Statement of Additional Information

FEDERATED STOCK AND BOND FUND, INC.

class a shares
class b shares
class c shares

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Stock and Bond Fund, Inc.,
Class A, B and C Shares (Fund), dated December 31, 1999. This SAI incorporates
by reference the Fund's Annual Report. Obtain the prospectus or the Annual
Report without charge by calling 1-800-341-7400.

DECEMBER 31, 1999

(REVISED MARCH 28, 2000)


                              Contents
                              How is the Fund Organized?
                              Securities in Which the Fund Invests
                              What do Shares Cost?
                              How is the Fund Sold?
                              Exchanging Securities for Shares
                              Subaccounting Services
                              Redemption in Kind
                              Account and Share Information
                              Tax Information
                              Who Manages and Provides Services to the Fund?
                              How Does the Fund Measure Performance?
                              Who is Federated Investors, Inc.?
                              Financial Information
                              Investment Ratings
                              Addresses
Cusip 313911109
Cusip 313911208
Cusip 313911307


8012905B (3/00)


How is the Fund Organized?

The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on October 31, 1934. The
Corporation may offer separate series of shares representing interests in
separate portfolios of securities.  The Corporation changed its name from Stock
and Bond Fund, Inc. to Federated Stock and Bond Fund, Inc. on February 26, 1996.

The Board of Directors (the Board) has established three classes of shares of
the Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares).
This SAI relates to all classes of Shares. The Fund's investment adviser is
Federated Investment Management Services (Adviser).

Effective March 31, 1999, Federated Management, former Adviser to the Fund,
became Federated Investment Management Company (formerly, Federated Advisers).

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

Equity Securities

Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.

Common Stocks. Common stocks are the most prevalent type of equity security.
Common stocks receive the issuer's earnings after the issuer pays its creditors
and any preferred stockholders. As a result, changes in an issuer's earnings
directly influence the value of its common stock.

Preferred Stocks. Preferred stocks have the right to receive specified dividends
or distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on common
stock. Preferred stocks may also permit the issuer to redeem the stock. The Fund
may also treat such redeemable preferred stock as a fixed income security.

Interests in Other Limited Liability Companies. Entities such as limited
partnerships, limited liability companies, business trusts and companies
organized outside the United States may issue securities comparable to common or
preferred stock.

Real Estate Investment Trusts (REITs). REITs are real estate investment trusts
that lease, operate and finance commercial real estate. REITs are exempt from
federal corporate income tax if they limit their operations and distribute most
of their income. Such tax requirements limit a REIT's ability to respond to
changes in the commercial real estate market.

Warrants. Warrants give the Fund the option to buy the issuer's equity
securities at a specified price (the exercise price) at a specified future date
(the expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if the
price of the stock does not rise above the exercise price by the expiration
date. This increases the market risks of warrants as compared to the underlying
security. Rights are the same as warrants, except companies typically issue
rights to existing stockholders.

Fixed Income Securities

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
invests.

Treasury Securities. Treasury securities are direct obligations of the federal
government of the United States. Treasury securities are generally regarded as
having the lowest credit risks.

Agency Securities. Agency securities are issued or guaranteed by a federal
agency or other government sponsored entity acting under federal authority (a
GSE). The United States supports some GSEs with its full, faith and credit.
Other GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities. Agency
securities are generally regarded as having low credit risks, but not as low as
treasury securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.

Corporate Debt Securities. Corporate debt securities are fixed income securities
issued by businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt securities. The Fund may also purchase
interests in bank loans to companies. The credit risks of corporate debt
securities vary widely among issuers.

In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

Commercial Paper. Commercial paper is an issuer's obligation with a maturity of
less than nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial paper and
use the proceeds (or bank loans) to repay maturing paper. If the issuer cannot
continue to obtain liquidity in this fashion, its commercial paper may default.
The short maturity of commercial paper reduces both the market and credit risks
as compared to other debt securities of the same issuer.

Demand Instruments. Demand instruments are corporate debt securities that the
issuer must repay upon demand. Other demand instruments require a third party,
such as a dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities, even though
their stated maturity may extend beyond one year.

Municipal Securities

Municipal securities are issued by states, counties, cities and other political
subdivisions and authorities. Although many municipal securities are exempt from
federal income tax, the Fund may invest in taxable municipal securities.

Mortgage Backed Securities

The Fund may invest in mortgage-backed securities primarily by investing in
another mutual fund that owns securities and that is advised by an affiliate of
the Adviser. This other mutual fund is managed independently of the Fund and may
incur additional administrative expenses. The Fund may also invest in such
securities directly.

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are pass-
through certificates. An issuer of pass-through certificates gathers monthly
payments from an underlying pool of mortgages. Then, the issuer deducts its fees
and expenses and passes the balance of the payments onto the certificate holders
once a month. Holders of pass-through certificates receive a pro rata share of
all payments and pre-payments from the underlying mortgages. As a result, the
holders assume all the prepayment risks of the underlying mortgages.

Collateralized Mortgage Obligations (CMOs). CMOs, including interests in real
estate mortgage investment conduits (REMICs), allocate payments and prepayments
from an underlying pass-through certificate among holders of different classes
of mortgage backed securities. This creates different prepayment and market
risks for each CMO class.

Sequential CMOs. In a sequential pay CMO, one class of CMOs receives all
principal payments and prepayments. The next class of CMOs receives all
principal payments after the first class is paid off. This process repeats for
each sequential class of CMO. As a result, each class of sequential pay CMOs
reduces the prepayment risks of subsequent classes.

PACs, TACs and Companion Classes. More sophisticated CMOs include planned
amortization classes (PACs) and targeted amortization classes (TACs). PACs and
TACs are issued with companion classes. PACs and TACs receive principal payments
and prepayments at a specified rate. The companion classes receive principal
payments and prepayments in excess of the specified rate. In addition, PACs will
receive the companion classes' share of principal payments, if necessary, to
cover a shortfall in the prepayment rate. This helps PACs and TACs to control
prepayment risks by increasing the risks to their companion classes.

IOs and POs. CMOs may allocate interest payments to one class (Interest Only or
IOs) and principal payments to another class (Principal Only or POs). POs
increase in value when prepayment rates increase. In contrast, IOs decrease in
value when prepayments increase, because the underlying mortgages generate less
interest payments. However, IOs tend to increase in value when interest rates
rise (and prepayments decrease), making IOs a useful hedge against market risks.

Floaters and Inverse Floaters. Another variant allocates interest payments
between two classes of CMOs. One class (Floaters) receives a share of interest
payments based upon a market index such as LIBOR. The other class (Inverse
Floaters) receives any remaining interest payments from the underlying
mortgages. Floater classes receive more interest (and Inverse Floater classes
receive correspondingly less interest) as interest rates rise. This shifts
prepayment and market risks from the Floater to the Inverse Floater class,
reducing the price volatility of the Floater class and increasing the price
volatility of the Inverse Floater class.

Z Classes and Residual Classes. CMOs must allocate all payments received from
the underlying mortgages to some class. To capture any unallocated payments,
CMOs generally have an accrual (Z) class. Z classes do not receive any payments
from the underlying mortgages until all other CMO classes have been paid off.
Once this happens, holders of Z class CMOs receive all payments and prepayments.
Similarly, REMICs have residual interests that receive any mortgage payments not
allocated to another REMIC class.

The degree of increased or decreased prepayment risks depends upon the structure
of the CMOs. However, the actual returns on any type of mortgage backed security
depend upon the performance of the underlying pool of mortgages, which no one
can predict and will vary among pools.

Asset Backed Securities

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.

Bank Instruments

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

Insurance Contracts

Insurance contracts include guaranteed investment contracts, funding agreements
and annuities. The Fund treats these contracts as fixed income securities.

Zero Coupon Securities

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.

Credit Enhancement. Credit enhancement consists of an arrangement in which a
company agrees to pay amounts due on a fixed income security if the issuer
defaults. In some cases the company providing credit enhancement makes all
payments directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates the
credit risk of a fixed income security based solely upon its credit enhancement.

Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.

Convertible Securities

Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.

Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

Foreign Securities

Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:

 . it is organized under the laws of, or has a principal office located in,
another country; . the principal trading market for its securities is in another
country; or

 . it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.

Depositary Receipts. Depositary receipts represent interests in underlying
securities issued by a foreign company. Depositary receipts are not traded in
the same market as the underlying security. The foreign securities underlying
American Depositary Receipts (ADRs) are traded in the United States. ADRs
provide a way to buy shares of foreign-based companies in the United States
rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally or
outside the United States. Depositary receipts involve many of the same risks of
investing directly in foreign securities, including currency risks and risks of
foreign investing.

Foreign Exchange Contracts. In order to convert U.S. dollars into the currency
needed to buy a foreign security, or to convert foreign currency received from
the sale of a foreign security into U.S. dollars, the Fund may enter into spot
currency trades. In a spot trade, the Fund agrees to exchange one currency for
another at the current exchange rate. The Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. The exchange rate
for currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.

Foreign Government Securities. Foreign government securities generally consist
of fixed income securities supported by national, state or provincial
governments or similar political subdivisions. Foreign government securities
also include debt obligations of supranational entities, such as international
organizations designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples ofthese include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.

Foreign government securities also include fixed income securities of quasi-
governmental agencies that are either issued by entities owned by a national,
state or equivalent government or are obligations of a political unit that are
not backed by the national government's full faith and credit. Further, foreign
government securities include mortgage-related securities issued or guaranteed
by national, state or provincial governmental instrumentalities, including
quasi-governmental agencies.

Derivative Contracts

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts.

Futures Contracts. Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of an underlying asset at a
specified price, date, and time. Entering into a contract to buy an underlying
asset is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts. The Fund can buy or
sell futures contracts on portfolio securities or indexes and engage in foreign
currency forward contracts.

Options. Options are rights to buy or sell an underlying asset for a specified
price (the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to sell
the underlying asset to the writer of the option. The writer of the option
receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.

The Fund may:

Buy put options on portfolio securities and financial futures contracts
including index futures (in anticipation of a decrease in the value of the
underlying asset).

Write call options on portfolio securities, financial futures contracts, and
securities which the Fund has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration (to generate income from premiums, and in anticipation
of a decrease or only limited increase in the value of the underlying asset). If
a call written by a Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying asset over the exercise
price plus the premium received.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

Hybrid Instruments. Hybrid instruments combine elements of derivative contracts
with those of another security (typically a fixed income security). All or a
portion of the interest or principal payable on a hybrid security is determined
by reference to changes in the price of an underlying asset or by reference to
another benchmark (such as interest rates, currency exchange rates or indices).
Hybrid instruments also include convertible securities with conversion terms
related to an underlying asset or benchmark.

The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, options, futures and currencies, and depend upon the
terms of the instrument. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional fixed income
or convertible securities. Hybrid instruments are also potentially more volatile
and carry greater market risks than traditional instruments. Moreover, depending
on the structure of the particular hybrid, it may expose the Fund to leverage
risks or carry liquidity risks.

  Swaps. Swaps are contracts in which two parties agree to pay each other (swap)
  the returns derived from underlying assets with differing characteristics.
  Most swaps do not involve the delivery of the underlying assets by either
  party, and the parties might not own the assets underlying the swap. The
  payments are usually made on a net basis so that, on any given day, the Fund
  would receive (or pay) only the amount by which its payment under the contract
  is less than (or exceeds) the amount of the other party's payment. Swap
  agreements are sophisticated instruments that can take many different forms,
  and are known by a variety of names including caps, floors, and collars.
  Common swap agreements that the Fund may use include:

     Interest Rate Swaps. Interest rate swaps are contracts in which one party
     agrees to make regular payments equal to a fixed or floating interest rate
     times a stated principal amount of fixed income securities, in return for
     payments equal to a different fixed or floating rate times the same
     principal amount, for a specific period. For example, a $10 million LIBOR
     swap would require one party to pay the equivalent of the London Interbank
     Offer Rate of interest (which fluctuates) on $10 million principal amount
     in exchange for the right to receive the equivalent of a stated fixed rate
     of interest on $10 million principal amount.

     Caps and Floors. Caps and Floors are contracts in which one party agrees to
     make payments only if an interest rate or index goes above (Cap) or below
     (Floor) a certain level in return for a fee from the other party.

     Total Return Swaps. Total return swaps are contracts in which one party
     agrees to make payments of the total return from the underlying asset
     during the specified period, in return for payments equal to a fixed or
     floating rate of interest or the total return from another underlying
     asset.

Special Transactions

Inter-fund Borrowing and Lending Arrangements

The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.

For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.

Repurchase Agreements. Repurchase agreements are transactions in which the Fund
buys a security from a dealer or bank and agrees to sell the security back at a
mutually agreed upon time and price. The repurchase price exceeds the sale
price, reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the Adviser.

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Securities of Other Investment Companies

The Fund may invest its assets in securities of other investment companies,
including the securities of money market funds, as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.

Reverse Repurchase Agreements. Reverse repurchase agreements are repurchase
agreements in which the Fund is the seller (rather than the buyer) of the
securities, and agrees to repurchase them at an agreed upon time and price. A
reverse repurchase agreement may be viewed as a type of borrowing by the Fund.
Reverse repurchase agreements are subject to credit risks. In addition, reverse
repurchase agreements create leverage risks because the Fund must repurchase the
underlying security at a higher price, regardless of the market value of the
security at the time of repurchase.

Delayed Delivery Transactions. Delayed delivery transactions, including when
issued transactions, are arrangements in which the Fund buys securities for a
set price, with payment and delivery of the securities scheduled for a future
time. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value in
determining the price of its shares. Settlement dates may be a month or more
after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, delayed delivery
transactions create market risks for the Fund. Delayed delivery transactions
also involve credit risks in the event of a counterparty default.

To Be Announced Securities (TBAs). As with other delayed delivery transactions,
a seller agrees to issue a TBA security at a future date. However, the seller
does not specify the particular securities to be delivered. Instead, the Fund
agrees to accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Fund and the seller would agree upon the
issuer, interest rate and terms of the underlying mortgages. The seller would
not identify the specific underlying mortgages until it issues the security. TBA
mortgage backed securities increase market risks because the underlying
mortgages may be less favorable than anticipated by the Fund.

Dollar Rolls. Dollar rolls are transactions where the Fund sells mortgage-backed
securities with a commitment to buy similar, but not identical, mortgage-backed
securities on a future date at a lower price. Normally, one or both securities
involved are TBA mortgage backed securities. Dollar rolls are subject to market
risks and credit risks.

Securities Lending. The Fund may lend portfolio securities to borrowers that the
Adviser deems creditworthy. In return, the Fund receives cash or liquid
securities from the borrower as collateral. The borrower must furnish additional
collateral if the market value of the loaned securities increases. Also, the
borrower must pay the Fund the equivalent of any dividends or interest received
on the loaned securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to market risks and credit risks.

Asset Coverage

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

Investment Ratings for Investment Grade Securities

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

INVESTMENT RISKS

There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below and the specific risks associated with equity securities are as
follows:

Stock Market Risks

 .  The value of equity securities in the Fund's portfolio will rise and fall.
   These fluctuations could be a sustained trend or a drastic movement. The
   Fund's portfolio will reflect changes in prices of individual portfolio
   stocks or general changes in stock valuations. Consequently, the Fund's share
   price may decline.

 .  The Adviser attempts to manage market risk by limiting the amount the Fund
   invests in each company's equity securities. However, diversification will
   not protect the Fund against widespread or prolonged declines in the stock
   market.

Liquidity Risks

 .  Trading opportunities are more limited for fixed income securities that have
   not received any credit ratings, have received ratings below investment grade
   or are not widely held.

 .  Trading opportunities are more limited for CMOs that have complex terms or
   that are not widely held. These features may make it more difficult to sell
   or buy a security at a favorable price or time. Consequently, the Fund may
   have to accept a lower price to sell a security, sell other securities to
   raise cash or give up an investment opportunity, any of which could have a
   negative effect on the Fund's performance. Infrequent trading of securities
   may also lead to an increase in their price volatility.

 .  Liquidity risk also refers to the possibility that the Fund may not be able
   to sell a security or close out a derivative contract when it wants to. If
   this happens, the Fund will be required to continue to hold the security or
   keep the position open, and the Fund could incur losses.

 .  OTC derivative contracts generally carry greater liquidity risk than
   exchange-traded contracts.

Risks Related to Company Size

 .  Generally, the smaller the market capitalization of a company, the fewer the
   number of shares traded daily, the less liquid its stock and the more
   volatile its price. Market capitalization is determined by multiplying the
   number of its outstanding shares by the current market price per share.

 .  Companies with smaller market capitalizations also tend to have unproven
   track records, a limited product or service base and limited access to
   capital. These factors also increase risks and make these companies more
   likely to fail than companies with larger market capitalizations.

Sector Risks

 .  Companies with similar characteristics may be grouped together in broad
   categories called sectors. Sector risk is the possibility that a certain
   sector may underperform other sectors or the market as a whole. As the
   Adviser allocates more of the Fund's portfolio holdings to a particular
   sector, the Fund's performance will be more susceptible to any economic,
   business or other developments which generally affect that sector.

The specific risks associated with fixed income securities are as follows:

Interest Rate Risks

 .  Prices of fixed income securities rise and fall in response to changes in the
   interest rate paid by similar securities. Generally, when interest rates
   rise, prices of fixed income securities fall. However, market factors, such
   as the demand for particular fixed income securities, may cause the price of
   certain fixed income securities to fall while the prices of other securities
   rise or remain unchanged.

 .  Interest rate changes have a greater effect on the price of fixed income
   securities with longer durations. Duration measures the price sensitivity of
   a fixed income security to changes in interest rates.

Credit Risks

 .  Credit risk is the possibility that an issuer will default on a security by
   failing to pay interest or principal when due. If an issuer defaults, the
   Fund will lose money.

 .  Many fixed income securities receive credit ratings from services such as
   Standard & and Moody's Investors Service. These services assign ratings to
   securities by assessing the likelihood of issuer default. Lower credit
   ratings correspond to higher credit risk. If a security has not received a
   rating, the Fund must rely entirely upon the Adviser's credit assessment.

 .  Fixed income securities generally compensate for greater credit risk by
   paying interest at a higher rate. The difference between the yield of a
   security and the yield of a U.S. Treasury security with a comparable maturity
   (the spread) measures the additional interest paid for risk. Spreads may
   increase generally in response to adverse economic or market conditions. A
   security's spread may also increase if the security's rating is lowered, or
   the security is perceived to have an increased credit risk. An increase in
   the spread will cause the price of the security to decline.

 .  Credit risk includes the possibility that a party to a transaction involving
   the Fund will fail to meet its obligations. This could cause the Fund to lose
   the benefit of the transaction or prevent the Fund from selling or buying
   other securities to implement its investment strategy.

Call Risks

 .  Call risk is the possibility that an issuer may redeem a fixed income
   security before maturity (a call) at a price below its current market price.
   An increase in the likelihood of a call may reduce the security's price.

 .  If a fixed income security is called, the Fund may have to reinvest the
   proceeds in other fixed income securities with lower interest rates, higher
   credit risks, or other less favorable characteristics.

Liquidity Risks

 .  Trading opportunities are more limited for fixed income securities that have
   not received any credit ratings, have received ratings below investment grade
   or are not widely held.

 .  Trading opportunities are more limited for CMOs that have complex terms or
   that are not widely held. These features may make it more difficult to sell
   or buy a security at a favorable price or time. Consequently, the Fund may
   have to accept a lower price to sell a security, sell other securities to
   raise cash or give up an investment opportunity, any of which could have a
   negative effect on the Fund's performance. Infrequent trading of securities
   may also lead to an increase in their price volatility.

 .  Liquidity risk also refers to the possibility that the Fund may not be able
   to sell a security when it wants to. If this happens, the Fund will be
   required to continue to hold the security and the Fund could incur losses.

Risks of Foreign Investing

 .  Foreign securities pose additional risks because foreign economic or
   political conditions may be less favorable than those of the United States.
   Securities in foreign markets may also be subject to taxation policies that
   reduce returns for U.S. investors.

 .  Foreign companies may not provide information (including financial
   statements) as frequently or to as great an extent as companies in the United
   States. Foreign companies may also receive less coverage than United States
   companies by market analysts and the financial press. In addition, foreign
   countries may lack uniform accounting, auditing and financial reporting
   standards or regulatory requirements comparable to those applicable to U.S.
   companies. These factors may prevent the Fund and its Adviser from obtaining
   information concerning foreign companies that is as frequent, extensive and
   reliable as the information available concerning companies in the United
   States.

 .  Foreign countries may have restrictions on foreign ownership of securities or
   may impose exchange controls, capital flow restrictions or repatriation
   restrictions which could adversely affect the liquidity of the Fund's
   investments.

Risks Associated with Noninvestment Grade Securities

 .  Securities rated below investment grade, also known as junk bonds, generally
   entail greater market, credit and liquidity risks than investment grade
   securities. For example, their prices are more volatile, economic downturns
   and financial setbacks may affect their prices more negatively, and their
   trading market may be more limited.

The specific risks of investing in derivative contracts include the following:

 .  Liquidity risk refers to the possibility that the Fund may not be able to
   sell a security or close out a position when it wants to. If this happens,
   the Fund will be required to continue to hold the security or keep the
   position open, and the Fund could incur losses.

 .  OTC derivative contracts generally carry greater liquidity risk than
   exchange-traded contracts.

Fundamental INVESTMENT Objective and Policies

The Corporation's investment objective is to provide relative safety of capital
with the possibility of long-term growth of capital and income. Consideration is
also given to current income. The investment objective may not be changed by the
Fund's Directors without shareholder approval.

INVESTMENT LIMITATIONS


Selling Short and Buying on Margin

The Corporation will not sell any securities short or purchase any securities on
margin.

Issuing Senior Securities and Borrowing Money

The Fund will not issue senior securities, except as permitted by its investment
objective and policies, and except that the Fund may enter into reverse
repurchase agreements and otherwise borrow up to one-third of the value of its
net assets including the amount borrowed, as a temporary, extraordinary or
emergency measure or to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous. This practice is not for investment
leverage.

Diversification of Investments

With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities, and securities of other investment companies)
if as a result more than 5% of the value of its total assets would be invested
in the securities of that issuer, or it would own more than 10% of the
outstanding voting securities of that issuer.

Investing in Commodities, Commodity Contracts, or Real Estate

The Fund will not invest in commodities, commodity contracts, or real estate,
provided, that the Fund may acquire securities of real estate investment trusts,
and marketable securities of companies which may represent indirect interests in
real estate, and any investment security which derives its value from real
estate.

Underwriting

The Fund will not engage in underwriting or agency distribution of securities
issued by others.

Lending Cash or Securities

The Fund will not lend any assets except portfolio securities. The purchase of
corporate or government bonds, debentures, notes or other evidences of
indebtedness shall not be considered a loan for purposes of this limitation.

Concentration of Investments

The Fund will not invest more than 25% of the value of its total assets in
securities of companies in any one industry. However, with respect to foreign
governmental securities, the Fund reserves the right to invest up to 25% of its
total assets in fixed income securities of foreign governmental units located
within an individual foreign nation and to purchase or sell various currencies
on either a spot or forward basis in connection with these investments.

The above limitations cannot be changed unless authorized by the Board of
Directors (Board) and by the "vote of a majority of its outstanding voting
securities," as defined by the Investment Company Act. The following
limitations, however, may be changed by the Board without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.

Investing in Illiquid Securities

The Fund will limit investments in illiquid securities, including certain
restricted securities determined by the Directors to be illiquid non-negotiable
time deposits, unlisted options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.

Acquiring Securities

It will not invest in securities of a company for the purpose of exercising
control or management.

If a percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of such restriction.

The Fund did not borrow money or lend portfolio securities in excess of 5% of
the value of its net assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."

Cash items may include short-term obligations such as:

 .  obligations of the U.S. government or its agencies or instrumentalities; and

 .  repurchase agreements.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:

 . for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

 . in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices; . for fixed income securities, at
the last sale price on a national securities exchange, if available, otherwise,
as determined by an independent pricing service;

 . for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and

 .  for all other securities at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

Trading in Foreign Securities

(NYSE). In computing its NAV, the Fund values foreign securities at the latest
closing price on the exchange on which they are traded immediately prior to the
closing of the NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.

REDUCING OR eliminating THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts

Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.

Accumulated Purchases

If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.

Concurrent Purchases

You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.

Letter of Intent Class A Shares

You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.

Reinvestment Privilege

You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.

Purchases by Affiliates of the Fund

The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:

 .  the Directors, employees and sales representatives of the Fund, the Adviser,
   the Distributor and their affiliates;

 .  any associated person of an investment dealer who has a sales agreement with
   the Distributor; and

 .  trusts, pension or profit-sharing plans for these individuals.

Federated Life Members

Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:

 .  through the "Liberty Account," an account for Liberty Family of Funds
   shareholders on February 28, 1987 (the Liberty Account and Liberty Family of
   Funds are no longer marketed); or

 .  as Liberty Account shareholders by investing through an affinity group prior
   to August 1, 1987.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE

These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:

 .  following the death or post-purchase disability, as defined in Section
   72(m)(7) of the Internal Revenue Code of 1986, of the last surviving
   shareholder;

 .  representing minimum required distributions from an Individual Retirement
   Account or other retirement plan to a shareholder who has attained the age of
   70 1/2;

 .  of Shares that represent a reinvestment within 120 days of a previous
   redemption;

 .  of Shares held by the Directors, employees, and sales representatives of the
   Fund, the Adviser, the Distributor and their affiliates; employees of any
   investment professional that sells Shares according to a sales agreement with
   the Distributor; and the immediate family members of the above persons;

 .  of Shares originally purchased through a bank trust department, a registered
   investment adviser or retirement plans where the third party administrator
   has entered into certain arrangements with the Distributor or its affiliates,
   or any other investment professional, to the extent that no payments were
   advanced for purchases made through these entities;

 .  which are involuntary redemptions processed by the Fund because the accounts
   do not meet the minimum balance requirements; and

Class B Shares Only

 .  which are qualifying redemptions of Class B Shares under a Systematic
   Withdrawal Program.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES

The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.

RULE 12B-1 PLAN

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses. Federated and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third parties who
have advanced commissions to investment professionals.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

When an investment professional's customer purchases shares, the investment
professional may receive:

 .  an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
   Shares.

In addition, the Distributor may pay investment professionals 0.25% of the
purchase price of $1 million or more of Class A Shares that its customer has not
redeemed over the first year.

Class A Shares

Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:

<TABLE>
<CAPTION>

Amount                 Advance Payments as a Percentage of Public Offering Price
<S>                    <C>
First $1 - $5 million 0.75% Next $5 - $20 million 0.50% Over $20 million 0.25%
</TABLE>

For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.

A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.

Exchanging Securities for Shares

You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.

Subaccounting Services

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

Account and Share Information

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights, except that in matters affecting only a particular class,
only Shares of that class are entitled to vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares of
all series entitled to vote.

As of December 10, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Edward Jones & Co.,
Maryland Heights, MO owned approximately 1,186,245 Class A Shares (10.21%);
Edward Jones & Co., Maryland Heights, MO owned approximately 252,139 Class B
Shares (8.59%); Edward Jones & Co., Maryland Heights, MO owned approximately
117,695 Class C Shares (9.34%); MLPF&S, Jacksonville, FL owned approximately
94,238 Class C Shares (7.47%) and Citizens National Bank, Butler, PA owned
approximately 111,357 Class C Shares (8.83%).

Tax Information

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

FOREIGN INVESTMENTS

If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed-
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.

Who Manages and Provides Services to the Fund?

BOARD OF DIRECTORS

The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Fund's,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Director from the Fund for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Federated Fund Complex is
comprised of 56 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of December 10, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Class A, B, C Shares.

<TABLE>
<CAPTION>

Name
Birth
Date

Address                                 Principal
Occupations
Position With Fund                      for Past Five
Years

<S>
<C>

John F. Donahue*+#                      Chief Executive Officer and Director or
Trustee of the Federated Fund
Birth Date: July 28, 1924               Complex; Chairman and Director, Federated
Investors, Inc.; Chairman
Federated Investors Tower               and Trustee, Federated Investment Management
Company; Chairman and
1001 Liberty Avenue                     Director, Federated Investment Counseling and
Federated Global
Pittsburgh, PA                          Investment Management Corp.; Chairman,
Passport Research, Ltd.
DIRECTOR AND
PRESIDENT

Thomas G. Bigley                        Director or Trustee of the Federated Fund
Complex; Director, Member
Birth Date: February 3, 1934            of Executive Committee, Children's Hospital
of Pittsburgh; Director,
15 Old Timber Trail                     Robroy Industries, Inc. (coated steel
conduits/computer storage
Pittsburgh, PA                          equipment); formerly: Senior Partner, Ernst &
Young LLP; Director,
DIRECTOR                                MED 3000 Group, Inc. (physician practice
management); Director,
                                        Member of Executive Committee, University of

Pittsburgh.


John T. Conroy, Jr.                     Director or Trustee of the Federated Fund
Complex; President,
Birth Date: June 23, 1937               Investment Properties Corporation; Senior
Vice President, John R.
Grubb & Ellis/Investment                Wood and Associates, Inc., Realtors; Partner
or Trustee in private
Properties Corporation                  real estate ventures in Southwest Florida;
formerly: President,
3201 Tamiami Trail North                Naples Property Management, Inc. and
Northgate Village Development
Naples, FL
Corporation.
DIRECTOR

Nicholas P. Constantakis                Director or Trustee of the Federated Fund
Complex; Director, Michael
Birth Date: September 3, 1939           Baker Corporation (engineering, construction,
operations and
175 Woodshire Drive                     technical services); formerly: Partner,
Andersen Worldwide SC.
Pittsburgh,
PA
DIRECTOR

John F. Cunningham++                    Director or Trustee of some of the Federated
Fund Complex; Chairman,
Birth Date: March 5, 1943               President and Chief Executive Officer,
Cunningham & Co., Inc.
353 El Brillo Way                       (strategic business consulting); Trustee
Associate, Boston College;
Palm Beach, FL                          Director, Iperia Corp.
(communications/software); formerly: Director,
DIRECTOR Redgate Communications and EMC Corporation (computer storage systems).

                                        Previous Positions: Chairman of the Board and

Chief Executive

                                        Officer, Computer Consoles, Inc.; President

and Chief Operating

                                        Officer, Wang Laboratories; Director, First

National Bank of Boston;
                                        Director, Apollo Computer,
Inc.


Lawrence D. Ellis, M.D.*                Director or Trustee of the Federated Fund
Complex; Professor of
Birth Date: October 11, 1932            Medicine, University of Pittsburgh; Medical
Director, University of
3471 Fifth Avenue                       Pittsburgh Medical Center - Downtown;
Hematologist, Oncologist, and
Suite 1111                              Internist, University of Pittsburgh Medical
Center; Member, National
Pittsburgh, PA                          Board of Trustees, Leukemia Society of
America.
DIRECTOR

Peter E. Madden                         Director or Trustee of the Federated Fund
Complex; formerly:
Birth Date: March 16, 1942              Representative, Commonwealth of Massachusetts
General Court;
One Royal Palm Way                      President, State Street Bank and Trust
Company and State Street
100 Royal Palm Way
Corporation.
Palm Beach,
FL

DIRECTOR                                Previous Positions: Director, VISA USA and
VISA International;
                                        Chairman and Director, Massachusetts Bankers
Association; Director,
                                        Depository Trust Corporation; Director, The

Boston Stock Exchange.


Charles F. Mansfield, Jr.++             Director or Trustee of some of the Federated
Fund Complex; Executive

Birth Date: April 10, 1945              Vice President, Legal and External Affairs,
Dugan Valva Contess, Inc.
80 South Road                           (marketing, communications, technology and
consulting).; formerly
Westhampton Beach, NY                   Management
Consultant.
DIRECTOR

                                        Previous Positions: Chief Executive Officer,
PBTC International Bank;
                                        Partner, Arthur Young & Company (now Ernst &
Young LLP); Chief

                                        Financial Officer of Retail Banking Sector,
Chase Manhattan Bank;
                                        Senior Vice President, Marine Midland Bank;
Vice President, Citibank;
                                        Assistant Professor of Banking and Finance,
Frank G. Zarb School of

                                        Business, Hofstra

University.

John E. Murray, Jr., J.D., S.J.D.#      Director or Trustee of the Federated Fund
Complex; President, Law

Birth Date: December 20, 1932           Professor, Duquesne University; Consulting
Partner, Mollica & Murray;
President, Duquesne University          Director, Michael Baker Corp. (engineering,
construction, operations,
Pittsburgh, PA                          and technical
services).
DIRECTOR

                                        Previous Positions: Dean and Professor of

Law, University of

                                        Pittsburgh School of Law; Dean and Professor

of Law, Villanova

                                        University School of

Law.


Marjorie P. Smuts                       Director or Trustee of the Federated Fund
Complex; Public
Birth Date: June 21, 1935               Relations/Marketing/Conference
Planning.
4905 Bayard
Street

Pittsburgh, PA                          Previous Positions: National Spokesperson,
Aluminum Company of
DIRECTOR                                America; television producer; business
owner.


John S. Walsh++                         Director or Trustee of some of the Federated
Fund Complex; President

Birth Date: November 28, 1957           and Director, Heat Wagon, Inc. (manufacturer
of construction
2007 Sherwood Drive                     temporary heaters); President and Director,
Manufacturers Products,
Valparaiso, IN                          Inc. (distributor of portable construction
heaters); President,
DIRECTOR                                Portable Heater Parts, a division of
Manufacturers Products, Inc.;
                                        Director, Walsh & Kelly, Inc. (heavy highway
contractor); formerly:
                                        Vice President, Walsh & Kelly,
Inc.


J. Christopher Donahue+                 President or Executive Vice President of the
Federated Fund Complex;
Birth Date: April 11, 1949              Director or Trustee of some of the Funds in
the Federated Fund
Federated Investors Tower               Complex; President, Chief Executive Officer
and Director, Federated
1001 Liberty Avenue                     Investors, Inc.; President and Trustee,
Federated Investment
Pittsburgh, PA                          Management Company; President and Trustee,
Federated Investment
EXECUTIVE VICE PRESIDENT AND            Counseling, President and Director, Federated
Global Investment
DIRECTOR                                Management Corp.; President, Passport
Research, Ltd.; Trustee,
                                        Federated Shareholder Services Company;
Director, Federated Services

Company.


Edward C. Gonzales                      Trustee or Director of some of the Funds in
the Federated Fund
Birth Date: October 22, 1930            Complex; President, Executive Vice President
and Treasurer of some of
Federated Investors Tower               the Funds in the Federated Fund Complex; Vice
Chairman, Federated
1001 Liberty Avenue                     Investors, Inc.; Vice President, Federated
Investment Management
Pittsburgh, PA                          Company  and Federated Investment Counseling,
Federated Global
EXECUTIVE VICE PRESIDENT                Investment Management Corp. and Passport
Research, Ltd.; Executive
                                        Vice President and Director, Federated

Securities Corp.; Trustee,
                                        Federated Shareholder Services Company.


John W. McGonigle                       Executive Vice President and Secretary of the
Federated Fund Complex;
Birth Date: October 26, 1938            Executive Vice President, Secretary and
Director, Federated
Federated Investors Tower               Investors, Inc.; Trustee, Federated
Investment Management Company and
1001 Liberty Avenue                     Federated Investment Counseling; Director,
Federated Global
Pittsburgh, PA                          Investment Management Corp, Federated
Services Company and  Federated
EXECUTIVE VICE PRESIDENT                Securities
Corp.


Richard J. Thomas                       Treasurer of the Federated Fund Complex; Vice
President - Funds
Birth Date: June 17, 1954               Financial Services Division, Federated
Investors, Inc.; formerly:
Federated Investors Tower various management positions within Funds Financial
Services Division 1001 Liberty Avenue of Federated Investors, Inc.

Pittsburgh,
PA
TREASURER

Richard B. Fisher                       President or Vice President of some of the
Funds in the Federated
 Birth Date: May 17, 1923               Fund Complex; Director or Trustee of some of
the Funds in the
Federated Investors Tower               Federated Fund Complex; Executive Vice
President, Federated
1001 Liberty Avenue                     Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Pittsburgh,
PA
VICE

PRESIDENT

J. Thomas Madden                        Chief Investment Officer of this Fund and
various other Funds in the
Birth Date: October 22, 1945            Federated Fund Complex; Executive Vice
President, Federated
Federated Investors Tower               Investment Counseling, Federated Global
Investment Management Corp.,
1001 Liberty Avenue                     Federated Investment Management Company and
Passport Research, Ltd.;
Pittsburgh, PA                          Vice President, Federated Investors, Inc.;
formerly: Executive Vice
CHIEF INVESTMENT OFFICER                President and Senior Vice President,
Federated Investment Counseling
                                        Institutional Portfolio Management Services
Division; Senior Vice

                                        President, Federated Investment Management

Company and Passport

                                        Research,
Ltd.


Michael P. Donnelly                     Michael P. Donnelly has been the Fund's
portfolio manager since
Birth Date: November 26, 1961           December 1997. He is Vice President of the
Fund.   Mr. Donnelly
Federated Investors Tower               joined Federated in 1989 as an Investment
Analyst.  He served as a
1001 Liberty Avenue                     Portfolio Manager from 1994 to 1998 and
became a Senior Portfolio
Pittsburgh, PA                          Manager in 1998.  He was a Vice President of
the Fund's Adviser from
VICE PRESIDENT                          1994 to 1999.  In 1999, Mr. Donnelly became a
Senior Vice President
                                        of the Fund's Adviser.   Mr. Donnelly is a
Chartered Financial

                                        Analyst and received his M.B.A. from the
University of Virginia.
</TABLE>

<TABLE>
<CAPTION>

Name                                                              Total
Birth Date                                 Aggregate           Compensation
Address                                   Compensation          From Fund
Position With Fund                         From Fund         and Fund Complex
<S>                                       <C>             <C>
John F. Donahue*+#                           $       0    $0 for the
Birth Date: July 28, 1924                                 Fund and
Federated Investors Tower                                 54 other investment
companies
1001 Liberty Avenue                                       in the Fund Complex
Pittsburgh, PA

DIRECTOR AND PRESIDENT


Thomas G. Bigley                             $1,145.90    $113,860.22 for the
Birth Date: February 3, 1934                              Fund and
15 Old Timber Trail                                       54 other investment
companies
Pittsburgh, PA                                            in the Fund Complex
DIRECTOR


John T. Conroy, Jr.                          $1,260.68    $125,264.48 for the
Birth Date: June 23, 1937                                 Fund and
Grubb & Ellis/Investment                                  54 other investment
companies
Properties Corporation                                    in the Fund Complex
3201 Tamiami Trail North
Naples, FL

DIRECTOR

Nicholas P. Constantakis                     $  557.57    $47,958.02 for the
Birth Date: September 3, 1939                             Fund and
175 Woodshire Drive                                       29 other investment
companies
Pittsburgh, PA                                            in the Fund Complex
DIRECTOR


John F. Cunningham++                         $  557.57    $0 for the
Birth Date: March 5, 1943                                 Fund and
353 El Brillo Way                                         46  other investment
companies
Palm Beach, FL                                            in the Fund Complex
DIRECTOR


Lawrence D. Ellis, M.D.*                     $1,145.90    $113,860.22 for the
Birth Date: October 11, 1932                              Fund and
3471 Fifth Avenue                                         54 other investment
companies
Suite 1111                                                in the Fund Complex
Pittsburgh, PA

DIRECTOR

Peter E. Madden                              $1,043.70    $113,860.22 for the
Birth Date: March 16, 1942                                Fund and
One Royal Palm Way                                        54 other investment
companies
100 Royal Palm Way                                        in the Fund Complex
Palm Beach, FL

DIRECTOR

Charles F. Mansfield, Jr.++                  $  606.82    $0 for the
Birth Date: April 10, 1945                                Fund and
80 South Road                                             50  other investment
companies
Westhampton Beach, NY                                     in the Fund Complex
DIRECTOR

John E. Murray, Jr., J.D., S.J.D.#           $1,232.27    $113,860.22 for the
Birth Date: December 20, 1932                             Fund and
President, Duquesne University                            54 other investment
companies
Pittsburgh, PA                                            in the Fund Complex
DIRECTOR

Marjorie P. Smuts                            $1,145.90    $113,860.22 for the
Birth Date: June 21, 1935                                 Fund and
4905 Bayard Street                                        54 other investment
companies
Pittsburgh, PA                                            in the Fund Complex
DIRECTOR


John S. Walsh++                              $ 577.57.    $0 for the
Birth Date: November 28, 1957                             Fund and
2007 Sherwood Drive                                       48 other investment
companies
Valparaiso, IN                                            in the Fund Complex
DIRECTOR

J. Christopher Donahue+                      $       0    $0 for the
Birth Date: April 11, 1949                                Fund and
Federated Investors Tower                                 16 other investment
companies
1001 Liberty Avenue                                       in the Fund Complex
Pittsburgh, PA

EXECUTIVE VICE PRESIDENT AND
DIRECTOR

Edward C. Gonzales                           $       0    $0 for the
Birth Date: October 22, 1930                              Fund and
Federated Investors Tower                                 1 other investment company
1001 Liberty Avenue                                       in the Fund Complex
Pittsburgh, PA
EXECUTIVE VICE PRESIDENT


John W. McGonigle                            $       0    $0 for the
Birth Date: October 26, 1938                              Fund and
Federated Investors Tower                                 54 other investment
companies
1001 Liberty Avenue                                       in the Fund Complex
Pittsburgh, PA
EXECUTIVE VICE PRESIDENT


Richard J. Thomas                            $       0   $0 for the
Birth Date: June 17, 1954                                Fund and
Federated Investors Tower                                54 other investment companies
1001 Liberty Avenue                                      in the Fund Complex
Pittsburgh, PA
TREASURER


Richard B. Fisher                            $       0   $0 for the
 Birth Date: May 17, 1923                                Fund and
Federated Investors Tower                                6 other investment companies
1001 Liberty Avenue                                      in the Fund Complex
Pittsburgh, PA

VICE PRESIDENT


J. Thomas Madden                             $       0   $0 for the
Birth Date: October 22, 1945                             Fund
and
Federated Investors Tower                                12 other investment
companies
1001 Liberty Avenue                                      in the Fund
Complex
Pittsburgh, PA

CHIEF INVESTMENT OFFICER


Michael P. Donnelly                          $       0   $0 for the
Birth Date: November 26, 1961                            Fund
and
Federated Investors Tower                                1 other investment company
1001 Liberty Avenue                                      in the Fund
Complex
Pittsburgh, PA
VICE PRESIDENT

</TABLE>

* An asterisk denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.

# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.

+  Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Fund.

++Messrs. Cunningham, Mansfield and Walsh became members of the Board of
Directors on January 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar year.

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.

Other Related Services

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.



CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Directors, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.



BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.

Research Services

Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.



For the fiscal year ended October 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to the research they provided. The
total amount of these transactions was $49,227,541.77 for which the Fund was
paid $72,989.48 in brokerage commissions.



Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

<TABLE>
<CAPTION>

Maximum Administrative Fee      Average Aggregate Daily Net Assets of the Federated
Funds
<S>                             <C>
0.150 of 1%                     on the first $250 million
0.125 of 1%                     on the next $250 million
0.100 of 1%                     on the next $250 million
0.075 of 1%                     on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.

INDEPENDENT PUBLIC ACCOUNTANTs

The independent public accountant for the Fund, Deloitte & Touche LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES

<TABLE>
<CAPTION>

For the Year Ended October 31
1999                            1998                           1997
<S>                                    <C>
<C>                            <C>
Advisory Fee Earned                                $1,967,368
$1,476,808                     $1,138,430
Advisory Fee Reduction                                      0                     $
144,801                     $  248,204
Brokerage Commissions                              $   53,535                     $
136,728                     $  178,864
Administrative Fee                                 $  202,414                     $
185,000                     $  185,000
12b-1 Fee
Class A Shares

0                             --                             --
Class B Shares                                     $
302,829                             --                             --
Class C Shares                                     $
123,106                             --                             --
Shareholder Services Fee
 Class A Shares                                    $
530,002                             --                             --
 Class B Shares                                    $
100,943                             --                             --
 Class C Shares                                    $
41,035                             --                             --
</TABLE>

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

How Does the Fund Measure Performance?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

Average Annual Total Returns and Yield

Total returns are given for the one-year, five-year, ten-year, and start of
performance, periods ended October 31, 1999.

Yield is given for the 30-day period ended October 31, 1999.

<TABLE>
<CAPTION>

Start of

                         30-Day Period            1 Year                5
Years            10 Years       Performance/1/
<S>                     <C>                      <C>
<C>                 <C>           <C>
Class A Shares               2.85%                (0.43%)
12.96%              10.03%           8.77%
Class B Shares               2.29%                (0.75%)
NA                  NA              12.77%
Class C Shares               2.29%                 3.55%
13.33%              NA              10.70%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

/1/ Class A Shares, Class B Shares and Class C Shares start of performance dates
were December 31, 1968, August 30, 1996 and April 19, 1993, respectively.

TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

 .  references to ratings, rankings, and financial publications and/or
   performance comparisons of Shares to certain indices;

 .  charts, graphs and illustrations using the Fund's returns, or returns in
   general, that demonstrate investment concepts such as tax-deferred
   compounding, dollar-cost averaging and systematic investment;

 .  discussions of economic, financial and political developments and their
   impact on the securities market, including the portfolio manager's views on
   how such developments could impact the Fund; and

 .  information about the mutual fund industry from sources such as the
   Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.

Morningstar, Inc. An independent rating service, is the publisher of the bi-
weekly Mutual Fund Values, which rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating
is five stars, and ratings are effective for two weeks.

Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.

Salomon Brothers AAA-AA Corporates calculates total returns of approximately 775
issues, which include long-term, high-grade domestic corporate taxable bonds,
rated AAA-AA, with maturities of twelve years or more. It also includes
companies in industry, public utilities, and finance.

Lehman Brothers Government/Corporate (Total) Index is comprised of approximately
5,000 issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one-month, three-month,
twelve-month, and ten-year periods and year-to-date.

S&P 500/Lehman Brothers Government/Corporate (Weighted Index) and the S&P 500/
Lehman Brothers Government (Weighted Index) combine the components of a stock-
oriented index and a bond-oriented index to obtain results which can be compared
to the performance of a managed fund. The indices' total returns will be
assigned various weights depending upon the Fund's current asset allocation.

Investors may also consult the fund evaluation consulting universe listed below.
Consulting universes may be composed of pension, profit-sharing, commingled,
endowment/foundation and mutual funds.

SEI Balanced Universe is composed of 916 portfolios managed by 390 managers
representing $86 billion in assets. To be included in the universe, a portfolio
must contain a 5% minimum commitment in both equity and fixed income securities.

Who is Federated Investors, Inc.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

Federated Funds overview

Municipal Funds

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

Equity Funds

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

Corporate Bond Funds

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first high-
yield bond funds in the industry. In 1983, Federated was one of the first fund
managers to participate in the asset backed securities market, a market totaling
more than $209 billion.

Government Funds

In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

Money Market Funds

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.

Mutual Fund Market

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

Federated Clients Overview

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

Institutional Clients

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

Bank Marketing

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

Broker/Dealers and Bank Broker/Dealer Subsidiaries

Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.

Financial Information

The Financial Statements for the Fund for the fiscal year ended October 31,
1999, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Stock and Bond Fund, Inc., dated October 31, 1999.

Investment Ratings

Long-Term Debt Ratings

AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

Moody's Investors Service, Short-Term Municipal Obligation Ratings

Moody's Investors Service (Moody's) short-term ratings are designated Moody's
Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or VMIG
ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.

MIG1--This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.

MIG2--This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings

Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.

Commercial Paper (CP) Ratings

P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.

P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Long-Term Debt Ratings

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.

NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.

NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.

NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.

Fitch ibca, inc. Short-Term Debt Rating Definitions

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated F-
1+.

F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.

Standard and Poor's Long-Term Debt Rating Definitions AAA--Debt rated AAA has
the highest rating assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

Moody's Investors Service Long-Term Bond Rating Definitions

AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Fitch IBCA, Inc. Long-Term Debt Rating Definitions

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are imminent default in payment of interest or principal.

Moody's Investors Service Commercial Paper Ratings

Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

 .  Leading market positions in well-established industries;

 .  High rates of return on funds employed;

 .  Conservative capitalization structure with moderate reliance on debt and
   ample asset protection;

 .  Broad margins in earning coverage of fixed financial charges and high
   internal cash generation; and

 .  Well-established access to a range of financial markets and assured sources
   of alternate liquidity.

Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Standard and Poor's Commercial Paper Ratings

A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Addresses

federated stock and bond fund, inc.

Class A Shares
Class B Shares
Class C Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Investment Adviser

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

Custodian

State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company

P.O. Box 8600
Boston, MA 02266-8600

Independent Public Accountants
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116



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