really paid off.

[Graphic Representation Omitted - See Appendix]

1 This hypothetical scenario is provided for illustrative purposes only and does not represent the results obtained by any particular shareholder. Past performance does not guarantee future results.

Federated Stock and Bond Fund, Inc. --Class A Shares

GROWTH OF $10,000 INVESTED IN FEDERATED STOCK AND BOND FUND, INC.

The graph below illustrates the hypothetical investment of $10,000¹ in the Federated Stock and Bond Fund, Inc. (Class A Shares) (the "Fund") from October 31, 1990 to October 31, 2000 compared to the Standard and Poor's 500 Index (S&P 500),² the Lehman Brothers Government/Corporate Total Index (LBGCT)² and the Lipper Balanced Funds Average (LBFA).³

Average Annual Total Return⁴ for the Period Ended 10/31/2000
1 Year		(0.03%)
5 Years		10.52%
10 Years		11.25%
Start of Performance (12/31/1968)		8.68%

[Graphic Representation Omitted - See Appendix]

Past performance is no guarantee 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. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.

1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500, LBGCT and LBFA have been adjusted to reflect reinvestment of dividends on securities in the indexes and average.

2 The S&P 500 and the LBGCT are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The indexes are unmanaged.

3 The LBFA represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in a Fund's performance.

4 Total return quoted reflects all applicable sales charges.

Federated Stock and Bond Fund, Inc. --Class B Shares

GROWTH OF $10,000 INVESTED IN FEDERATED STOCK AND BOND FUND, INC.

The graph below illustrates the hypothetical investment of $10,000¹ in the Federated Stock and Bond Fund, Inc. (Class B Shares) (the "Fund") from August 30, 1996 (start of performance) to October 31, 2000 compared to the Standard and Poor's 500 Index (S&P 500),² the Lehman Brothers Government/Corporate Total Index (LBGCT)² and the Lipper Balanced Funds Average (LBFA).³

Average Annual Total Return⁴ for the Period Ended 10/31/2000

1 Year

(0.48%)

Start of Performance (8/30/1996)

11.06%

[Graphic Representation Omitted - See Appendix]

1 Represents a hypothetical investment of $10,000 in the Fund. The ending value of the Fund reflects a 2.00% contingent deferred sales charge on any redemption of shares held up to five years from the purchase date. The maximum contingent deferred sales charge is 5.50% on any redemption of shares held up to one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500, LBGCT and LBFA have been adjusted to reflect reinvestment of dividends on securities in the indexes and average.

2 The S&P 500 and the LBGCT are not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. The indexes are unmanaged.

4 Total return quoted reflects all applicable sales charges.

Federated Stock and Bond Fund, Inc. --Class C Shares

GROWTH OF $10,000 INVESTED IN FEDERATED STOCK AND BOND FUND, INC.

The graph below illustrates the hypothetical investment of $10,000¹ in the Federated Stock and Bond Fund, Inc. (Class C Shares) (the "Fund") from April 19, 1993 (start of performance) to October 31, 2000 compared to the Standard and Poor's 500 Index (S&P 500),² the Lehman Brothers Government/Corporate Total Index (LBGCT)² and the Lipper Balanced Funds Average (LBFA).³

Average Annual Total Return⁴ for the Period Ended 10/31/2000
1 Year		4.04%
5 Years		10.93%
Start of Performance (4/19/1993)		9.94%

[Graphic Representation Omitted - See Appendix]

1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00% contingent deferred sales charge would be applied on any redemption within one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500, LBGCT and LBFA have been adjusted to reflect reinvestment of dividends on securities in the indexes and average.

2 The S&P 500 and the LBGCT are not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. The indexes are unmanaged.

4 Total return quoted reflects all applicable sales charges.

Portfolio of Investments

October 31, 2000

Shares

Value

COMMON STOCKS--53.5%

Basic Materials--1.6%

27,300

Du Pont (E.I.) de Nemours & Co.

1,238,737

41,000

International Paper Co.

1,501,625

26,900

PPG Industries, Inc.

1,200,412

1,480

Praxair, Inc.

55,130

TOTAL

3,995,904

Capital Goods--4.9%

3,850

Flextronics International Ltd.

146,300

3,370

General Electric Co.

184,718

30,300

Ingersoll-Rand Co.

1,143,825

25,100

Johnson Controls, Inc.

1,496,587

46,530

Koninklijke (Royal) Philips Electronics NV, ADR

1,858,301

18,900

Northrop Grumman, Corp.

1,587,600

33,600

Parker-Hannifin Corp.

1,390,200

19,800

Textron, Inc.

998,662

45,457

Tyco International, Ltd.

2,576,844

34,100

Waste Management, Inc.

682,000

TOTAL

12,065,037

Communication Services--2.0%

49,340

AT&T Corp.

1,144,071

2,935

Global Crossing Ltd.

69,339

14,500

Sprint Corp. (FON Group)

369,750

49,976

Verizon Communications

2,889,237

23,105

Worldcom, Inc.

548,744

TOTAL

5,021,141

Consumer Cyclicals--3.7%

33,200

Block (H&R), Inc.

1,184,825

77,200

Cendant Corp.

926,400

2,200

Circuit City Stores -- Circuit City Group

29,150

85,800

Cooper Tire & Rubber Co.

938,438

3,785

Dollar General Corp.

58,667

31,600

Federated Department Stores, Inc.

1,028,975

53,319

Ford Motor Co.

1,392,959

16,999

General Motors Corp.

1,056,063

17,916

General Motors Corp., Class H

580,478

Shares

Value

COMMON STOCKS--continued

Consumer Cyclicals--continued

1,495

Lowe's Cos., Inc.

68,303

23,500

TRW, Inc.

987,000

2,510

Target Corp.

69,339

Visteon Corp.

19,440

Wal-Mart Stores, Inc.

882,090

TOTAL

9,202,695

Consumer Staples--6.3%

1,595

CVS Corp.

84,435

1,880

Cardinal Health, Inc.

178,130

72,000

Charter Communications, Inc., Class A

1,404,000

1,040

Clear Channel Communications, Inc.

62,465

880

Colgate-Palmolive Co.

51,709

1,480

Comcast Corp., Special Class A

60,310

34,400

General Mills, Inc.

1,436,200

32,900

Kimberly-Clark Corp.

2,171,400

44,900

Nabisco Group Holdings Corp.

1,296,487

51,800

News Corp. Ltd., Pfd. ADR

1,874,512

1,180

PepsiCo, Inc.

57,156

44,000

Philip Morris Cos., Inc.

1,611,500

82,400

Sara Lee Corp.

1,776,750

770

Time Warner, Inc.

58,451

51,600

UST, Inc.

1,302,900

35,700

Viacom, Inc., Class A

2,043,825

TOTAL

15,470,230

Energy--5.4%

43,000

Ashland, Inc.

1,408,250

17,030

Chevron Corp.

1,398,589

54,600

ENSCO International, Inc.

1,815,450

23,565

Exxon Mobil Corp.

2,101,703

1,785

Halliburton Co.

66,157

15,000

Kerr-McGee Corp.

979,688

30,900

Royal Dutch Petroleum Co., ADR

1,834,688

825

Schlumberger Ltd.

62,803

17,700

Texaco, Inc.

1,045,406

45,600

Tosco Corp.

1,305,300

48,600

USX-Marathon Group

1,321,313

TOTAL

13,339,347

Shares

Value

COMMON STOCKS--continued

Financials--11.6%

26,200

Allmerica Financial Corp.

1,652,238

55,600

Allstate Corp.

2,237,900

735

American International Group, Inc.

72,030

1,000

Arcadia Financial Ltd., Warrants

1,125

36,380

Bank of America Corp.

1,748,514

29,878

Bear Stearns Cos., Inc.

1,811,354

16,400

CIGNA Corp.

1,999,980

72,900

CIT Group, Inc., Class A

1,271,194

877

Chase Manhattan Corp.

39,904

1,756

Citigroup, Inc.

92,410

171,100

Conseco, Inc.

1,187,006

1,530

Freddie Mac

91,800

37,600

First Union Corp.

1,139,750

37,400

Lincoln National Corp.

1,809,225

23,900

Loews Corp.

2,173,406

29,300

MBIA, Inc.

2,129,744

2,610

MBNA Corp.

98,038

14,300

Marsh & McLennan Cos., Inc.

1,869,725

1,555

Mellon Financial Corp.

75,029

33,600

Morgan Stanley, Dean Witter, Discover & Co.

2,698,500

36,900

PNC Financial Services Group

2,467,688

1,687

Schwab (Charles) Corp.

59,256

46,300

Washington Mutual, Inc.

2,037,200

1,455

Wells Fargo & Co.

67,385

TOTAL

28,830,401

Health Care--6.0%

43,200

Abbott Laboratories

2,281,500

1,420

American Home Products Corp.

90,170

27,965

Baxter International, Inc.

2,298,373

43,580

Bristol-Myers Squibb Co.

2,655,656

160,200

HEALTHSOUTH, Corp.

1,922,400

2,760

Medtronic, Inc.

149,903

24,200

Merck & Co., Inc.

2,176,488

2,446

Pfizer, Inc.

105,637

23,413

Pharmacia Corp.

1,287,715

2,280

Schering-Plough Corp.

117,848

16,100

United Health Group, Inc.

1,760,938

TOTAL

14,846,628

Shares

Value

COMMON STOCKS--continued

Technology--7.9%

930

Amdocs Ltd.

60,276

1,480

America Online, Inc.

74,636

1,355

Analog Devices, Inc.

88,075

1,055

Applied Materials, Inc.

56,047

2,198

Avaya, Inc.

29,536

2,700

Cisco Systems, Inc.

145,463

44,000

Compaq Computer Corp.

1,338,040

17,400

Computer Sciences Corp.

1,096,200

885

EMC Corp.

78,820

16,600

Eastman Kodak Co.

744,925

21,900

Electronic Data Systems Corp.

1,027,931

47,200

First Data Corp.

2,365,900

57,600

Galileo International, Inc.

1,137,600

3,035

Intel Corp.

136,575

19,400

International Business Machines Corp.

1,910,900

440

JDS Uniphase Corp.

35,833

25,600

Lexmark Intl. Group, Class A

1,049,600

26,385

Lucent Technologies, Inc.

615,100

2,000

Microsoft Corp.

137,750

2,700

Motorola, Inc.

67,331

975

Nortel Networks Corp.

44,363

57,800

Novell, Inc.

520,200

2,110

Oracle Corp.

69,630

1,210

Palm, Inc.

64,811

31,700

Seagate Technology, Inc.

2,215,038

80,800

Storage Technology Corp.

787,800

26,575

Sun Microsystems, Inc.

2,946,503

2,035

Synopsys, Inc.

70,971

920

Texas Instruments, Inc.

45,138

49,500

Unisys Corp.

631,125

TOTAL

19,592,117

Transportation--0.6%

32,700

Union Pacific Corp.

1,532,813

Utilities--3.5%

67,000

Edison International

1,599,625

865

Enron Corp.

70,984

54,200

Entergy Corp.

2,076,538

Shares or
Principal
Amount

Value

COMMON STOCKS--continued

Utilities--continued

29,200

FPL Group, Inc.

1,927,200

38,400

Public Service Enterprises Group, Inc.

1,593,600

36,800

Reliant Energy, Inc.

1,520,300

TOTAL

8,788,247

TOTAL COMMON STOCKS (IDENTIFIED COST $108,157,767)

132,684,560

PREFERRED STOCKS--0.5%

Financial--0.5%

250

Global Crossing Holdings Ltd., PIK Pfd., $10.47

24,875

1,000

Highwoods Properties, Inc, REIT Perpetual Pfd. Stock, Series A, $86.25

678,340

15,802

TCI Communications, 10.00%, Pfd., $2.50

399,988

TOTAL PREFERRED STOCKS (IDENTIFIED COST $1,440,102)

1,103,203

ASSET-BACKED SECURITIES--0.6%

1,250,000

125 Home Loan Owner Trust 1998-1A, Class B1, 9.26%, 02/15/2029

1,180,664

89,716

Merrill Lynch Mortgage Investors, Inc. 1998-FF3, Class BB, 5.50%, 11/20/2029

86,772

267,700

SMFC Trust Asset-Backed Certificates, Series 1997-A, Class B1-4, 7.269%, 01/28/2025

213,156

TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $1,581,034)

1,480,592

CORPORATE BONDS--13.5%

Aerospace & Defense--0.0%

50,000

Lockheed Martin Corp., Note, 8.2%, 12/01/2009

52,558

Air Transportation--0.0%

59,225

Northwest Airlines Corp., Pass Thru Cert., 7.575%, Series 992A, 9/01/2020

57,607

Automobile--0.3%

850,000

International Speedway Co, 7.875%, 10/15/2004

835,286

Banking--0.6%

500,000

Den Danske Bank Group, Note, 7.40% 6/15/2010

493,885

60,000

HSBC USA, Inc., Sub. Note, 6.625%, 3/01/2009

55,837

1,000,000

Regional Diversified Funding, 9.25%, 3/15/2030

976,549

TOTAL

1,526,271

Basic Industry--0.6%

1,000,000

Barrick Gold Corp., Deb., 7.50%, 5/1/2007

988,110

500,000

Normandy Finance Ltd., Company Guarantee, 7.50%, 7/15/2005

463,460

150,000

Pope & Talbot, Inc., Deb., 8.375%, 6/1/2013

139,927

TOTAL

1,591,497

Communications Services--0.2%

500,000

LCI International, Inc., Sr. Note, 7.25%, 6/15/2007

490,670

Consumer Durables--0.4%

1,000,000

Arvin Capital, 9.50%, 2/1/2027

921,280

Principal
Amount

Value

CORPORATE BONDS--continued

Consumer Non-Durables--0.4%

125,000

Meyer (Fred), Inc., Company Guarantee, 7.45%, 3/01/2008

123,052

1,015,000

Viacom, Inc., Sr. Deb., 8.25%, 8/01/2022

993,888

TOTAL

1,116,940

Consumer Staples--0.3%

800,000

Safeway, Inc., Note, 7.25%, 9/15/2004

798,384

Education--0.4%

1,000,000

Boston University, 7.625%, 7/15/2097

910,060

Energy--0.3%

750,000

Sun Co., Inc, 9.00%, 11/1/2024

798,112

Finance--2.3%

500,000

Amvescap PLC, Sr. Note, 6.60%, 5/15/2005

480,155

1,000,000

Conseco, Inc., Sr. Sub. Note, 10.25%, 6/01/2002

695,000

1,250,000

Delphi Financial Group, 9.31%, 3/25/2027

921,612

250,000

Delphi Financial Group, Note, 8.00%, 10/1/2003

248,170

750,000

FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005

710,625

500,000

General Electric Capital Corp., MTN, 6.65%, 9/03/2002

499,615

700,000

National Bank of Canada, Sub. Note, 8.125%, 8/15/2004

727,237

1,000,000

Pemex Finance Ltd., 9.03%, 2/15/2011

1,009,150

375,000

Provident Cos., Inc., Bond, 7.405%, 3/15/2038

278,516

TOTAL

5,570,080

Finance -- Insurance--0.6%

750,000

Life Re Capital Trust I, Company Guarantee, 8.72%, 6/15/2027

714,765

750,000

Union Central Life Insurance Co., Note, 8.20%, 11/1/2026

727,665

TOTAL

1,442,430

Finance - Retail--0.0%

45,000

Household Fin Corp., Sr. Note, 5.875%, 2/01/2009

39,876

Financial Services-0.1%

80,000

AT&T Capital Corp., Sr. Note, Series F, 7.50%, 11/15/2000

80,054

45,000

Associates Corp. of North America, Sr. Note, 5.50%, 2/15/2004

42,918

30,000

Heller Financial, Inc., Note, 7.375%, 11/01/2009

28,683

55,000

Newcourt Credit Group, Inc., Company Guarantee, Series B, 6.875%, 2/16/2005

52,909

TOTAL

204,564

Forest Products--0.5%

1,000,000

Donohue Forest Products, 7.625%, 5/15/2007

1,001,120

250,000

Quno Corp., Sr. Note, 9.125%, 5/15/2005

263,505

TOTAL

1,264,625

Principal
Amount

Value

CORPORATE BONDS--continued

Health Care--0.4%

550,000

Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005

544,500

500,000

Tenet Healthcare Corp., Sr. Sub. Note, 8.125%, 12/01/2008

485,000

TOTAL

1,029,500

Industrial Products & Equipment--0.0%

50,000

Tyco International Group, Company Guarantee, 6.875%, 1/15/2029

44,105

Insurance--0.1%

150,000

Providian Capital I, Bank Guarantee, 9.525%, 2/01/2027

121,605

Oil & Gas--0.9%

70,000

Enron Corp., 7.375%, Bond, 5/15/2019

67,434

1,250,000

Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006

1,218,837

50,000

Noble Drilling Corp., Sr. Note, 7.5%, 3/15/2019

48,618

35,000

Petro-Canada, Inc., Deb., 7%, 11/15/2028

31,409

30,000

Williams Gas Pipelines Cent., Sr. Note, 7.375%, 11/15/2006

29,944

750,000

Yosemite Sec. Trust, Bond, 8.25%, 11/15/2004

765,727

TOTAL

2,161,969

Printing & Publishing--0.4%

1,000,000

News America Holdings, 10.125%, 10/15/2012

1,082,870

Producing Manufacturing--0.4%

1,000,000

Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003

979,800

Real Estate--0.3%

45,000

Mack-Cali Realty Corp., Note, 7.25%, 3/15/2009

41,960

600,000

Sun Communities, Inc., MTN, 6.77%, 5/16/2005

575,520

TOTAL

617,480

Retail Trade--1.1%

500,000

Dayton-Hudson Corp., Deb., 10.00%, 12/01/2000

501,295

1,123,236

K Mart Corp., Pass Thru Cert., 8.54%, 1/2/2015

910,709

250,000

Sears, Roebuck & Co., MTN, 10.00%, 2/03/2012

279,722

1,250,000

Shopko Stores Inc., Sr. Note, 9.25%, 3/15/2022

943,750

TOTAL

2,635,476

Services--1.2%

1,000,000

Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013

1,078,260

1,000,000

USA Waste Services, Inc., Sr. Note, 7.125%, 10/01/2007

919,370

1,000,000

WMX Technologies, Inc., Deb., 8.75%, 5/1/2018

969,150

TOTAL

2,966,780

Sovereign Government--0.1%

250,000

Quebec, Province of, Deb., 9.125%, 8/22/2001

253,253

Principal
Amount

Value

CORPORATE BONDS--continued

State Provincial--0.0%

35,000

Manitoba, Province of, Deb., Series CZ, 6.75%, 3/01/2003

35,240

Supernational--0.1%

300,000

Corp Andina De Fomento, Sr. Note, 7.75%, 3/01/2004

301,881

Technology--0.5%

1,200,000

Unisys Corp, Sr. Note, 11.75%, 10/15/2004

1,257,000

Telecommunications--0.4%

50,000

Insight Midwest LP, Sr. Note, 9.75%, 10/01/2009

49,000

750,000

MetroNet Escrow Corp., Sr. Note, 10.625%, 11/01/2008

830,625

TOTAL

879,625

Transportation--0.1%

255,000

Southwest Airlines Co., Deb., 7.375%, 3/1/2027

239,251

Utilities--0.5%

100,000

CMS Energy Corp., Sr. Note, 8.375%, 7/01/2003

96,739

75,000

Calpine Corp., Sr. Note, 7.75%, 4/15/2009

70,500

750,000

Edison Mission Holding Co., Sr. Secd. Note, 8.734%, 10/01/2026

760,390

400,000

Fertinitro Finance, Company Guarantee, 8.29%, 4/01/2020

272,707

100,000

Israel Electric Corp. Ltd., Sr. Secd. Note, 7.75%, 3/01/2009

93,935

25,000

NRG Energy, Inc., Bond, 8%, 11/01/2003

25,232

TOTAL

1,319,503

TOTAL CORPORATE BONDS (IDENTIFIED COST $36,107,814)

33,545,578

GOVERNMENT AGENCIES--10.2%

Federal Home Loan Mortgage--0.6%

1,500,000

Federal Home Loan Mortgage Corp., 5.750%, 4/15/2008

1,419,885

Treasury Securities--9.6%

400,000

United States Treasury Bond, 6.125%, 11/15/2027

409,172

600,000

United States Treasury Bond, 6.250%, 5/15/2030

639,186

1,000,000

United States Treasury Bond, 6.375%, 8/15/2027

1,055,060

750,000

United States Treasury Bond, 8.125%, 5/15/2021

935,047

790,000

United States Treasury Bond, 8.750%, 5/15/2017

1,015,079

1,000,000

United States Treasury Bond, 11.625%, 11/15/2004

1,202,970

1,026,230

United States Treasury Note, 4.250%, 1/15/2010

1,057,325

4,700,000

United States Treasury Note, 5.250%, 5/15/2004

4,610,559

3,800,000

United States Treasury Note, 5.625%, 5/15/2008

3,749,574

6,250,000

United States Treasury Note, 5.875%, 11/15/2004

6,258,437

500,000

United States Treasury Note, 6.125%, 12/31/2001

499,310

2,300,000

United States Treasury Note, 7.875%, 11/15/2004

2,464,542

TOTAL

23,896,261

TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $25,606,396)

25,316,146

Principal
Amount
or Shares

Value

MORTGAGE BACKED SECURITIES--0.3%

285,222

Federal Home Loan Mortgage Corp., 6.500%, 7/1/2014 - 5/1/2029

275,385

82,475

Federal National Mortgage Association, 6.000%, 10/1/2028

77,372

171,481

Federal National Mortgage Association, 7.000%, 10/1/2014 - 8/1/2029

168,487

93,466

Federal National Mortgage Association, 7.500%, 4/1/2028 - 9/1/2029

93,436

58,815

Federal National Mortgage Association, 9.500%, 2/1/2025

61,131

25,015

Government National Mortgage Association, 6.500%, 9/15/2028

24,155

60,660

Government National Mortgage Association, 7.000%, 4/15/2023

60,011

38,565

Government National Mortgage Association, 7.500%, 5/15/2028

38,721

44,952

Government National Mortgage Association, 8.000%, 12/15/2023

45,977

TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $857,551)

844,675

MUNICIPALS--1.1%

500,000

Atlanta & Fulton County, GA, Recreation Authority, Taxable Revenue Bonds, Series 1997, 7.000% (Downtown Arena Project)/(FSA INS), 12/01/2028

456,730

1,000,000

Harvard University, MA, Revenue Bonds, 8.125%, 04/15/2007

1,056,520

1,000,000

Kansas City, MO, Redevelopment Authority, Taxable, 7.65% Bonds (FSA LOC), 11/01/2018

998,940

250,000

McKeesport, PA, Taxable GO, Series B 1997, 7.30% Bonds (MBIA INS), 03/01/2020

239,510

TOTAL MUNICIPALS (IDENTIFIED COST $2,794,498)

2,751,700

MUTUAL FUNDS--19.1%

115,398

Federated High Yield Bond Portfolio

870,107

3,994,350

Federated Mortgage Core Portfolio

38,745,193

7,745,501

Prime Value Obligations Fund, Class IS

7,745,501

TOTAL MUTUAL FUNDS (IDENTIFIED COST $47,812,862)

47,360,801

TOTAL INVESTMENTS (IDENTIFIED COST $224,358,024)³

245,087,255

1 Non-income producing security.

2 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. These securities have been deemed liquid based upon criteria approved by the fund's Board of Trustees. At October 31, 2000, these securities amounted to $7,910,374 which represents 3.2% of net assets.

3 The cost of investments for federal tax purposes amounts to $225,671,817. The net unrealized appreciation of investments on a federal tax basis amounts to $19,415,438 which is comprised of $39,700,416 appreciation and $20,284,978 depreciation at October 31, 2000.

Note: The categories of investments are shown as a percentage of net assets ($248,042,716) at October 31, 2000.

The following acronyms are used throughout this portfolio:

ADR	--American Depositary Receipt
FSA	--Fianancial Security Assurance
GO	--General Obligations
INS	--Insured
LOC	--Letter of Credit
MBIA	--Municipal Bond Investors Assurance
MTN	--Medium Term Note
PIK	--Payment In Kind
REIT	--Real Estate Investment Trust

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

October 31, 2000

Assets:

Total investments in securities, at value (identified cost $224,358,024 and tax cost $225,671,817)

245,087,255

Income receivable

1,690,458

Receivable for investments sold

1,173,778

Receivable for shares sold

397,793

TOTAL ASSETS

248,349,284

Liabilities:

Payable for shares redeemed

120,849

Payable to Bank

100,462

Accrued expenses

85,257

TOTAL LIABILITIES

306,568

Net assets for 13,214,641 shares outstanding

248,042,716

Net Assets Consist of:

Paid in capital

221,708,017

Net unrealized appreciation of investments

20,729,965

Accumulated net realized gain on investments

4,934,797

Undistributed net investment income

669,937

TOTAL NET ASSETS

248,042,716

Net Asset Value, Offering Price and Redemption Proceeds Per Share

Class A Shares:

Net Asset Value Per Share ($177,235,562 ÷ 9,435,240 shares outstanding)

$18.78

Offering Price Per Share (100/94.50 of $18.78)¹

$19.87

Redemption Proceeds Per Share

$18.78

Class B Shares:

Net Asset Value Per Share ($48,897,801 ÷ 2,608,080 shares outstanding)

$18.75

Offering Price Per Share

$18.75

Redemption Proceeds Per Share (94.50/100 of $18.75)¹

$17.72

Class C Shares:

Net Asset Value Per Share ($21,909,353 ÷ 1,171,321 shares outstanding)

$18.70

Offering Price Per Share

$18.70

Redemption Proceeds Per Share (99.00/100 of $18.70)¹

$18.51

1 See "What Do Shares Cost?" in the Prospectus.

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended October 31, 2000

Investment Income:

Dividends (net of foreign taxes withheld of $17,323)

5,853,455

Interest

5,230,524

TOTAL INCOME

11,083,979

Expenses:

Investment adviser fee

1,924,731

Administrative personnel and services fee

195,182

Custodian fees

16,196

Transfer and dividend disbursing agent fees and expenses

285,462

Directors'/Trustees' fees

14,962

Auditing fees

13,163

Legal fees

8,701

Portfolio accounting fees

101,562

Distribution services fee--Class B Shares

372,753

Distribution services fee--Class C Shares

162,755

Shareholder services fee--Class A Shares

469,422

Shareholder services fee--Class B Shares

124,251

Shareholder services fee--Class C Shares

54,252

Share registration costs

46,856

Printing and postage

49,973

Taxes

23,539

Miscellaneous

18,723

TOTAL EXPENSES

3,882,483

Expense Reduction and Reimbursement:

Fees paid indirectly from directed broker arrangements

(1,605

)

Reimbursement of investment adviser fee

(94

)

TOTAL EXPENSE REDUCTION AND REIMBURSEMENT

(1,699

)

Net expenses

3,880,784

Net investment income

7,203,195

Realized and Unrealized Gain (Loss) on Investments:

Net realized gain on investments

7,515,056

Net realized gain on capital gain distributions from investments in other companies

7,368

Net change in unrealized appreciation of investments

(1,907,739

)

Net realized and unrealized gain (loss) on investments

5,614,685

Change in net assets resulting from operations

12,817,880

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended October 31

2000

1999

Increase (Decrease) in Net Assets

Operations:

Net investment income

7,203,195

7,255,958

Net realized gain (loss) on investments ($6,248,591 and $6,415,282, respectively, as computed for federal tax purposes)

7,515,056

3,980,205

Net realized gain on capital gain distributions from investments in other companies

7,368

20,221

Net change in unrealized appreciation of investments

(1,907,739

)

(903,649

)

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS

12,817,880

10,352,735

Distributions to Shareholders:

Distributions from net investment income

Class A Shares

(5,605,300

)

(5,762,612

)

Class B Shares

(1,119,524

)

(781,333

)

Class C Shares

(491,542

)

(316,455

)

Distributions from net realized gains on investments

Class A Shares

(4,709,730

)

(9,293,762

)

Class B Shares

(1,198,469

)

(1,272,602

)

Class C Shares

(505,770

)

(512,145

)

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS

(13,630,335

)

(17,938,909

)

Share Transactions:

Proceeds from sale of shares

73,328,095

140,639,815

Proceeds from shares issued in connection with the tax-free transfer of assets from the IAI Balanced Fund

7,323,586

Net asset value of shares issued to shareholders in payment of distributions declared

11,912,758

15,292,348

Cost of shares redeemed

(127,233,104

)

(97,770,656

)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS

(34,668,665

)

58,161,507

Change in net assets

(35,481,120

)

50,575,333

Net Assets:

Beginning of period

283,523,836

232,948,503

End of period (including undistributed net investment income of $669,937 and $683,108, respectively)

248,042,716

283,523,836

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31

2000

1999

1998

1997

1996

Net Asset Value, Beginning of Period

$18.71

$19.14

$20.46

$18.96

$18.38

Income From Investment Operations:

Net investment income

0.55

0.65

0.63

0.61

Net realized and unrealized gain on investments

0.48

0.45

1.37

3.34

1.81

TOTAL FROM INVESTMENT OPERATIONS

1.03

1.00

2.02

3.97

2.42

Less Distributions:

Distributions from net investment income

(0.54

)

(0.53

)

(0.69

)

(0.56

)

(0.63

)

Distributions from net realized gain on investments

(0.42

)

(0.90

)

(2.65

)

(1.91

)

(1.21

)

TOTAL DISTRIBUTIONS

(0.96

)

(1.43

)

(3.34

)

(2.47

)

(1.84

)

Net Asset Value, End of Period

$18.78

$18.71

$19.14

$20.46

$18.96

Total Return¹

5.79

5.35

11.09

23.02

14.57

Ratios to Average Net Assets:

Expenses

1.29

1.25

1.21

1.10

Net investment income

2.98

2.85

3.30

3.06

3.44

Expenses waiver/reimbursement²

0.00

%³

0.07

0.16

0.27

Supplemental Data:

Net assets, end of period (000 omitted)

$177,236

$209,985

$196,149

$162,780

$130,694

Portfolio turnover

1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

2 This voluntary expense decrease is reflected in both the expenses and the net investment income ratios shown above.

3 Amount is less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31

2000

1999

1998

1997

1996

Net Asset Value, Beginning of Period

$18.68

$19.10

$20.45

$18.96

$17.89

Income From Investment Operations:

Net investment income

0.41

0.42

0.50

0.51

0.02

Net realized and unrealized gain on investments

0.49

0.45

1.37

3.34

1.05

TOTAL FROM INVESTMENT OPERATIONS

0.90

0.87

1.87

3.85

1.07

Less Distributions:

Distributions from net investment income

(0.41

)

(0.39

)

(0.57

)

(0.45

)

Distributions from net realized gain on investments

(0.42

)

(0.90

)

(2.65

)

(1.91

)

TOTAL DISTRIBUTIONS

(0.83

)

(1.29

)

(3.22

)

(2.36

)

Net Asset Value, End of Period

$18.75

$18.68

$19.10

$20.45

$18.96

Total Return²

5.02

4.63

10.26

22.20

5.98

Ratios to Average Net Assets:

Expenses

2.04

2.00

1.96

%³

Net investment income

2.26

2.10

2.55

2.31

3.52

%³

Expense waiver/reimbursement⁴

0.00

%⁵

0.07

0.16

0.15

%³

Supplemental Data:

Net assets, end of period (000 omitted)

$48,898

$53,154

$26,487

$4,622

$94

Portfolio turnover

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 Computed on an annualized basis.

4 This voluntary expense decrease is reflected in both the expense and the net investment income shown above.

5 Amount is less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended October 31

2000

1999

1998

1997

1996

Net Asset Value, Beginning of Period

$18.63

$19.07

$20.42

$18.96

$17.89

Income From Investment Operations:

Net investment income

0.41

0.42

0.50

0.47

0.04

Net realized and unrealized gain on investments

0.49

0.43

1.37

3.35

1.03

TOTAL FROM INVESTMENT OPERATIONS

0.90

0.85

1.87

3.82

1.07

Less Distributions:

Distributions from net investment income

(0.41

)

(0.39

)

(0.57

)

(0.45

)

Distributions from net realized gain on investments

(0.42

)

(0.90

)

(2.65

)

(1.91

)

TOTAL DISTRIBUTIONS

(0.83

)

(1.29

)

(3.22

)

(2.36

)

Net Asset Value, End of Period

$18.70

$18.63

$19.07

$20.42

$18.96

Total Return²

5.04

4.52

10.21

22.08

5.98

Ratios to Average Net Assets:

Expenses

2.04

2.00

1.96

2.03

%³

Net investment income

2.26

2.10

2.55

2.31

1.94

%³

Expense waiver/reimbursement⁴

0.00

%⁵

0.07

0.16

0.15

%³

Supplemental Data:

Net assets, end of period (000 omitted)

$21,909

$20,385

$10,312

$1,114

Portfolio turnover

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 Computed on an annualized basis.

4 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

5 Amount is less than 0.01%.

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

October 31, 2000

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 safety of capital with the possibility of long-term growth of capital and income.

On September 15, 2000, the Fund acquired all the net assets of Investment Advisers Inc. (IAI) Balanced Fund in a tax-free reorganization as follows:

Class A Shares of the Fund Issued

IAI Balanced
Fund Net
Assets Received

Unrealized
Appreciation¹

394,377

$7,323,586

$453,486

Net Assets of the Fund Prior to Combination

Net Assets
of IAI
Balanced Fund
Immediately Prior
to Combination

Net Assets
of the
Fund Immediately
After Combination

$241,194,810

$7,323,586

$248,518,396

1 Unrealized Appreciation is included in the IAI Balanced Fund Net Assets Received amount shown above.

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 Valuation

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 the other open-end regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at their fair value as determined in good faith using methods approved by the Board of Directors (the "Directors").

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.

The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Directors (the "Directors"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.

Investment Income, Expenses and Distributions

Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Federal Taxes

It is the Funds' policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary.

When-Issued and Delayed Delivery Transactions

The Funds 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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.

Restricted Securities

Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Funds' pricing committee.

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 a trade date basis.

CAPITAL STOCK

At October 31, 2000, par value shares ($0.001 per share) authorized were as follows:

Share Class Name		Number of Par Value Capital Stock Authorized
Class A Shares		750,000,000
Class B Shares		500,000,000
Class C Shares		500,000,000
TOTAL		1,750,000,000

Transactions in capital stock were as follows:

Year Ended
10/31/2000

Year Ended
10/31/1999

Class A Shares:

Shares

Amount

Shares

Amount

Shares sold

2,869,512

52,016,979

4,882,384

93,719,414

Shares issued in connection with the tax-free transfer of assets from the IAI Balanced Fund

394,377

7,323,586

Shares issued to shareholders in payment of distributions declared

490,637

8,835,453

675,624

12,630,340

Shares redeemed

(5,542,721

)

(100,146,780

)

(4,583,925

)

(86,666,074

)

NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS

(1,788,195

)

(31,970,762

)

974,083

19,683,680

Year Ended
10/31/2000

Year Ended
10/31/1999

Class B Shares:

Shares

Amount

Shares

Amount

Shares sold

596,127

10,799,304

1,752,255

33,582,244

Shares issued to shareholders in payment of distributions declared

116,937

2,104,369

99,272

1,855,955

Shares redeemed

(950,930

)

(17,129,320

)

(392,142

)

(7,502,838

)

NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS

(237,866

)

(4,225,647

)

1,459,385

27,935,361

Year Ended
10/31/2000

Year Ended
10/31/1999

Class C Shares:

Shares

Amount

Shares

Amount

Shares sold

580,826

10,511,812

698,217

13,338,157

Shares issued to shareholders in payment of distributions declared

54,169

972,936

43,196

806,053

Shares redeemed

(557,737

)

(9,957,004

)

(188,043

)

(3,601,744

)

NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS

77,258

1,527,744

553,370

10,542,466

NET CHANGE RESULTING FROM SHARE TRANSACTIONS

(1,948,803

)

(34,668,665

)

2,986,838

58,161,507

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to (a) a maximum of 0.55% of the average daily net assets of the Fund, and (b) 4.50% of the gross income of the Fund, excluding capital gains or losses.

Pursuant to an Exemptive Order, the Fund may invest in Prime Value Obligations Fund which is managed by the Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions.

Administrative Fee

Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Funds with administrative personnel and services. The fee paid to FServ is based on a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.

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 compensate 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 according to the following schedule annually, to compensate FSC:

Share Class Name		Percentage of Average Daily Net Assets of Class
Class A Shares		0.25%
Class B Shares		0.75%
Class C Shares		0.75%

For the year ended October 31, 2000, Class A Shares did not incur a distribution services 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.

Portfolio Accounting Fees

FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of each Fund's average daily net assets for the period, plus out-of-pocket expenses.

Expense Reduction

The Fund directs certain portfolio trades to a broker that, in turn, pays a portion of the Fund's operating expenses. For the year, the Fund's expenses were reduced by $1,605 under these arrangements.

General

Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities (and in-kind contributions), for the year ended October 31, 2000, were as follows:

Purchases	$	65,936,540

Sales	$	116,967,448

Independent Auditors' Report

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF FEDERATED STOCK AND BOND FUND, INC.:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Stock and Bond Fund, Inc. (the "Fund") as of October 31, 2000, and the related statement of operations for the year then ended, the statement of changes in net assets for the years ended October 31, 2000 and 1999, and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned at October 31, 2000, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Federated Stock and Bond Fund, Inc. as of October 31, 2000, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
December 8, 2000

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. THOMAS MADDEN

Chief Investment Officer

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

MICHAEL P. DONNELLY

Vice President

RICHARD J. THOMAS

Treasurer

AMANDA J. REED

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.

Federated
World-Class Investment Manager
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

G01454-01 (12/00)


The graphic presentation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 12/31/68 to 10/31/00.
The "y" axis is measured in increments of $100,000 ranging from $0 to $500,000
and indicates that the ending value of hypothetical initial investment of
$32,000 in the fund's Class A Shares, assuming the reinvestment of capital gains
and dividends, would have grown to $452,250 on 10/31/00.

The graphic presentation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 12/31/68 to 10/31/00.
The "y" axis is measured in increments of $50,000 ranging from $0 to $250,000
and indicates that the ending value of hypothetical yearly investments of $1,000
in the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $241,164 on 10/31/00.

The graphic presentation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding mountain chart. The
color-coded mountain chart is a visual representation of the narrative text
beneath it. The "x" axis reflects computation periods from 10/31/90 to 10/31/00.
The "y" axis is measured in increments of $10,000 ranging from $0 to $80,000 and
indicates that the ending value of a hypothetical initial investment of $5,000
and subsequent monthly investments of $250 over 10 years in the fund's Class A
Shares would have grown to $64,517 on 10/31/00.

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Stock and Bond Fund, Inc., (the "Fund") based on a 5.50%
sales charge are represented by a solid line. The Standard & Poor's 500 Index
(the "S&P 500") is represented by a dotted line and the Lehman Brothers
Government / Corporate Total Index (LBGCT) is represented by a dashed line and
the Lipper Balanced Funds Average (the "LBFA") is represented by a dot-dash-dot
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class A Shares of the Fund,
the S&P 500 , the LBGCT and the LGIFA. The "x" axis reflects computation periods
from 10/31/90 to 10/31/00. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares, based on a 5.50% sales charge, as compared to the S&P
500, the LBGCT and the LGIFA. The ending values were $29,050, $59,054, $21,885
and $33,477, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class A Shares Average Annual Total Returns
for the one-year, five-year, and 10-year periods ended 10/31/00 and from the
start of performance of the Fund's Class A Shares (12/31/68) to 10/31/00. The
total returns were (0.03%), 10.52, 11.25% and 8.68%, respectively.

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Stock and Bond Fund, Inc. (the "Fund") are represented by a
solid line. The Standard & Poor's 500 Index (the "S&P 500") is represented by a
dotted line and the Lehman Brothers Government / Corporate Total Index (LBGCT)
is represented by a dashed line and the Lipper Balanced Funds Average (the
"LBFA") is represented by a dot-dash-dot line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class B Shares of the Fund, the S&P 500 , the LBGCT and the
LGIFA. The "x" axis reflects computation periods from 8/30/96 to 10/31/00. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class B Shares, based
on a 5.50% contingent deferred sales charge, as compared to the S&P 500 , the
LBGCT and the LGIFA. The ending values were $15,490, $23,128, $13,267 and
$16,538, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class B Shares Average Annual Total Returns
for the one-year period ended 10/31/00 and from the start of performance of the
Fund's Class B Shares (8/30/96) to 10/31/00. The total returns were (0.48%), and
11.06%, respectively.

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Stock and Bond Fund, Inc., (the "Fund") based on a 5.50%
sales charge are represented by a solid line. The Standard & Poor's 500 Index
(the "S&P 500") is represented by a dotted line and the Lehman Brothers
Government / Corporate Total Index (LBGCT) is represented by a dashed line and
the Lipper Balanced Funds Average (the "LBFA") is represented by a dot-dash-dot
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class C Shares of the Fund,
the S&P 500 , the LBGCT and the LGIFA. The "x" axis reflects computation periods
from 10/31/90 to 10/31/00. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class C Shares, based on a 5.50% sales charge, as compared to the S&P
500, the LBGCT and the LGIFA. The ending values were $20,796, $37,026, $15,928
and $22,339, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class C Shares Average Annual Total Returns
for the one-year and five-year periods ended 10/31/00 and from the start of
performance of the Fund's Class C Shares (4/19/93) to 10/31/00. The total
returns were 4.04%, 10.93% and 9.94%, respectively.