[Graphic]
Federated High Income Bond Fund, Inc.
21ST SEMI-ANNUAL REPORT
SEPTEMBER 30, 1997
ESTABLISHED 1977
President's Message
[Graphic]
Dear Fellow Shareholder:
Federated High Income Bond Fund, Inc. was created in 1977, and I am pleased
to present the fund's 21st semi-annual report. The fund is designed to
pursue high monthly income from a broadly diversified portfolio of
high-yield bonds.*
Covering the six-month reporting period from April 1, 1997 to September 30,
1997, this report begins with an interview with the fund's portfolio manager,
Mark Durbiano, Senior Vice President, Federated Advisers, followed by graphs
showing the fund's excellent long-term investment performance, a complete
listing of the fund's holdings, and the fund's financial
statements.
Federated High Income Bond Fund, Inc. continued to perform very well--both in
terms of share value and current income--as high-yield bonds benefited from a
near ideal economic environment as well as a healthy demand for high-yield bonds
in the new offering calendar and in the secondary market. For the six-month
reporting period, the performance of each share class in terms of total return,
income distribution and share price growth is shown below.**
INCOME
TOTAL RETURN DISTRIBUTION SHARE PRICE GROWTH
Class A Shares 10.56% $0.51 $11.31 to $11.97 = 6%
Class B Shares 10.12% $0.46 $11.31 to $11.97 = 6%
Class C Shares 10.13% $0.46 $11.31 to $11.97 = 6%
On September 30, 1997, the fund's $1.6 billion in assets were widely diversified
across more than 250 carefully researched high-yield issues that spanned the
entire business and industrial spectrum.
Thank you for investing a portion of your wealth in Federated High Income Bond
Fund, Inc. Your questions, comments, or suggestions about your fund are always
welcome.
Very sincerely yours,
[Graphic]
Richard B. Fisher
President
November 15, 1997
* Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
** Performance quoted is based on net asset value and reflects past performance.
Performance is not indicative of future results. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total returns for the
period (based on offering price) for Class A, B, and C Shares were 5.61%,
4.42%, and 9.12%, respectively.
Investment Review
[Graphic]
Mark E. Durbiano
Senior Vice President
Federated Advisers
[Graphic]
SUPPORTED BY AN EXTREMELY FAVORABLE ECONOMIC ENVIRONMENT, HIGH-YIELD BONDS HAVE
PERFORMED VERY WELL VERSUS HIGH-QUALITY BONDS. WHAT IS YOUR ANALYSIS OF THE
HIGH-YIELD BOND MARKET DURING THE FIRST SIX MONTHS OF THE FUND'S FISCAL YEAR?
The high-yield market delivered strong returns for the six-month reporting
period ended September 30, 1997. The major factor impacting the market during
the period was a continuation of the almost "ideal" economic and financial
market conditions that have existed for most of 1997. The economy continued to
expand at a moderate-to-strong pace, while inflation continued to surprise on
the low side. This scenario led to higher stock prices (up over 26% based on
Standard & Poor's 500 Index* ("S&P 500")) and lower interest rates (10-year
Treasury bond yields declined approximately 80 basis points) during the
reporting period. Strength in these other financial markets coupled with strong
demand for high-yield securities resulted in excellent total returns for
high-yield securities. For example, the Lehman Brothers High Yield Bond Index
returned 4.54% during the third quarter, outperforming the Lehman Brothers
Aggregate Bond Index, a measure of high-quality bond performance, which returned
3.32%.*
[Graphic]
WERE ANY SECTORS ESPECIALLY STRONG DURING THE REPORTING PERIOD?
Three sectors were especially strong. The telecommunications sector, which
returned 15.32% according to Lehman Brothers, exhibited strong performance
driven by better-than-expected progress on build-out plans by many issuers in
this sector, along with the beginnings of a consolidation phase in the industry.
Also, the CCC-rated bond sector returned 10.63%, and the non-rated bond sector
returned 14.14%. These two sectors, which are the riskiest in the high-yield
market, outperformed given the somewhat euphoric financial market environment.
* The S&P 500 is an unmanaged index of common stocks in industry,
transportation, and financial and public utility companies. Lehman Brothers
High Yield Bond Index includes all fixed income securities having a maximum
quality rating of Ba1, a minimum amount outstanding of $100m, and at least 1
year to maturity. Lehman Brothers Aggregate Bond Index is composed of
securities from Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index, and the Asset-Backed Securities Index.
Indexes are unmanaged and investments cannot be made in an index.
[Graphic]
HOW DID FEDERATED HIGH INCOME BOND FUND, INC. PERFORM FOR THE SIX-MONTH
PERIOD ENDED SEPTEMBER 30, 1997?
The fund had a very strong six-month reporting period. Class A, B, and C Shares
produced total returns of 10.56%, 10.12%, and 10.13%, respectively, based on net
asset value. This compares very favorably to the Lehman Brothers High Yield Bond
Index, which returned 9.40% over the period. The fund modestly underperformed
the 10.99% return of the Lipper High Current Yield Funds Average** during the
period. A high level of income--totaling $0.51 per share for Class A and $0.46
for Class B and C Shares--contributed to the fund's total return.
[Graphic]
WHAT FACTORS WERE THE MAJOR INFLUENCES ON FUND PERFORMANCE?
The fund's holdings in the telecommunications sector were strong performers
during the six-month reporting period. Particular standouts were competitive
local exchange carriers ("CLECs"). These companies were impacted by continued
success in executing their aggressive business plans as well as consolidation
activity. For example, BROOKS FIBER, a portfolio holding in the fund, announced
an agreement to be acquired by Worldcom, an investment-grade issuer, touching
off a rally in all CLECs at the end of the period. Other CLECs, like AMERICAN
COMMUNICATIONS and TELEPORT COMMUNICATIONS, participated in the rally. NEXTEL, a
cellular-like wireless phone provider, also outperformed on better-than-expected
subscriber growth.
Several of the fund's more aggressive cable television holdings also performed
above-average. Our Australian cable TV holdings, UIH AUSTRALIA and AUSTRALIS
MEDIA, rebounded from depressed levels at the beginning of the period. The
fund's U.K. cable TV holdings, like TELEWEST and INTERNATIONAL CABLETEL,
performed well as talk of industry consolidation accelerated.
Other specific issuers that outperformed during the period based on
company-specific factors include: AMF GROUP, AFFILIATED NEWSPAPERS, PAGING
NETWORK, SFX BROADCASTING and CABLEVISION SYSTEMS.
On the negative side, the fund was underweight in the CCC-rated bond sectors
relative to the Lipper High Current Yield Funds Average, which hurt performance
given the strong showing of this sector.
** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
[Graphic]
WHAT WERE THE FUND'S TOP HOLDINGS AT THE END OF THE REPORTING PERIOD?
As of September 30, 1997, the top 10 holdings out of more than 250 total issues
were as follows:
PERCENTAGE
OF PORTFOLIO
Viacom, Inc. 1.61%
TeleWest PLC 1.52%
Sinclair Broadcast Group, Inc. 1.51%
First Nationwide Holdings, Inc. 1.47%
Tenet Healthcare Corp. 1.43%
International Cabletel, Inc. 1.42%
Allied Waste Industries, Inc. 1.41%
CalEnergy Co., Inc. 1.34%
Chancellor Media Corp. 1.28%
Cablevision Systems Corp. 1.22%
Total Percent of Portfolio 14.21%
[Graphic]
AS A STRONG YEAR FOR HIGH-YIELD BONDS DRAWS TO A CLOSE, WHAT IS YOUR OUTLOOK FOR
THE HIGH-YIELD BOND MARKET, AND WHAT ARE YOUR SECTOR STRATEGIES GOING FORWARD?
We continue to like the outlook for high-yield bonds relative to high-quality
bonds based on our belief that the current ideal economic and financial market
environments will remain intact. From a portfolio perspective, our largest
industry exposure continues to be in telecommunications. We believe that the
telecommunication legislation passed in 1996 released a burst of entrepreneurial
activity which is resulting in aggressive new competitors creating enterprises
with substantial value. We believe that as these companies successfully execute
their business plans, their bonds will outperform the overall market. We also
believe that consolidation will continue benefiting high-yield bondholders. We
continue to like the stability of the U.S. cable industry, as well as the growth
and consolidation prospects for our U.K. holdings. Finally, the broadcast
industry continues to benefit from consolidation, especially on the radio side,
where we believe several companies will emerge as the dominant nationwide
players.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED HIGH INCOME BOND FUND,
INC.
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $20,000 IN THE CLASS A SHARES OF
FEDERATED HIGH INCOME BOND FUND, INC. ON 11/30/77, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$157,266 ON 9/30/97. YOU WOULD HAVE EARNED A 10.96%* AVERAGE ANNUAL TOTAL RETURN
FOR THE 20-YEAR INVESTMENT LIFESPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/97, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 10.32%, 10.95%, and 12.05%, respectively. Class B
Shares' average annual one-year and since inception (9/28/94) total returns were
8.65% and 12.38%, respectively. Class C Shares' average annual one-year and
since inception (5/1/93) total returns were 13.54% and 10.56%, respectively.**
Graphic presentation "A1" omitted. See appendix.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.50%
sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
** The total return stated takes into account the 4.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, and
the 1.00% contingent deferred sales charge for Class C Shares.
FEDERATED HIGH INCOME BOND FUND, INC.
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 20 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $79,836.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
High Income Bond Fund, Inc. on 11/30/77, reinvested your dividends and capital
gains, and didn't redeem any shares, you would have invested only $20,000, but
your account would have reached a total value of $79,836* by 9/30/97. You would
have earned an average annual total return of 12.07%.
A practical investment plan helps you pursue a high level of income through
corporate bonds. Through systematic investing, you buy shares on a regular basis
and reinvest all earnings. This investment plan works for you even if you invest
only $1,000 annually. You can take it one step at a time. Put time, money and
compounding to work.
Graphic presentation "A2" omitted. See appendix.
* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit
or protect against loss in down markets. However, by investing regularly over
time and buying shares at various prices, investors can purchase more shares
at lower prices, and all accumulated shares have the ability to pay income to
the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED HIGH INCOME BOND FUND, INC.
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR HIGH MONTHLY INCOME
Chuck Colby is a fictional investor who, like many other shareholders, is
looking for high monthly income opportunities.
Chuck is an attorney on his way up the corporate ladder. On November 30, 1987,
he invested $5,000 in the Class A Shares of Federated High Income Bond Fund,
Inc.
As this chart shows, over 10 years, his original $5,000 investment has grown to
$15,630. This represents a 12.29% average annual total return.* For Chuck, that
means extra money toward the construction of his first home.
Graphic presentation "A3" omitted. See appendix.
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED HIGH INCOME BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--92.6%
AEROSPACE & DEFENSE--0.3%
$ 4,000,000 Tracor, Inc., Sr. Sub. Note, 8.50%, 3/1/2007 $ 4,100,000
AUTOMOBILE--2.5%
4,425,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 4,944,937
1,875,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%, 8/1/2004 2,095,312
10,525,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 12,103,750
6,250,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 6,703,125
6,000,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 6,600,000
2,000,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 2,030,000
4,125,000 Oxford Automotive, Inc., Sr. Sub. Note, 10.125%, 6/15/2007 4,331,250
Total 38,808,374
BANKING--1.4%
13,435,000 First Nationwide Escrow Corp., Sr. Sub. Note, 10.625%, 10/1/2003 14,912,850
6,100,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 6,771,000
1,175,000 First Nationwide Holdings, Inc., Sr. Sub. Note, 9.125%, 1/15/2003 1,227,875
Total 22,911,725
BEVERAGE & TOBACCO--0.7%
4,200,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 4,499,250
5,750,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 5,764,375
Total 10,263,625
BROADCAST RADIO & TV--7.6%
8,500,000 ACME Television, LLC, Sr. Disc. Note, 0/10.875%, 9/30/2004 6,268,750
3,400,000 Argyle Television, Inc., Sr. Sub. Note, 9.75%, 11/1/2005 3,663,500
4,375,000 Capstar Broadcasting Partners, Inc., Sr. Sub. Note, 9.25%, 7/1/2007 4,506,250
3,700,000 Chancellor Media Corp., Sr. Sub. Note, 8.75%, 6/15/2007 3,801,750
6,800,000 Chancellor Media Corp., Sr. Sub. Note, 9.375%, 10/1/2004 7,123,000
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BROADCAST RADIO & TV--CONTINUED
$ 10,275,000 Fox/Liberty Networks, LLC, Sr. Disc. Note, 0/9.75%, 8/15/2007 $ 6,601,687
4,900,000 Fox/Liberty Networks, LLC, Sr. Note, 8.875%, 8/15/2007 4,961,250
11,160,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 11,913,300
3,000,000 Lamar Advertising Co., Sr. Sub. Note, 8.625%, 9/15/2007 2,996,250
5,400,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 5,724,000
3,200,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 2,888,864
6,225,000 Outdoor Systems, Inc., Sr. Sub. Note, 8.875%, 6/15/2007 6,380,625
1,850,000 Outdoor Systems, Inc., Sr. Sub. Note, 9.375%, 10/15/2006 1,951,750
7,850,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 8,252,391
7,425,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 8,204,625
6,500,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 12/15/2003 6,857,500
4,975,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 9/30/2005 5,248,625
3,650,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 9.00%, 7/15/2007 3,650,000
1,875,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 12/15/2006 1,987,500
7,400,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%, 12/15/2005 7,862,500
5,500,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 5,775,000
2,000,000 Young Broadcasting, Inc., Sr. Sub. Note, 11.75%, 11/15/2004 2,240,000
1,000,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 997,500
Total 119,856,617
BUILDING & DEVELOPMENT--0.5%
5,650,000 American Builders & Contractors Supply Co., Inc., Sr. Sub. Note,
10.625%, 5/15/2007 5,932,500
1,600,000 Building Materials Corp. of America, Sr. Note, 8.625%, 12/15/2006 1,660,000
Total 7,592,500
BUSINESS EQUIPMENT & SERVICES--1.4%
4,850,000 Electronic Retailing Systems International, Inc., Sr. Disc. Note,
0/13.25%, 2/1/2004 3,298,000
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BUSINESS EQUIPMENT & SERVICES--CONTINUED
$ 4,225,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 $ 4,737,281
5,075,000 Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 11/1/2006 5,658,625
7,750,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 8,835,000
Total 22,528,906
CABLE TELEVISION--11.1%
3,184,000 Australis Holdings Property Ltd., Unit, 0/15.00%, 11/1/2002 2,626,800
47,390 Australis Media Ltd., Sr. Disc. Note, 0/15.75%, 5/15/2003 40,282
5,350,000 Australis Media Ltd., Unit, 0/14.00%, 5/15/2003 4,547,500
3,600,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 4,122,000
4,925,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 5,331,312
1,500,000 Cablevision Systems Corp., Sr. Sub. Note, 10.50%, 5/15/2016 1,706,250
7,125,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 7,499,062
4,175,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 4,519,437
3,000,000 Charter Communications Holdings, Inc., Sr. Disc. Note, 0/14.00%,
3/15/2007 2,257,500
5,875,000 Charter Communications Southeast, L.P., Sr. Note, 11.25%, 3/15/2006 6,491,875
5,750,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 6,217,187
3,250,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 2,559,375
9,050,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%,
2/15/2007 5,939,062
7,175,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/11.75%,
12/15/2005 5,408,156
3,750,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/13.25%,
9/30/2004 3,300,000
16,600,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%,
3/15/2004 13,944,000
6,675,000 FrontierVision Holdings, L.P., Sr. Disc. Note, 0/11.875%, 9/15/2007 4,605,750
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
CABLE TELEVISION--CONTINUED
$ 6,000,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/10.875%,
10/15/2003 $ 5,490,000
12,350,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%, 2/1/2006 9,262,500
9,200,000 International Cabletel, Inc., Sr. Disc. Note, 0/12.75%, 4/15/2005 7,452,000
4,700,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 5,281,625
3,300,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 3,333,000
2,150,000 Lenfest Communications Inc., Sr. Sub. Note, 10.50%, 6/15/2006 2,386,500
4,500,000 Pegasus Media, Note, 12.50%, 7/1/2005 5,040,000
4,225,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 4,647,500
3,125,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 3,468,750
6,500,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/2015 7,426,250
4,700,000 Rogers Communications, Inc., Sr. Note, 8.875%, 7/15/2007 4,758,750
31,375,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 23,688,125
13,600,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 9,809,000
4,800,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 2,376,000
3,000,000 Wireless One, Inc., Unit, 0/13.50%, 8/1/2006 675,000
Total 176,210,548
CHEMICALS & PLASTICS--3.5%
5,250,000 Astor Corp., Sr. Sub. Note, 10.50%, 10/15/2006 5,617,500
275,000 Buckeye Cellulose Corp., Sr. Sub. Note, 8.50%, 12/15/2005 281,187
1,000,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 1,050,000
2,500,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 2,862,500
8,900,000 Harris Chemical North America, Inc., Sr. Note, 10.25%, 7/15/2001 9,345,000
5,600,000 ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 5,885,600
2,320,000 ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 2,484,720
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
CHEMICALS & PLASTICS--CONTINUED
$ 8,200,000 Polymer Group, Inc., Sr. Sub. Note, 9.00%, 7/1/2007 $ 8,323,000
6,300,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 5,418,000
11,125,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%,
8/15/2008 7,898,750
1,650,000 Sterling Chemicals, Inc., Sr. Sub. Note, 11.75%, 8/15/2006 1,831,500
3,950,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 4,088,250
Total 55,086,007
CLOTHING & TEXTILES--2.6%
3,225,000 Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note, 10.00%,
1/15/2007 3,337,875
5,625,000 Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 5,793,750
2,750,000 GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 2,832,500
7,075,000 Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 7,587,938
2,925,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 3,100,500
17,325,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 18,277,875
Total 40,930,438
CONSUMER PRODUCTS--3.7%
4,300,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 4,622,500
3,100,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 3,394,500
5,000,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 5,425,000
6,725,000 ICON Fitness Corp., Sr. Disc. Note, 0/14.00%, 11/15/2006 3,934,125
4,250,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 4,802,500
9,750,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 9,945,000
1,475,000 Playtex Products, Inc., Sr. Note, 8.875%, 7/15/2004 1,493,438
6,975,000 Renaissance Cosmetics, Inc., Sr. Note, 11.75%, 2/15/2004 7,097,063
6,700,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 7,160,625
5,250,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 5,578,125
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
CONSUMER PRODUCTS--CONTINUED
$ 5,000,000 Syratech Corp., Sr. Note, 11.00%, 4/15/2007 $ 5,400,000
Total 58,852,876
CONTAINER & GLASS PRODUCTS--0.5%
1,680,000 (a)(b)Kane Industries, Inc., Sr. Sub. Disc. Note, 2/1/1998 0
3,775,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 3,973,188
4,350,000 Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 4,589,250
Total 8,562,438
ECOLOGICAL SERVICES & EQUIPMENT--1.9%
14,825,000 Allied Waste Industries, Inc., Sr. Disc. Note, 0/11.30%, 6/1/2007 10,118,062
10,800,000 Allied Waste North America, Inc., Company Guarantee, 10.25%,
12/1/2006 11,853,000
4,050,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 4,272,750
7,850,000 (b)Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 3,571,750
Total 29,815,562
ELECTRONICS--1.4%
6,400,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 7,200,000
9,675,000 Fairchild Semiconductor Corp., Sr. Sub., 10.125%, 3/15/2007 10,424,812
4,300,000 Viasystems, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 4,504,250
Total 22,129,062
FINANCIAL INTERMEDIARIES--0.8%
3,475,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 3,618,344
2,600,000 ITT Publimedia B V, Sr. Sub. Note, 9.375%, 9/15/2007 2,717,000
5,450,000 Olympic Financial Ltd., Unit, 11.50%, 3/15/2007 5,668,000
Total 12,003,344
FOOD & DRUG RETAILERS--2.0%
5,775,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 6,381,375
3,650,000 DiGiorgio Corp., Sr. Note, 10.00%, 6/15/2007 3,631,750
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FOOD & DRUG RETAILERS--CONTINUED
$ 4,200,000 Jitney-Jungle Stores of America, Inc., Sr. Sub. Note, 10.375%,
9/15/2007 $ 4,347,000
15,100,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 16,647,750
1,236,000 Stater Brothers Holdings, Inc., Sr. Sub. Note, 9.00%, 7/1/2004 1,236,000
Total 32,243,875
FOOD PRODUCTS--2.0%
2,250,000 Aurora Foods, Inc., Sr. Sub. Note, 9.875%, 2/15/2007 2,328,750
5,700,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 6,355,500
8,750,000 International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/1/2006 9,668,750
5,350,000 MBW Foods Inc., Sr. Sub. Note, 9.875%, 2/15/2007 5,590,750
2,500,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 2,659,375
5,300,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 5,922,750
Total 32,525,875
FOOD SERVICES--0.7%
7,950,000 AmeriServe Food Distribution, Inc., Sr. Sub. Note, 10.125%, 7/15/2007 8,307,750
4,500,000 Nebco Evans Holding Co., Sr. Disc. Note, 0/12.375%, 7/15/2007 2,857,500
Total 11,165,250
FOREST PRODUCTS--2.6%
4,250,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 4,716,225
250,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 271,827
7,200,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 7,794,000
3,650,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 3,631,750
5,850,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 6,639,750
8,950,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 9,666,000
2,675,000 Stone Container Corp., Sr. Note, 12.58%, 8/1/2016 2,942,500
1,000,000 Stone Container Corp., Unit, 12.25%, 4/1/2002 1,045,000
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FOREST PRODUCTS--CONTINUED
$ 5,000,000 Uniforet Inc., Sr. Note, 11.125%, 10/15/2006 $ 5,025,000
Total 41,732,052
HEALTHCARE--2.5%
8,700,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 9,809,250
3,150,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 10/1/2006 3,216,938
3,600,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 3,753,000
4,500,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 4,612,500
10,850,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 11,989,250
5,600,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 1/15/2007 5,796,000
Total 39,176,938
HOME PRODUCTS & FURNISHINGS--0.3%
4,800,000 Falcon Building Products, Inc., Sr. Sub. Disc. Note, 0/10.50%,
6/15/2007 3,048,000
2,000,000 Falcon Building Products, Inc., Sr. Sub. Note, 9.50%, 6/15/2007 2,070,000
Total 5,118,000
HOTELS, MOTELS, INNS & CASINOS--0.6%
2,325,000 CapStar Hotel Co., Sr. Sub. Note, 8.75%, 8/15/2007 2,377,312
6,000,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 6,540,000
Total 8,917,312
INDUSTRIAL PRODUCTS & EQUIPMENT--4.8%
5,325,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 5,671,125
6,650,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 7,364,875
4,925,000 Continental Global Group, Inc., Sr. Note, 11.00%, 4/1/2007 5,245,125
6,850,000 Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 7,535,000
5,000,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 5,368,750
4,000,000 Hawk Corp., Sr. Note, 10.25%, 12/1/2003 4,260,000
5,100,000 International Knife & Saw, Inc., Sr. Sub. Note, 11.375%, 11/15/2006 5,571,750
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
INDUSTRIAL PRODUCTS & EQUIPMENT--CONTINUED
$ 4,000,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 $ 4,330,000
4,125,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 4,465,313
6,850,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 4/15/2007 7,449,375
4,125,000 Mettler-Toledo, Inc., Sr. Sub. Note, 9.75%, 10/1/2006 4,558,125
5,550,000 Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 6,063,375
2,425,000 Roller Bearing Co. of America, Inc., Sr. Sub. Note, 9.625%, 6/15/2007 2,491,688
5,000,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 5,225,000
Total 75,599,501
LEISURE & ENTERTAINMENT--4.3%
15,475,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 11,761,000
2,450,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 2,725,625
4,450,000 Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 4,761,500
1,300,000 KSL Recreation Group, Inc., Sr. Sub. Note, 10.25%, 5/1/2007 1,387,750
4,000,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 4,480,000
500,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 528,125
17,450,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 18,322,500
25,125,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 25,125,000
Total 69,091,500
MACHINERY & EQUIPMENT--1.4%
7,025,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 7,393,812
8,375,000 Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 8,940,312
4,900,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 5,586,000
Total 21,920,124
METALS & MINING--0.9%
2,000,000 Anker Coal Group, Inc., Sr. Note, 9.75%, 10/1/2007 2,040,000
4,950,000 Echo Bay Mines Ltd., Jr. Sub. Deb., 11.00%, 4/1/2027 4,838,625
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
METALS & MINING--CONTINUED
$ 7,175,000 Royal Oak Mines, Inc., Sr. Sub. Note, 11.00%, 8/15/2006 $ 7,031,500
Total 13,910,125
OIL & GAS--4.5%
11,175,000 Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 12,236,625
5,700,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 5,899,500
4,100,000 Dailey Petroleum Services Corp., Sr. Note, 9.75%, 8/15/2007 4,284,500
4,000,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 4,260,000
2,500,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 2,893,750
9,150,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 8.50%, 2/15/2007 9,127,125
4,700,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%, 11/1/2006 4,952,625
3,750,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 3,937,500
2,575,000 Pacalta Resources Ltd., Sr. Note, 10.75%, 6/15/2004 2,710,188
3,350,000 Petsec Energy, Inc., Sr. Sub. Note, 9.50%, 6/15/2007 3,450,500
2,950,000 Pride Petroleum Services, Inc., Sr. Note, 9.375%, 5/1/2007 3,171,250
6,150,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 6,749,625
4,250,000 United Refining Co., Sr. Note, 10.75%, 6/15/2007 4,398,750
3,750,000 XCL, Ltd., Unit, 13.50%, 5/1/2004 3,956,250
Total 72,028,188
PRINTING & PUBLISHING--2.3%
11,850,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note, 0/13.25%,
7/1/2006 11,079,750
3,750,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 4,218,750
4,625,000 Garden State Newspapers, Inc., Sr. Sub. Note, 8.75%, 10/1/2009 4,682,813
4,825,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
2/1/2006 5,030,063
2,175,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
3/15/2007 2,272,875
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
PRINTING & PUBLISHING--CONTINUED
$ 750,000 K-III Communications Corp., Company Guarantee, Series B, 8.50%,
2/1/2006 $ 771,120
6,100,000 Petersen Publishing Co., L.L.C., Sr. Sub. Note, 11.125%, 11/15/2006 6,908,250
1,400,000 Von Hoffmann Press, Inc., Sr. Sub. Note, 10.375%, 5/15/2007 1,491,000
Total 36,454,621
REAL ESTATE--0.4%
5,694,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 6,533,865
RETAILERS--0.7%
7,600,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 8,132,000
3,500,000 Leslie's Poolmart, Inc., Sr. Note, 10.375%, 7/15/2004 3,657,500
Total 11,789,500
SERVICES--1.7%
7,633,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 8,491,712
2,500,000 DecisionOne Corp., Sr. Sub. Note, 9.75%, 8/1/2007 2,625,000
3,750,000 DecisionOne Holdings Corp., Unit, 0/11.50%, 8/1/2008 2,512,500
3,000,000 Intertek Finance PLC, Sr. Sub. Note, 10.25%, 11/1/2006 3,180,000
5,725,000 KinderCare Learning Centers, Inc., Sr. Sub. Note, 9.50%, 2/15/2009 5,624,813
4,000,000 Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 4,110,000
Total 26,544,025
STEEL--1.9%
5,450,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 6,226,625
3,600,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 3,726,000
8,000,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 8,080,000
7,400,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 8,130,750
3,150,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 3,528,000
1,000,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 1,085,000
Total 30,776,375
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
SURFACE TRANSPORTATION--3.5%
$ 1,500,000 Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007 $ 1,528,125
5,000,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 5,325,000
6,025,000 Chemical Leaman Corp., Sr. Note, 10.375%, 6/15/2005 6,326,250
7,750,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 8,592,813
9,250,000 Statia Terminals International N.V., 1st Mtg. Note, 11.75%, 11/15/2003 9,851,250
12,100,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 13,370,500
4,950,000 Stena AB, Sr. Note, 8.75%, 6/15/2007 5,011,875
5,000,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 4,925,000
Total 54,930,813
TELECOMMUNICATIONS & CELLULAR--13.8%
4,225,000 American Communications Services, Inc., Sr. Disc. Note, 0/12.75%,
4/1/2006 3,010,312
2,400,000 American Communications Services, Inc., Sr. Disc. Note, 0/13.00%,
11/1/2005 1,788,000
3,200,000 American Communications Services, Inc., Sr. Note, 13.75%, 7/15/2007 3,704,000
1,725,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%,
3/15/2008 1,147,125
15,900,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 12,879,000
5,300,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/11.875%, 11/1/2006 4,107,500
5,100,000 Call-Net Enterprises, Inc., Sr. Disc. Note, 0/9.27%, 8/15/2007 3,404,250
8,850,000 Cellular Communications International, Inc., Sr. Disc. Note, 13.25%
accrual, 8/15/2000 6,880,875
4,100,000 Cellular Communications of Puerto Rico, Inc., Company Guarantee,
10.00%, 2/1/2007 4,223,000
11,350,000 Comcast Cellular Holdings, Inc., Sr. Note, 9.50%, 5/1/2007 11,917,500
5,900,000 Hermes Europe Railtel B.V., Sr. Note, 11.50%, 8/15/2007 6,431,000
3,425,000 HighwayMaster Communications, Inc., Unit, 13.75%, 9/15/2005 3,587,688
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
TELECOMMUNICATIONS & CELLULAR--CONTINUED
$ 6,000,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note, 0/11.25%,
7/15/2007 $ 4,200,000
18,300,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note, 0/12.50%,
5/15/2006 14,365,500
10,450,000 McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 7,471,750
4,725,000 McLeod, Inc., Sr. Note, 9.25%, 7/15/2007 5,079,375
5,675,000 MetroNet Communications, Unit, 12.00%, 8/15/2007 6,356,000
13,750,000 Millicom International Cellular S. A., Sr. Disc. Note, 0/13.50%,
6/1/2006 10,725,000
2,600,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/10.65%, 9/15/2007 1,618,500
13,975,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 12,193,188
3,500,000 NEXTLINK Communications, Inc., Sr. Note, 9.625%, 10/1/2007 3,648,750
8,975,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 9,311,563
4,575,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 4,780,875
9,600,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 9,504,000
2,200,000 PhoneTel Technologies, Inc., Sr. Note, 12.00%, 12/15/2006 2,222,000
10,600,000 Qwest Communications International, Inc., Sr. Note, 10.875%,
4/1/2007 11,925,000
7,750,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 8,292,500
19,275,000 Teleport Communications Group, Inc., Sr. Disc. Note, 0/11.125%,
7/1/2007 15,179,063
1,300,000 Teleport Communications Group, Inc., Sr. Note, 9.875%, 7/1/2006 1,436,500
9,675,000 Telesystem International Wireless, Inc., Sr. Disc. Note, 0/13.25%,
6/30/2007 6,071,063
7,750,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 7,711,250
12,975,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 13,558,875
Total 218,731,002
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS
OR SHARES VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
UTILITIES--1.8%
$ 3,150,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 $ 3,394,125
16,200,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 17,516,250
6,700,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 7,465,006
Total 28,375,381
TOTAL CORPORATE BONDS (IDENTIFIED COST $1,383,404,054) 1,467,216,344
COMMON STOCKS--0.4%
7,500 (b)Affiliated Newspaper Investments, Inc. 753,750
77,506 Alarmguard Holdings, Inc. 680,580
4,696 (a)(b)Atlantic Gulf Communities Corp. 29,350
3,184 (a)(b)Australis Holdings Property Ltd., Warrants 0
2,400 (a)(b)Bar Technologies, Inc., Warrants 132,000
136 (a)(b)CS Wireless Systems, Inc. 0
8,050 (b)Cellular Communications International, Inc., Warrants 161,000
4,850 (a)Electronic Retailing Systems International, Inc., Warrants 291,000
4,750 (b)Hosiery Corp. of America, Inc. 33,250
25,200 (b)ICF Kaiser International, Inc., Warrants 9,450
3,750 (a)(b)IHF Capital, Inc., Warrants 193,125
71,200 (a)(b)Kane Industries, Inc., Warrants 0
353 (a)(b)MAFCO Acquisition, Warrants 0
1,750 (b)Motels of America, Inc. 19,688
19,753 NEXTEL Communications, Inc., Class A 570,368
4,500 (b)NEXTEL Communications, Inc., Warrants 45
9,025 (b)Pegasus Communications Corp. 194,038
5,775 Pegasus Communications Corp., Warrants 89,513
315,000 (a)(b)Specialty Foods Acquisition Corp. 137,970
6,325 Sterling Chemicals Holdings, Inc., Warrants 221,375
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS
OR SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
30,000 (b)Sullivan Broadcast Holdings Inc., Class B $ 300,000
46 (a)(b)Sullivan Graphics, Inc. 0
30,000 (b)Uniroyal Technology Corp., Warrants 103,125
135,218 (b)Walter Industries, Inc. 2,695,909
14,400 (b)Wireless One, Inc., Warrants 0
TOTAL COMMON STOCKS (IDENTIFIED COST $15,075,039) 6,615,536
PREFERRED STOCKS--4.6%
BANKING--0.2%
120,000 California Federal Preferred Capital Corp., REIT Perpetual Pfd.
Stock, Series A, $2.28 3,150,000
BROADCAST RADIO & TV--1.9%
54,121 American Radio Systems Corp., PIK Pfd., 11.375% 6,521,580
37,750 Capstar Broadcasting Partners, Inc., Sr. Pfd., $12.00 4,237,437
78,008 Chancellor Media Corp., Exchangeable Pfd. Stock, $12.00 9,009,902
17,500 SFX Broadcasting, Inc., Exchangeable Pfd. Stock, Series E 2,038,750
71,400 Sinclair Broadcast Group, Inc., Pfd., $11.63 7,782,600
Total 29,590,269
CABLE & WIRELESS TELEVISION--0.1%
2,175 Echostar Communications Corp., Sr. Red. Pfd. Stk., $12.13 2,272,875
CABLE TELEVISION--0.4%
6,037 Pegasus Communications Corp., PIK Pfd., Series A, 12.75% 6,459,748
INDUSTRIAL PRODUCTS & EQUIPMENT--0.2%
3,575 Fairfield Manufacturing Co., Inc., Exchangeable Pfd. Stock 3,664,375
PRINTING & PUBLISHING--0.9%
21,750 K-III Communications Corp., Exchangeable Pfd. Stock, Series E, $9.20 2,207,625
108,669 K-III Communications Corp., Pfd., Series B, $11.63 11,858,477
Total 14,066,102
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS
OR SHARES VALUE
<C> <S> <C>
PREFERRED STOCKS--CONTINUED
REAL ESTATE--0.2%
52,000 Crown American Realty Trust, Sr. Pfd., Series A, $1.38 $ 2,782,000
TELECOMMUNICATIONS & CELLULAR--0.7%
3,000 IXC Communications, Inc., Jr. Exchangeable Pfd. Stock 3,495,000
3,275 NEXTEL Communications, Inc., Pfd., 13.00% 3,766,250
3,308 PanAmSat Corp., PIK Pfd., 12.75% 4,002,911
Total 11,264,161
TOTAL PREFERRED STOCKS (IDENTIFIED COST $65,967,100) 73,249,530
(C)REPURCHASE AGREEMENT--0.9%
$ 14,860,000 BT Securities Corp., 6.07%, dated 9/30/1997, due 10/1/1997
(AT AMORTIZED COST) 14,860,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,479,306,193)(D) $1,561,941,410
</TABLE>
(a) Denotes a private placement security. At September 30, 1997, these
securities amounted to $783,445 which represents 0.05% of total net assets.
(b) Non-income producing security.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $1,479,306,193.
The net unrealized appreciation of investments on a federal tax basis
amounts to $82,635,217 which is comprised of $106,170,317 appreciation and
$23,535,100 depreciation at September 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($1,584,477,070) at September 30, 1997.
The following acronyms are used throughout this portfolio:
GTD --Guaranty
LLC --Limited Liability Corporation
LP --Limited Partnership
PIK --Payment in Kind
PLC --Public Limited Company
REIT --Real Estate Investment Trust
KANE INDUSTRIES, INC.
On March 18, 1994, Kane Industries, Inc., along with two of its affiliates,
Kane, Inc. and Alford Industries, Inc., filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. The fund's investment adviser is unable to predict the
outcome or timing of these proceedings.
MID-AMERICAN WASTE SYSTEMS, INC.
Mid-American and certain of its subsidiaries (the Debtors) filed for relief
under the provision of Chapter 11 Bankruptcy Code on January 21, 1997. A
liquidity plan of reorganization has been approved and distributions to
subordinated noteholders have commenced. In addition, a group of subordinated
bondholders, which includes various funds managed by Federated, has retained
counsel and filed suit for legal claims involving fraud, misrepresentations and
securities law violations regarding Mid-American.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 1,561,941,410
$1,479,306,193)
Cash 62,180
Income receivable 32,014,233
Receivable for investments sold 274,792
Receivable for shares sold 7,761,728
Total assets 1,602,054,343
LIABILITIES:
Payable for investments purchased $ 15,222,944
Payable for shares redeemed 1,228,604
Accrued expenses 1,125,725
Total liabilities 17,577,273
NET ASSETS for 132,385,278 shares outstanding $ 1,584,477,070
NET ASSETS CONSIST OF:
Paid in capital $ 1,527,602,815
Net unrealized appreciation of investments 82,635,217
Accumulated net realized loss on investments (26,923,319)
Undistributed net investment income 1,162,357
Total Net Assets $ 1,584,477,070
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($686,700,095 / 57,364,703 shares $11.97
outstanding)
Offering Price Per Share (100/95.50 of $11.97)* $12.53
Redemption Proceeds Per Share $11.97
CLASS B SHARES:
Net Asset Value Per Share ($755,694,482 / 63,146,105 shares $11.97
outstanding)
Offering Price Per Share $11.97
Redemption Proceeds Per Share (94.50/100 of $11.97)* $11.31
CLASS C SHARES:
Net Asset Value Per Share ($142,082,493 / 11,874,470 shares $11.97
outstanding)
Offering Price Per Share $11.97
Redemption Proceeds Per Share (99.00/100 of $11.97)* $11.85
</TABLE>
* See "Investing in the Fund" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,372,428
Interest 66,866,103
Total income 69,238,531
EXPENSES:
Investment advisory fee $ 5,263,110
Administrative personnel and services fee 529,820
Custodian fees 41,200
Transfer and dividend disbursing agent fees and expenses 671,252
Directors'/Trustees' fees 5,889
Auditing fees 9,259
Legal fees 2,657
Portfolio accounting fees 82,581
Distribution services fee--Class B Shares 2,375,899
Distribution services fee--Class C Shares 462,295
Shareholder services fee--Class A Shares 808,306
Shareholder services fee--Class B Shares 791,966
Shareholder services fee--Class C Shares 154,098
Share registration costs 136,145
Printing and postage 76,240
Insurance premiums 5,920
Taxes 57,773
Miscellaneous 26,341
Total expenses 11,500,751
Waiver--
Waiver of shareholder services fee--Class A Shares (48,877)
Net expenses 11,451,874
Net investment income 57,786,657
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (4,427,606)
Net change in unrealized appreciation (depreciation) of investments 84,746,600
Net realized and unrealized gain on investments 80,318,994
Change in net assets resulting from operations $ 138,105,651
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1997 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 57,786,657 $ 90,239,152
Net realized gain (loss) on investments ($(4,427,606) and
$4,383,958, respectively, as computed for federal tax purposes) (4,427,606) 3,736,400
Net change in unrealized appreciation/depreciation 84,746,600 14,085,861
Change in net assets resulting from operations 138,105,651 108,061,413
NET EQUALIZATION CREDITS (DEBITS)-- 322,414 711,322
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (27,976,972) (52,284,090)
Class B Shares (24,759,383) (30,228,197)
Class C Shares (4,846,967) (6,903,310)
Change in net assets resulting from distributions to
shareholders (57,583,322) (89,415,597)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME)--
Proceeds from sale of shares 367,584,989 505,365,871
Net asset value of shares issued to shareholders in payment of
distributions declared 29,209,866 45,806,089
Cost of shares redeemed (111,158,202) (178,213,093)
Change in net assets resulting from share transactions 285,636,653 372,958,867
Change in net assets 366,481,396 392,316,005
NET ASSETS:
Beginning of period 1,217,995,674 825,679,669
End of period (including undistributed net investment income
of $1,162,357 and $636,608, respectively) $ 1,584,477,070 $ 1,217,995,674
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1997 1997 1996 1995 1994(A) 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $11.31 $11.08 $10.54 $10.99 $11.19 $10.80
BEGINNING OF
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.51 1.04 1.00 1.01 1.05 1.13
Net realized and unrealized gain
(loss)
on investments 0.66 0.22 0.55 (0.43) (0.19) 0.41
Total from investment operations 1.17 1.26 1.55 0.58 0.86 1.54
LESS DISTRIBUTIONS
Distributions from net investment
income (0.51) (1.03) (1.00) (1.03) (1.06) (1.15)
Distributions in excess of net
investment income(b) -- -- (0.01) -- -- --
Total distributions (0.51) (1.03) (1.01) (1.03) (1.06) (1.15)
NET ASSET VALUE, END OF PERIOD $11.97 $11.31 $11.08 $10.54 $10.99 $11.19
TOTAL RETURN(C) 10.56% 11.88% 15.24% 5.74% 7.82% 15.39%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.22%* 1.21% 1.22% 1.21% 1.18% 1.08%
Net investment income 8.65%* 9.19% 9.07% 9.64% 9.27% 10.44%
Expense waiver/reimbursement(d) 0.02%* 0.03% 0.06% 0.05% 0.05% 0.08%
SUPPLEMENTAL DATA
Net assets, end of period (000 $686,700 $599,736 $530,203 $448,040 $439,149 $417,015
omitted)
Portfolio turnover 23% 55% 53% 52% 76% 49%
</TABLE>
* Computed on an annualized basis.
(a) As of July 29, 1994, Select Shares were no longer offered and were
reclassified as Class C Shares. For the year ended March 31, 1994, Select
Shares net assets (000 omitted) were $838.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1997 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.31 $11.08 $10.54 $10.57
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.46 0.96 0.95 0.51
Net realized and unrealized gain (loss) on
investments 0.66 0.21 0.51 (0.07)
Total from investment operations 1.12 1.17 1.46 0.44
LESS DISTRIBUTIONS
Distributions from net investment income (0.46) (0.94) (0.91) (0.47)
Distributions in excess of net investment income(b) -- -- (0.01) --
Total distributions (0.46) (0.94) (0.92) (0.47)
NET ASSET VALUE, END OF PERIOD $11.97 $11.31 $11.08 $10.54
TOTAL RETURN(C) 10.12% 10.99% 14.31% 4.47%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.99%* 1.99% 2.03% 2.02%*
Net investment income 7.88%* 8.39% 8.29% 9.47%*
Expense waiver/reimbursement(d) -- -- 0.01% 0.05%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $755,694 $513,169 $238,055 $33,295
Portfolio turnover 23% 55% 53% 52%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 27, 1994 (date of initial
public investment) to March 31, 1995.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1997 1997 1996 1995 1994(A)(B)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.31 $11.08 $10.54 $10.99 $11.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.46 0.95 0.92 0.94 0.92
Net realized and unrealized gain
(loss) on investments 0.66 0.22 0.54 (0.44) (0.23)
Total from investment operations 1.12 1.17 1.46 0.50 0.69
LESS DISTRIBUTIONS
Distributions from net investment
income (0.46) (0.94) (0.91) (0.95) (0.88)
Distributions in excess of net
investment income(c) -- -- (0.01) -- --
Total distributions (0.46) (0.94) (0.92) (0.95) (0.88)
NET ASSET VALUE, END OF PERIOD $11.97 $11.31 $11.08 $10.54 $10.99
TOTAL RETURN(D) 10.13% 11.00% 14.35% 4.91% 6.23%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.98%* 1.99% 2.00% 1.98% 1.99%*
Net investment income 7.88%* 8.38% 8.30% 8.90% 8.54%*
Expense waiver/reimbursement(e) -- 0.00% 0.03% 0.05% 0.05%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $142,082 $105,091 $57,422 $32,376 $24,360
Portfolio turnover 23% 55% 53% 52% 76%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 30, 1993 (date of initial
public investment) to March 31, 1994.
(b) As of July 29, 1994, Select Shares were no longer offered and were
reclassified as Class C Shares. For the year ended March 31, 1994, Select
Shares net assets (000 omitted) were $838.
(c) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated High Income Bond Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers three classes of shares:
Class A Shares, Class B Shares, and Class C Shares. The investment objective of
the Fund is to seek high current income by investing primarily in a diversified
portfolio of professionally managed fixed income securities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS --Listed corporate bonds, other fixed income and
asset-backed securities, and unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked price
as furnished by an independent pricing service. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS --It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS --Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES --It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At March 31, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $21,516,112, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2000.
Additionally, net capital losses of $730,296 attributable to security
transactions incurred after October 31, 1996 are treated as arising on the
first day of the Fund's next taxable year.
EQUALIZATION --The Fund follows the accounting practice known as equalization.
With equalization, a portion of the proceeds from sales and costs of
redemptions of Fund shares (equivalent, on a per share basis, to the amount of
undistributed net investment income on the date of the transaction) is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS --The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
RESTRICTED SECURITIES --Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another
registered offering of the securities. Many restricted securities may be
resold in the secondary market in transactions exempt from registration. Such
restricted securities may be determined to be liquid under criteria
established by the Directors. The Fund will not incur any registration costs
upon such resales. The Fund's restricted securities are valued at the price
provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined by the Fund's pricing committee.
Additional information on each restricted security held at September 30, 1997
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Atlantic Gulf Communities Corp. 10/19/1992 $5,373,737
Australis Holdings Property Ltd., Warrants 10/29/1996 31,904
Bar Technologies, Inc., Warrants 8/27/1996 0
CS Wireless Systems, Inc. 12/2/1996 0
Electronic Retailing Systems
International, Inc., Warrants 1/21/1997 168,247
IHF Capital, Inc., Warrants 11/4/1994 37,050
Kane Industries, Inc., Sr. Sub. Disc. Note 10/1/1986 1,784,512
</TABLE>
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Kane Industries, Inc., Warrants 3/16/1990 $ 62,656
MAFCO Acquisition, Warrants 7/1/1991 80,625
Specialty Foods Acquisition Corp. 8/10/1993 - 8/27/1993 250,415
Sullivan Graphics, Inc. 2/8/1990 217,112
</TABLE>
USE OF ESTIMATES --The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER --Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At September 30, 1997, par value shares ($0.01 per share) authorized were as
follows:
NUMBER OF PAR VALUE
SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 4,000,000,000
Class B Shares 2,000,000,000
Class C Shares 4,000,000,000
Total shares authorized 10,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,038,837 $ 92,988,632 11,332,321 $127,059,070
Shares issued to shareholders in
payment of distributions declared 1,294,011 14,943,009 2,477,211 27,712,430
Shares redeemed (4,994,064) (57,927,927) (8,642,783) (96,856,760)
Net change resulting from Class A Share
transactions 4,338,784 $ 50,003,714 5,166,749 $ 57,914,740
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 20,112,330 $232,975,761 28,139,746 $316,878,366
Shares issued to shareholders in
payment of distributions declared 981,243 11,345,379 1,241,207 13,936,174
Shares redeemed (3,329,525) (38,608,571) (5,486,949) (61,971,208)
Net change resulting from Class B Share
transactions 17,764,048 $205,712,569 23,894,004 $268,843,332
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,592,176 $ 41,620,596 5,462,599 $ 61,428,435
Shares issued to shareholders in
payment of distributions declared 252,780 2,921,478 370,644 4,157,485
Shares redeemed (1,265,569) (14,621,704) (1,720,918) (19,385,125)
Net change resulting from Class C Share
transactions 2,579,387 $ 29,920,370 4,112,325 $ 46,200,795
Net change resulting from share
transactions 24,682,219 $285,636,653 33,173,078 $372,958,867
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE --Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets.
ADMINISTRATIVE FEE --Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE --The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class B Shares and Class C Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
SHAREHOLDER SERVICES FEE --Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES --FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on
the size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES --FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL --Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1997, were as follows:
PURCHASES $580,572,867
SALES $319,727,634
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
Officers
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
J. Crilley Kelly
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314195108
Cusip 314195207
Cusip 314195306
8110103 (11/97) [Graphic]
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 11/30/77
to 9/30/97. The "y" axis is measured in increments of $30,000 ranging from $0 to
$180,000 and indicates that the ending value of a hypothetical initial
investment of $20,000 in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $157,266 on 9/30/97.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 11/30/77
to 9/30/97. The "y" axis is measured in increments of $18,000 ranging from $0 to
$90,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $79,836 on 9/30/97.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 11/30/87
to 9/30/97. The "y" axis is measured in increments of $3,000 ranging from $0 to
$18,000 and indicates that the ending value of a hypothetical initial investment
of $5,000 in the fund's Class A Shares would have grown to $15,630 on 9/30/97.
