[LOGO FEDERATED INVESTORS]
FEDERATED
HIGH INCOME
BOND FUND, INC.
20TH ANNIVERSARY
20TH ANNUAL REPORT
MARCH 31, 1997
ESTABLISHED 1977
ACKNOWLEDGING A HISTORY
OF GENEROUS INCOME TO SHAREHOLDERS
FROM THE DYNAMIC HIGH YIELD MARKET
PRESIDENT'S MESSAGE
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[Graphic]
Dear Fellow Shareholder:
This publication is the 20th Annual Report of Federated High Income Bond Fund,
Inc. I would like to review the history of the fund, its performance, and its
growth.
In 20 years, this asset class of bonds, i.e., high-yield bonds, has had its
zenith and its nadir, and yet, with the support of thousands of investment
representatives, and their individual and institutional clients, the fund's
assets have grown to over $1 billion with more than 59,000 shareholders.
In 1977, when the fund was created, a major New York Stock Exchange firm in
Atlanta was the primary source of assets. The initial offering raised $25
million, $15 million of which came from shareholders who invested in the fund
through this firm. The first dividend was paid in March of 1978, and the fund
has paid a generous monthly dividend each and every month since that time, for
228 consecutive months.
Over the past 12 months, the fund's share value has increased, and the fund has
paid generous income to shareholders:
<TABLE>
<CAPTION>
Net Asset Value Increase Income Total Return*
------------------------- ------ --------------
<S> <C> <C> <C>
Class A Shares $11.08 to $11.31=2% $1.03 11.88%
Class B Shares $11.08 to $11.31=2% $0.94 10.99%
Class C Shares $11.08 to $11.31=2% $0.94 11.00%
</TABLE>
The investment objective of the fund since its inception in 1977 to the present
day has always been high, current income. In addition, the fund has provided
shareholders with a competitive total return. As assets have grown, the
portfolio's issues have also grown substantially from less than 100 issues to
over 275 issues today across some 30 industry classifications. Over the past
several months, the fund's monthly dividend has averaged $0.085 for Class A
Shares and $0.077 for Class B and Class C Shares.
It is the nature of the high-yield market to pursue high income returns with
risk to principal and income.** The risk is very simple, and we have certainly
experienced it. There have been corporate bankruptcies caused by business
failures, among many other negative situations. However, Federated's team of
experienced professionals who invest in this market have established themselves
as experts, and Federated High Income Bond Fund, Inc. has been an excellent
performing bond fundNwith a relatively low default rate compared to the high-
yield market as a whole and to the fund's peers.
* Performance quoted is based on net asset value and represents past
performance. 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 A,
B and C share classes were 6.86%, 5.01%, and 9.92%, respectively.
** Lower rated bonds typically offer higher yields to help compensate
investors for the increased risk associated with them. Among these risks
are lower creditworthiness, greater price volatility, more risk to principal
and income than with higher-rated securities, and increased possibilities
for default.
Additionally, high-yield bonds have outperformed, i.e., paid more income and/or
suffered less in net asset value decline, than other classes of bonds N
including mortgage-backed, high-grade corporates and Treasurys N over the past
20 years.*** Again, both income and total returns have more than compensated for
their risk.+
With the many high-yield bond funds' total performance record, and the
acceptance of high-yield issues as a viable asset class, the American public has
invested in 181 high-yield bond funds with assets totaling over $73 billion
according to Lipper Analytical Services, Inc. The high-yield bond asset class is
recognized by both individuals and institutions as an essential investment for a
portion of one's financial assets.
On the accompanying pages, charts show the performance of the fund in comparison
to other benchmarks and other asset classes. Also, as we have presented year
after year, the annual report contains mountain and valley charts depicting the
investment results of a lump sum investment and systematic investments of $1,000
annually for the 20-year life of the fund. These long-term investment charts
show past performance, which is no guarantee of future performance.
The questions posed to Mark E. Durbiano, Senior Vice President of Federated
Advisers, cover both the fund's history and his present management outlook to
give shareholders insight into the long-term viability of this diversified
portfolio of high-yield bonds. Mark's comments emphasize the value of investing
in this asset class through a mutual fund to utilize diversification both in
terms of industry sectors as well as the number of portfolio issues. The fund's
professional management and broad diversification give shareholders high,
current monthly income opportunities and help minimize the risk as much as
possible.
Please take time to review this 20-year history, and if you have questions,
please do not hesitate to write.
Thank you for your confidence in placing a portion of your wealth in Federated
High Income Bond Fund, Inc.
Best regards,
Richard B. Fisher
President
May 15, 1997
*** U.S. government bonds and Treasury bills, unlike high yield and corporate
bonds, are guaranteed as to the payment of principal and interest by the
U.S. government. Past performance is not indicative of future results.
+ Source: Chase Securities
Investment Review
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Mark E. Durbiano
Senior Vice President
Federated Advisers
Q I. Mark, this is the 20th annual report of Federated High Income Bond
Fund, Inc. Could you tell about the high-yield management group at Federated
and how it has been able to generate the fund's successful long-term
performance record?
A We really have an outstanding group of investment professionals focused
exclusively on the high-yield market. I head up the group and have been with
Federated for approximately 15 years, mostly in our high yield area. IOve been
managing Federated High Income Bond Fund, Inc. since 1987. Working with me in
the high-yield area are six talented, experienced investment professionals. This
team gives us the necessary resources to successfully manage the fund's assets.
Our approach, which was formulated by my predecessor, Tom Madden, focuses on
investing in strong operating businesses that are rated below investment grade
because of a higher than normal use of debt in their overall capitalization. We
try to avoid investing in companies with weak operating businesses, or, as Tom
used to say, ONo need trying to go up the down escalator.O Some of our longer-
term shareholders may be interested to know that Tom now heads up our entire
equity and high-yield operation at Federated, and still takes a keen interest in
the happenings in the high-yield market. Between the two of us, we have about 35
years of experience in high-yield investing.
Q II. Mark, you have been involved in the high-yield market for many years.
has the perception of high-yield as an asset class changed?
A The perception of high-yield bonds has changed dramatically, especially
over the past five years. It has gone from being an almost "cottage industry"
to an important part of most asset allocation strategies. This is a result of
the excellent long-term performance of the asset class, especially on a risk-
adjusted basis, and the tremendous growth in the market. According to Chase
Securities, the high-yield market has grown from $24 billion in 1977 to over
$350 billion at the end of 1996. While high-yield mutual funds like Federated
High Income Bond Fund, Inc. still make up a large part of the market, we see
tremendous interest for high-yield securities from insurance companies, pension
plans, and asset allocation funds.
Q III. What are the primary reasons investors are attracted to Federated High
Income Bond Fund, Inc.?
A There are several reasons why investors participate in this fund. First,
from an asset class basis, high-yield bonds have historically provided very
attractive long-term, risk-adjusted returns to investors. Also, this asset class
is capable of providing investors with a high level of income. Federated High
Income Bond Fund, Inc. brings considerable experience and expertise in the
management of high-yield bonds to individual investors. Professional management
coupled with an ability to diversify risk over hundreds of different issuers can
make this fund an intelligent choice for investors who want exposure to the
high-yield market.
Q IV. Overall, high-yield bonds performed well over the fund's fiscal year
thanks to the strong economy. What is your analysis of the period?
A The high-yield bond market generated excellent returns for the 12-month
period ending March 31, 1997, significantly outperforming high-quality bonds.
For example, the Lehman Brothers High Yield Bond Index* returned 10.64% while
the Lehman Brothers Aggregate Bond Index,* a measure of high-quality bond
performance, returned 4.91% over the period.
The main factor impacting high-yield bonds during the period was the surprising
strength in the United States' economy. The strong economy, which caused
interest rates to rise and high-quality bond prices to fall, had a silver
lining for high-yield bonds. It provided a great operating environment for
high-yield issuers N allowing them to generate higher earnings and cash flow.
This tended to reduce investors' fear of credit-related problems in the
high-yield sector and offset the general rise in interest rates. For example,
the yield differential between high-quality bonds and high-yield bonds as
measured by the Credit Suisse First Boston High Yield Index* declined by 94
basis points, more than offsetting the 62 basis points rise in the yield on 10-
year U.S. Treasury securities. Stated simply, the yield on high-yield
securities actually declined during the period despite the rise in interest
rates for Treasury securities.
The high-yield market also benefited from the strong demand for high-yield
securities during the period. This demand for high-yield securities was driven
by the market's strong total return performance and investors' desire for yield.
Strong demand relative to supply resulted in outstanding securities being bid up
in price, benefiting the fund's performance.
Q V. Despite the attractive returns for the 12-month period, the high-yield
market did weaken late in the period. What factors caused the market to cool?
A Several factors negatively impacted the high-yield market in March 1997. In
late February, interest rates, which had been rising since December of 1996,
eventually began to impact high-yield bonds. The market was not able to absorb
additional increases in interest rates (even with continuing strength in the
economy) given the narrow spreads that existed at the end of February. Second,
demand for high-yield securities, which had been a major positive over the past
year, turned modestly negative as investors responded to negative price action.
Finally, uncertainty around the Federal Reserve Board's (the OFed's') interest
rate policy and its eventual impact on the economy caused yield spreads to widen
in March.
* The Credit Suisse First Boston High Yield Index is a trader priced portfolio
constructed to mirror the public high yield debt market. 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. Total return comprises price
appreciation/depreciation and income as a percentage of the original amount
invested. Indexes are unmanaged and are rebalanced monthly by market
capitalization. Investments cannot be made in an index.
Q VI. How did Federated High Income Bond Fund, Inc. perform for the year?
A Federated High Income Bond Fund, Inc. continued its history of good
performance during the past 12 months. The fund's Class A Shares produced a
total return of 11.88% based on net asset value,* besting the 11.35% return of
the Lipper High Current Yield Funds Average. The fund's Class B and Class C
Shares also produced competitive returns of 10.99% and 11.00%, respectively.*
For the one-year period ended March 31, 1997, the fund ranked 44th out of the
154 high current yield funds, according to Lipper Analytical Services, Inc.
From a longer term perspective, the fund ranked in the top 15% of all
high-yield funds for the three years ended March 31, 1997, top 33% for the past
5 years, top 10% for the past 10 years, and top 25% for the past 15 years
according to Lipper.**
Q VII. What factors influenced fund performance?
A Several factors positively impacted the fund's performance over the past
year. First, the fund typically invests a majority of its assets in the single B
sector of the high-yield market. This sector outperformed the double B sector
(the highest quality high-yield bonds) as well as the lower quality sectors of
the overall market.
Second, the fund benefited from outstanding security selection during the
period. It avoided most of the deteriorating situations such as Penn Traffic and
Marvel Comics, while investing in several situations that performed very well on
an issuer-specific basis. These standout performers included: Affiliated
Newspapers, Nextel, Six Flags, Ralph's Grocery, Brylane, California Energy,
Foamex and Playtex as well as several holdings in the United Kingdom cable TV
sector. The fund also benefited from substantial merger and acquisition activity
involving portfolio holdings. These securities outperformed the overall market
as the issuers were either upgraded by the major rating agencies or the issuers
tendered for the securities at attractive prices. These issuers included: Motor
Wheel, Sherritt Gorden, Pace Industries, SCI Television, Trans Ocean Container,
PanAmSat and Heritage Media.
* Performance quoted represents past performance. 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 A, B and C share classes were 6.86%,
5.01%, and 9.92%, respectively.
** These figures and the rankings are based on total return and do not reflect
sales charges. During the ranking periods, certain fund expenses were waived;
otherwise, total return would have been lower. The fund's 5 and 10 year
rankings as of 3/31/97 were 20 out of 61 high current yield funds and 3 out
of 44 high current yield funds, respectively.
Q VIII. What is your outlook for the high-yield bond market for the rest of
1997?
A As we look into the second quarter and to the balance of 1997, economic
conditions should hold the key to high-yield performance. The late March move by
the Fed to raise the federal funds target rate 25 basis points was designed to
modestly slow the economy. If the Fed is successful in modestly slowing the
economy with one or perhaps two tightenings, the resulting environment for high-
yield securities (and most financial assets) could be very good. However, if
rising interest rates leads to a recession, credit spreads would widen in an
overall falling interest rate environment while default rates rise. The
transition period from economic expansion to recession is typically
a time period where high-yield bonds underperform their high-quality
counterparts.
Q IX. What were the fund's top holdings at the end of the period?
A At the end of the period, the fund's largest holdings as a percentage of
assets were:
1. First Nationwide Holdings (1.59%)--Formed in 1994 to acquire the S&L
business of Ford Motor, First Nationwide is one of the largest thrifts
in the U.S. with operations in California and Florida.
2. Viacom Inc. (1.57%)--This diversified entertainment communication
company maintains operations in four principal business segments:
broadcasting, network, entertainment, and publishing.
3. Six Flags Theme Parks Inc. (1.39%)--Six Flags operates 11 theme parks
in seven locations, making it the second largest operator of theme
parks in the United States based on 1995 total attendance.
4. Owens Illinois, Inc. (1.38%)--This company is the world's largest glass
container manufacturer, and also manufactures plastic products.
5. California Energy Co. (1.36%)--Founded in 1971, the company is a
worldwide independent power producer, with operations in the U.S.,
Philippines, Indonesia and the U.K. The company recently entered the
U.K. through its purchase of Northern Electric, a regional utility, in
December 1996.
6. Sinclair Broadcast Group (1.35%)--Sinclair operates independent
television stations, primarily with Fox network affiliations.
7. Tenet Healthcare Corporation (1.32%)--Tenet is the 2nd largest
investor-owned U.S. healthcare company that operates acute care
hospitals and related healthcare facilities serving primarily urban
areas in 22 states.
8. WestPoint Stevens Inc. (1.27%)--The company is well-known as the
nation's leading manufacturer and marketer of bed and bath textile
products, including sheets, pillowcases, comforters, blankets,
bedspreads, towels and related products and is also a leading domestic
manufacturer of knitted sportswear fabrics.
9. Cablevision Systems (1.23%)--This company is one of the largest
operators of cable television systems in the United States.
10. Chancellor Radio Broadcasting (1.22%)--Upon its merger with Evergreen
Media, this company will become the second largest company in the
United States exclusively devoted to radio broadcasting.
We believe these companies embody the key characteristics that define our
approach to the high-yield market. These ten companies have strong operating
businesses with strong management teams. Despite being rated below investment
grade, these companies are leaders in their respective businesses with
outstanding operating profiles. We believe that over time these companies will
continue to grow cash flow and earnings, improving their overall credit profile.
Q X. From a sector perspective, which industries do you like?
A From an industry perspective, we continue to like the cable TV sector,
especially in the United Kingdom. We believe the U.K. cable TV operators (who
also provide telephone service) will continue to successfully build out their
markets and increase penetration. We also believe that industry consolidation is
inevitable. In the U.S., we favor large, well-clustered cable companies such as
Cablevision Systems and Comcast that are positioned to withstand increasing
competition while offering new products to their subscribers. We also like the
telecommunication sector, especially wireless providers and competitive local
access providers. We believe that technological advances, deregulation, and
secular growth bode well for these types of issuers. Finally, we intend to be
overweight in the broadcast sector. We think consolidation, which is being
driven by regulatory changes, will result in large, well-managed companies
dominating the radio and TV business longer term. Sinclair Broadcasting on the
TV side and Chancellor Radio on the radio side are two of our favorites.
Two Ways You May Seek to Invest for Success In
Federated High Income Bond Fund, Inc.
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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 did not redeem any shares, your account would have been worth
$142,198 on 3/31/97. You would have earned a 10.68%* 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 3/31/97, the Class A Shares' average annual one-year, five-year, and ten-
year total returns were 6.86%, 10.12%, and 10.44%, respectively. The Class B
Shares' average annual one-year and since inception (9/27/94) total returns
were 5.01% and 10.21%, respectively. The Class C Shares' average annual one-
year and since inception (4/30/93) total returns were 9.92% and 9.26%,
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.
Federated High Income Bond Fund, Inc.
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One Step at a Time:
$1,000 invested each year for 20 years (reinvesting all dividends and capital
gains) grew to $72,202.
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 did not redeem any shares, you would have invested only $20,000, but
your account would have reached a total value of $72,202* by 3/31/97. You would
have earned an average annual total return of 11.70%.
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. An investment plan works for you when you invest only
$1,000 annually. You can take it one step at a time. Put time, money, and
compounding to work!
GRAPHIC PRESENTATION `A2'' OMITTED. SEE APPENDIX.
* 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
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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 March 31, 1986, he invested $5,000 in the Class A
Shares of Federated High Income Bond Fund, Inc.
As this chart shows, over 11 years, his original $5,000 investment has grown to
$14,981. This represents a 10.49% 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 results obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated High Income Bond Fund, Inc.
A History of Solid Earnings--Six 15-Year Periods
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$10,000 Invested with Distributions Reinvested
How a $10,000 investment grew during each 15-year period since fund inception.
This chart shows what your account would be worth had you invested $10,000 in
Class A Shares at the beginning of these consecutive time periods.
Over every 15-year period since the fund's inception, a $10,000 investment in
its Class A Shares (with all dividends and capital gains reinvested) grew in
value. At the end of each period, no investor who stayed invested for the entire
period would have lost money.
A History of Investment Growth--Six Fifteen-Year Periods
<TABLE>
<CAPTION>
Dividends and
April 1 - Initial Number Capital Gains Total Ending Value
March 31 of Shares Reinvested Shares of Shares
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<S> <C> <C> <C> <C>
1977-1992* 636 $35,051 3,885 $41,919
1978-1993 652 41,854 4,392 49,148
1979-1994 693 43,127 4,617 50,738
1980-1995 850 49,888 5,583 58,843
1981-1996 836 49,430 5,297 58,695
1982-1997 943 53,221 5,649 63,890
</TABLE>
* This initial investment period is November 30, 1977 through March 31, 1992.
For each time period shown, share price fluctuated.
Federated High Income Bond Fund, Inc.
(Class A Shares)
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Growth of $20,000 Invested in Federated High Income Bond Fund, Inc. (Class A
Shares)
The graph below illustrates the hypothetical investment of $20,000 in the
Federated High Income Bond Fund, Inc. (Class A Shares) (the OFundO) from
November 30, 1977 to March 31, 1997 compared to the Lehman Brothers Single B
Rated Index (LBSBRI)+ and the Lipper High Current Yield Funds Average
(LHCYFA).++
GRAPHIC PRESENTATION `A4'' OMITTED. SEE APPENDIX.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $20,000 in the Fund after deducting
the maximum sales charge of 4.50% ($20,000 investment minus $900 sales
charge = $19,100). The Fund's performance assumes the reinvestment of all
dividends and distributions. The LBSBRI and the LHCYFA have been adjusted
to reflect reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
*** For this illustration, the LBSBRI began performance on July 1, 1983. The
index was assigned a beginning value of $31,986, the value of the Fund on
June 30, 1983.
+ The LBSBRI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
++ The LHCYFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
in the respective category, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or
other fees that the SEC requires to be reflected in a fund's performance.
Federated High Income Bond Fund, Inc.
(Class A Shares)
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Growth of $10,000 Invested in Federated High Income Bond Fund, Inc. (Class A
Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated High Income Bond Fund, Inc. (Class A Shares) (the OFundO) from March
31, 1987 to March 31, 1997 compared to the Lehman Brothers Single B Rated Index
(LBSBRI)+ and the Lipper High Current Yield Funds Average (LHCYFA).++
GRAPHIC PRESENTATION `A5'' OMITTED. SEE APPENDIX.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales
charge = $9,550). The Fund's performance assumes the reinvestment of all
dividends and distributions. The LBSBRI and the LHCYFA have been adjusted
to reflect reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBSBRI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LHCYFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
in the respective category, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or
other fees that the SEC requires to be reflected in a fund's performance.
Federated High Income Bond Fund, Inc.
(Class B Shares)
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Growth of $10,000 Invested in Federated High Income Bond Fund, Inc. (Class B
Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated High Income Bond Fund, Inc. (Class B Shares) (the OFundO) from
September 27, 1994 (start of performance) to March 31, 1997 compared to the
Lehman Brothers Single B Rated Index (LBSBRI)+ and the Lipper High Current Yield
Funds Average (LHCYFA).++
GRAPHIC PRESENTATION `A6'' OMITTED. SEE APPENDIX.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 4.00% contingent deferred sales charge on any
redemption less than three years from the purchase date. The maximum
contingent deferred sales charge is 5.50% on any redemption less than one
year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The LBSBRI and the LHCYFA
have been adjusted to reflect reinvestment of dividends on securities in
the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBSBRI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
++ The LHCYFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
in the respective category, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or
other fees that the SEC requires to be reflected in a fund's performance.
Federated High Income Bond Fund, Inc.
(Class C Shares)
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Growth of $10,000 Invested in Federated High Income Bond Fund, Inc. (Class C
Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated High Income Bond Fund, Inc. (Class C Shares) (the OFundO) from April
30, 1993 (start of performance) to March 31, 1997 compared to the Lehman
Brothers Single B Rated Index (LBSBRI) and the Lipper High Current Yield Funds
Average (LHCYFA).++
GRAPHIC PRESENTATION `A7'' OMITTED. SEE APPENDIX.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LBSBRI and the LHCYFA have been adjusted to reflect reinvestment of dividends
on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBSBRI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
++ The LHCYFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling in
the respective category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.
FEDERATED HIGH INCOME BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--93.9%
- ------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.3%
---------------------------------------------------------------------------------------------
$ 4,000,000 (a)Tracor, Inc., Sr. Sub. Note, 8.50%, 3/1/2007 $ 3,920,000
--------------------------------------------------------------------------------------------- ----------------
AUTOMOTIVE--2.8%
---------------------------------------------------------------------------------------------
4,425,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 4,889,625
---------------------------------------------------------------------------------------------
1,875,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%, 8/1/2004 2,071,875
---------------------------------------------------------------------------------------------
1,000,000 Blue Bird Body Co., Sr. Sub. Note, 10.75%, 11/15/2006 1,050,000
---------------------------------------------------------------------------------------------
10,025,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 10,927,250
---------------------------------------------------------------------------------------------
6,250,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 6,343,750
---------------------------------------------------------------------------------------------
6,000,000 Lear Seating Corp., Sub. Note, 9.50%, 7/15/2006 6,210,000
---------------------------------------------------------------------------------------------
1,000,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 7/15/2000 1,015,000
---------------------------------------------------------------------------------------------
2,000,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 1,970,000
--------------------------------------------------------------------------------------------- ----------------
Total 34,477,500
--------------------------------------------------------------------------------------------- ----------------
BANKING--1.3%
---------------------------------------------------------------------------------------------
7,710,000 (a)First Nationwide Escrow Corp., Sr. Sub. Note, 10.625%, 10/1/2003 8,519,550
---------------------------------------------------------------------------------------------
6,100,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 6,832,000
---------------------------------------------------------------------------------------------
1,000,000 First Nationwide Holdings, Inc., Sr. Sub. Note, 9.125%, 1/15/2003 1,042,500
--------------------------------------------------------------------------------------------- ----------------
Total 16,394,050
--------------------------------------------------------------------------------------------- ----------------
BEVERAGE & TOBACCO--0.9%
---------------------------------------------------------------------------------------------
1,175,000 (a)Delta Beverage Group, Inc., Sr. Note, 9.75%, 12/15/2003 1,189,687
---------------------------------------------------------------------------------------------
3,150,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 3,252,375
---------------------------------------------------------------------------------------------
6,750,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%, 2/15/2003 6,581,250
--------------------------------------------------------------------------------------------- ----------------
Total 11,023,312
--------------------------------------------------------------------------------------------- ----------------
BROADCAST RADIO & TV--7.1%
---------------------------------------------------------------------------------------------
3,400,000 Argyle Television, Inc., Sr. Sub. Note, 9.75%, 11/1/2005 3,510,500
---------------------------------------------------------------------------------------------
3,075,000 Chancellor Radio Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 3,463,218
---------------------------------------------------------------------------------------------
6,800,000 Chancellor Radio Broadcasting Co., Sr. Sub. Note, 9.375%, 10/1/2004 6,800,000
---------------------------------------------------------------------------------------------
1,650,000 Granite Broadcasting Corp., Sr. Sub. Deb., 12.75%, 9/1/2002 1,794,375
---------------------------------------------------------------------------------------------
2,250,000 Granite Broadcasting Corp., Sr. Sub. Note, 10.375%, 5/15/2005 2,261,250
---------------------------------------------------------------------------------------------
11,160,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 11,690,100
---------------------------------------------------------------------------------------------
4,900,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 4,973,500
---------------------------------------------------------------------------------------------
3,200,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 2,740,000
---------------------------------------------------------------------------------------------
4,500,000 Pegasus Media & Comm., Note, 12.50%, 7/1/2005 4,882,500
---------------------------------------------------------------------------------------------
7,850,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 8,379,875
---------------------------------------------------------------------------------------------
8,550,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 8,977,500
---------------------------------------------------------------------------------------------
6,500,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 12/15/2003 6,491,875
---------------------------------------------------------------------------------------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--CONTINUED
---------------------------------------------------------------------------------------------
$ 4,975,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 9/30/2005 $ 4,968,781
---------------------------------------------------------------------------------------------
1,875,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 12/15/2006 1,800,000
---------------------------------------------------------------------------------------------
5,900,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%, 12/15/2005 5,914,750
---------------------------------------------------------------------------------------------
5,825,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 5,883,250
---------------------------------------------------------------------------------------------
2,000,000 Young Broadcasting, Inc., Sr. Sub. Note, 11.75%, 11/15/2004 2,150,000
--------------------------------------------------------------------------------------------- ----------------
Total 86,681,474
--------------------------------------------------------------------------------------------- ----------------
BUILDING & DEVELOPMENT--0.1%
---------------------------------------------------------------------------------------------
1,600,000 Building Materials Corp. of America, Sr. Note, 8.625%, 12/15/2006 1,580,000
--------------------------------------------------------------------------------------------- ----------------
BUSINESS EQUIPMENT & SERVICES--2.8%
---------------------------------------------------------------------------------------------
4,850,000 (a)Electronic Retailing Systems International, Inc., Unit, 0/13.25%, 2/1/2004 3,322,250
---------------------------------------------------------------------------------------------
6,250,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 6,812,500
---------------------------------------------------------------------------------------------
10,425,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 12,014,813
---------------------------------------------------------------------------------------------
4,075,000 (a)Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 11/1/2006 4,288,938
---------------------------------------------------------------------------------------------
7,100,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 7,987,500
--------------------------------------------------------------------------------------------- ----------------
Total 34,426,001
--------------------------------------------------------------------------------------------- ----------------
CABLE TELEVISION--10.8%
---------------------------------------------------------------------------------------------
3,984,000 (a)Australis Holdings Pty Limited, Unit, 0/15.00%, 11/1/2002 2,310,720
---------------------------------------------------------------------------------------------
5,350,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 3,317,000
---------------------------------------------------------------------------------------------
8,225,000 Bell Cablemedia, PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 7,176,312
---------------------------------------------------------------------------------------------
3,600,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 4,086,000
---------------------------------------------------------------------------------------------
4,925,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 4,795,718
---------------------------------------------------------------------------------------------
1,500,000 Cablevision Systems Corp., Sr. Sub. Note, 10.50%, 5/15/2016 1,518,750
---------------------------------------------------------------------------------------------
5,800,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 5,597,000
---------------------------------------------------------------------------------------------
3,125,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 3,085,937
---------------------------------------------------------------------------------------------
2,200,000 Charter Communications Holdings, Inc., Sr. Disc. Note, 0/14.00%, 3/15/2007 1,358,500
---------------------------------------------------------------------------------------------
5,875,000 Charter Communications Southeast, LP, Sr. Note, 11.25%, 3/15/2006 6,139,375
---------------------------------------------------------------------------------------------
4,250,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 4,271,250
---------------------------------------------------------------------------------------------
3,250,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 2,226,250
---------------------------------------------------------------------------------------------
3,625,000 (a)Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%, 2/15/2007 2,011,875
---------------------------------------------------------------------------------------------
12,250,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/11.75%, 12/15/2005 7,993,125
---------------------------------------------------------------------------------------------
3,750,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/13.25%, 9/30/2004 2,971,875
---------------------------------------------------------------------------------------------
9,900,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%, 3/15/2004 7,920,000
---------------------------------------------------------------------------------------------
6,000,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/10.875%, 10/15/2003 4,890,000
---------------------------------------------------------------------------------------------
4,700,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%, 2/1/2006 2,943,375
---------------------------------------------------------------------------------------------
$ 9,200,000 International Cabletel, Inc., Sr. Disc. Note, 0/12.75%, 4/15/2005 $ 6,555,000
---------------------------------------------------------------------------------------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------------------
CABLE TELEVISION--CONTINUED
---------------------------------------------------------------------------------------------
4,700,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 5,264,000
---------------------------------------------------------------------------------------------
3,650,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 3,435,562
---------------------------------------------------------------------------------------------
2,150,000 Lenfest Communications Inc., Sr. Sub. Note, 10.50%, 6/15/2006 2,236,000
---------------------------------------------------------------------------------------------
4,225,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%, 12/1/2007 4,436,250
---------------------------------------------------------------------------------------------
2,725,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%, 3/15/2005 2,874,875
---------------------------------------------------------------------------------------------
5,700,000 Rogers Cablesystems Ltd., Sr. Sub. GTD. Note, 11.00%, 12/1/2015 6,156,000
---------------------------------------------------------------------------------------------
3,575,000 (a)TCI Satellite Entertainment, Inc., Sr. Sub. Disc. Note, 0/12.25%, 2/15/2007 1,662,375
---------------------------------------------------------------------------------------------
3,250,000 (a)TCI Satellite Entertainment, Inc., Sr. Sub. Note, 10.875%, 2/15/2007 3,006,250
---------------------------------------------------------------------------------------------
19,325,000 TeleWest, PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 12,609,563
---------------------------------------------------------------------------------------------
10,350,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 5,278,500
---------------------------------------------------------------------------------------------
4,800,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 3,168,000
---------------------------------------------------------------------------------------------
3,000,000 Wireless One, Inc., Unit, 0/13.50%, 8/1/2006 795,000
--------------------------------------------------------------------------------------------- ----------------
Total 132,090,437
--------------------------------------------------------------------------------------------- ----------------
CHEMICALS & PLASTICS--4.6%
---------------------------------------------------------------------------------------------
5,250,000 Astor Corp., Sr. Sub. Note, 10.50%, 10/15/2006 5,512,500
---------------------------------------------------------------------------------------------
1,000,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 1,035,000
---------------------------------------------------------------------------------------------
4,650,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 5,289,375
---------------------------------------------------------------------------------------------
4,900,000 Foamex LP, Sr. Sub. Deb., 11.875%, 10/1/2004 5,304,250
---------------------------------------------------------------------------------------------
9,000,000 Harris Chemical North America, Inc., Sr. Note, 10.25%, 7/15/2001 9,135,000
---------------------------------------------------------------------------------------------
5,600,000 (a)ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 5,656,000
---------------------------------------------------------------------------------------------
2,320,000 (a)ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 2,424,400
---------------------------------------------------------------------------------------------
5,783,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 6,390,215
---------------------------------------------------------------------------------------------
6,300,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 4,740,750
---------------------------------------------------------------------------------------------
7,825,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%, 8/15/2008 4,910,188
---------------------------------------------------------------------------------------------
1,650,000 Sterling Chemicals, Inc., Sr. Sub. Note, 11.75%, 8/15/2006 1,744,875
---------------------------------------------------------------------------------------------
3,950,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 3,969,750
--------------------------------------------------------------------------------------------- ----------------
Total 56,112,303
--------------------------------------------------------------------------------------------- ----------------
CLOTHING & TEXTILES--2.3%
---------------------------------------------------------------------------------------------
3,225,000 (a)Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note, 10.00%, 1/15/2007 3,216,937
--------------------------------------------------------------------------------------------
2,750,000 (a)GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 2,756,875
--------------------------------------------------------------------------------------------
3,400,000 (a)Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 3,412,750
--------------------------------------------------------------------------------------------
2,925,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 3,012,750
--------------------------------------------------------------------------------------------
$ 15,175,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 $ 15,478,500
-------------------------------------------------------------------------------------------- ----------------
Total 27,877,812
-------------------------------------------------------------------------------------------- ----------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--4.2%
---------------------------------------------------------------------------------------------
4,000,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 4,160,000
---------------------------------------------------------------------------------------------
3,100,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 3,363,500
---------------------------------------------------------------------------------------------
5,000,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 5,550,000
---------------------------------------------------------------------------------------------
6,725,000 (a)ICON Fitness Corp., Sr. Disc. Note, 0/14.00%, 11/15/2006 3,715,562
---------------------------------------------------------------------------------------------
4,250,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 4,855,625
---------------------------------------------------------------------------------------------
9,750,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 9,798,750
---------------------------------------------------------------------------------------------
6,975,000 (a)Renaissance Cosmetics, Inc., Sr. Note, 11.75%, 2/15/2004 7,079,625
---------------------------------------------------------------------------------------------
6,700,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 7,001,500
---------------------------------------------------------------------------------------------
5,250,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 5,328,750
--------------------------------------------------------------------------------------------- ----------------
Total 50,853,312
--------------------------------------------------------------------------------------------- ----------------
CONTAINER & GLASS PRODUCTS--2.1%
---------------------------------------------------------------------------------------------
1,680,000 (a)(b)Kane Industries, Inc., Sr. Sub. Disc. Note, 0/8.00%, 2/1/1998 0
---------------------------------------------------------------------------------------------
1,000,000 Owens-Illinois, Inc., Note, 10.00%, 8/1/2002 1,047,500
---------------------------------------------------------------------------------------------
2,750,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 2,901,250
---------------------------------------------------------------------------------------------
8,600,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 8,944,000
---------------------------------------------------------------------------------------------
3,775,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 3,977,906
---------------------------------------------------------------------------------------------
3,000,000 Packaging Resources Inc., Sr. Note, 11.625%, 5/1/2003 3,105,000
---------------------------------------------------------------------------------------------
4,350,000 (a)Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 4,458,750
---------------------------------------------------------------------------------------------
1,175,000 U.S. Can Corp., Sr. Sub. Note, 10.125%, 10/15/2006 1,227,875
--------------------------------------------------------------------------------------------- ----------------
Total 25,662,281
--------------------------------------------------------------------------------------------- ----------------
ECOLOGICAL SERVICES & EQUIPMENT--1.5%
---------------------------------------------------------------------------------------------
8,600,000 (a)Allied Waste North America, Inc., Sr. Sub. Note, 10.25%, 12/1/2006 8,944,000
---------------------------------------------------------------------------------------------
5,200,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 4,940,000
---------------------------------------------------------------------------------------------
7,850,000 (b)Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 4,415,625
--------------------------------------------------------------------------------------------- ----------------
Total 18,299,625
--------------------------------------------------------------------------------------------- ----------------
ELECTRONICS--0.9%
---------------------------------------------------------------------------------------------
4,700,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 5,170,000
---------------------------------------------------------------------------------------------
5,425,000 (a)Fairchild Semiconductor Corp., Sr. Sub. Note, 10.125%, 3/15/2007 5,492,813
--------------------------------------------------------------------------------------------- ----------------
Total 10,662,813
--------------------------------------------------------------------------------------------- ----------------
FINANCIAL INTERMEDIARIES--0.5%
---------------------------------------------------------------------------------------------
2,325,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 2,348,250
---------------------------------------------------------------------------------------------
$ 4,300,000 Olympic Financial Ltd., Unit, 11.50%, 3/15/2007 $ 4,289,250
--------------------------------------------------------------------------------------------- ----------------
Total 6,637,500
--------------------------------------------------------------------------------------------- ----------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--2.1%
---------------------------------------------------------------------------------------------
5,775,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 6,237,000
---------------------------------------------------------------------------------------------
8,950,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 9,263,250
---------------------------------------------------------------------------------------------
4,200,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 4,347,000
---------------------------------------------------------------------------------------------
4,675,000 Smith's Food & Drug Centers, Inc., Sr. Sub. Note, 11.25%, 5/15/2007 5,154,188
--------------------------------------------------------------------------------------------- ----------------
Total 25,001,438
--------------------------------------------------------------------------------------------- ----------------
FOOD PRODUCTS--2.7%
---------------------------------------------------------------------------------------------
5,700,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 6,156,000
---------------------------------------------------------------------------------------------
8,000,000 (a)International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/1/2006 8,000,000
---------------------------------------------------------------------------------------------
4,000,000 (a)MBW Foods Inc., Sr. Sub. Note, 9.875%, 2/15/2007 3,920,000
---------------------------------------------------------------------------------------------
5,250,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 5,433,750
---------------------------------------------------------------------------------------------
2,575,000 Specialty Foods Acquisition Corp., Sr. Secd. Disc. Deb., 0/13.00%, 8/15/2005 1,197,375
---------------------------------------------------------------------------------------------
1,000,000 Specialty Foods Corp., Sr. Note, 11.125%, 10/1/2002 1,010,000
---------------------------------------------------------------------------------------------
1,000,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 900,000
---------------------------------------------------------------------------------------------
5,300,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 5,816,750
--------------------------------------------------------------------------------------------- ----------------
Total 32,433,875
--------------------------------------------------------------------------------------------- ----------------
FOREST PRODUCTS--3.5%
---------------------------------------------------------------------------------------------
4,250,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 4,621,875
---------------------------------------------------------------------------------------------
250,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 261,562
---------------------------------------------------------------------------------------------
7,200,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 7,308,000
---------------------------------------------------------------------------------------------
4,350,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%, 4/15/2005 4,350,000
---------------------------------------------------------------------------------------------
7,175,000 Riverwood International Corp., Sr. Sub. Note, 10.875%, 4/1/2008 5,892,469
---------------------------------------------------------------------------------------------
5,850,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 6,493,500
---------------------------------------------------------------------------------------------
8,950,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 8,871,688
---------------------------------------------------------------------------------------------
1,000,000 Stone Container Corp., Sr. Note, 11.875%, 8/1/2016 1,025,000
---------------------------------------------------------------------------------------------
4,500,000 (a)Uniforet Inc., Sr. Note, 11.125%, 10/15/2006 4,185,000
--------------------------------------------------------------------------------------------- ----------------
Total 43,009,094
--------------------------------------------------------------------------------------------- ----------------
HEALTHCARE--2.6%
---------------------------------------------------------------------------------------------
8,700,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 9,624,375
---------------------------------------------------------------------------------------------
1,750,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 10/1/2006 1,785,000
---------------------------------------------------------------------------------------------
3,600,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 3,726,000
---------------------------------------------------------------------------------------------
1,000,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 985,000
---------------------------------------------------------------------------------------------
$ 8,850,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 $ 9,646,500
--------------------------------------------------------------------------------------------
5,500,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 1/15/2007 5,445,000
-------------------------------------------------------------------------------------------- ----------------
Total 31,211,875
-------------------------------------------------------------------------------------------- ----------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--CONTINUED
- ---------------------------------------------------------------------------------------------
HOME PRODUCTS & FURNISHINGS--0.5%
---------------------------------------------------------------------------------------------
3,000,000 American Standard, Inc., Sr. Deb., 11.375%, 5/15/2004 3,195,000
---------------------------------------------------------------------------------------------
2,625,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 2,802,188
--------------------------------------------------------------------------------------------- ----------------
Total 5,997,188
--------------------------------------------------------------------------------------------- ----------------
HOTELS, MOTELS, INNS & CASINOS--0.5%
---------------------------------------------------------------------------------------------
6,000,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 6,285,000
--------------------------------------------------------------------------------------------- ----------------
INDUSTRIAL PRODUCTS & EQUIPMENT--4.0%
---------------------------------------------------------------------------------------------
6,650,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 7,182,000
---------------------------------------------------------------------------------------------
4,425,000 (a)Continental Global Group, Inc., Sr. Note, 11.00%, 4/1/2007 4,402,875
---------------------------------------------------------------------------------------------
6,850,000 Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 7,261,000
---------------------------------------------------------------------------------------------
5,175,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 5,498,437
---------------------------------------------------------------------------------------------
4,000,000 (a)Hawk Corp., Sr. Note, 10.25%, 12/1/2003 4,050,000
---------------------------------------------------------------------------------------------
4,100,000 IMO Industries, Inc., Sr. Sub. Note, 11.75%, 5/1/2006 4,161,500
---------------------------------------------------------------------------------------------
4,500,000 International Knife & Saw, Inc., Sr. Sub. Note, 11.375%, 11/15/2006 4,646,250
---------------------------------------------------------------------------------------------
2,500,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 2,456,250
---------------------------------------------------------------------------------------------
4,125,000 Mettler-Toledo, Inc., Sr. Sub. Note, 9.75%, 10/1/2006 4,269,375
---------------------------------------------------------------------------------------------
4,750,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 4,803,438
--------------------------------------------------------------------------------------------- ----------------
Total 48,731,125
--------------------------------------------------------------------------------------------- ----------------
LEISURE & ENTERTAINMENT--4.7%
---------------------------------------------------------------------------------------------
10,875,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 7,449,375
---------------------------------------------------------------------------------------------
3,700,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 3,875,750
---------------------------------------------------------------------------------------------
4,450,000 Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 4,705,875
---------------------------------------------------------------------------------------------
4,000,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 4,450,000
---------------------------------------------------------------------------------------------
500,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 516,250
---------------------------------------------------------------------------------------------
17,425,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 16,989,375
---------------------------------------------------------------------------------------------
20,500,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 19,116,250
--------------------------------------------------------------------------------------------- ----------------
Total 57,102,875
--------------------------------------------------------------------------------------------- ----------------
MACHINERY & EQUIPMENT--2.1%
---------------------------------------------------------------------------------------------
7,025,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 7,235,750
---------------------------------------------------------------------------------------------
8,375,000 Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 8,710,000
---------------------------------------------------------------------------------------------
4,069,000 Primeco Inc., Sr. Sub. Note, 12.75%, 3/1/2005 4,577,625
---------------------------------------------------------------------------------------------
$ 4,900,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 $ 5,200,125
--------------------------------------------------------------------------------------------- ----------------
Total 25,723,500
--------------------------------------------------------------------------------------------- ----------------
METALS & MINING--1.0%
---------------------------------------------------------------------------------------------
4,950,000 Echo Bay Mines Ltd., Jr. Sub. Deb., 11.00%, 4/1/2027 5,011,875
---------------------------------------------------------------------------------------------
</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 7,336,438
--------------------------------------------------------------------------------------------- ----------------
Total 12,348,313
--------------------------------------------------------------------------------------------- ----------------
OIL & GAS--3.5%
---------------------------------------------------------------------------------------------
7,100,000 Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 7,455,000
---------------------------------------------------------------------------------------------
4,000,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 4,110,000
---------------------------------------------------------------------------------------------
2,500,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 2,812,500
---------------------------------------------------------------------------------------------
7,000,000 (a)Forcenergy, Inc., Sr. Sub. Note, 8.50%, 2/15/2007 6,597,500
---------------------------------------------------------------------------------------------
4,700,000 Forcenergy, Inc., Sr. Sub. Note, 9.50%, 11/1/2006 4,664,750
---------------------------------------------------------------------------------------------
3,750,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 3,768,750
---------------------------------------------------------------------------------------------
2,250,000 H.S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 2,283,750
---------------------------------------------------------------------------------------------
5,475,000 Mesa Operating Company, Sr. Sub. Disc. Note, 0/11.625%, 7/1/2006 3,736,688
---------------------------------------------------------------------------------------------
1,650,000 Mesa Operating Company, Sr. Sub. Note, 10.625%, 7/1/2006 1,749,000
---------------------------------------------------------------------------------------------
5,200,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 5,746,000
--------------------------------------------------------------------------------------------- ----------------
Total 42,923,938
--------------------------------------------------------------------------------------------- ----------------
PRINTING & PUBLISHING--2.2%
---------------------------------------------------------------------------------------------
11,850,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note, 0/13.25%, 7/1/2006 9,835,500
---------------------------------------------------------------------------------------------
3,750,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 4,082,812
---------------------------------------------------------------------------------------------
4,250,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%, 2/1/2006 4,154,375
---------------------------------------------------------------------------------------------
1,775,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%, 3/15/2007 1,739,500
---------------------------------------------------------------------------------------------
750,000 K-III Communications Corp., Company Guarantee, Series B, 8.50%, 2/1/2006 756,562
---------------------------------------------------------------------------------------------
6,100,000 Petersen Publishing Co., L.L.C., Sr. Sub. Note, 11.125%, 11/15/2006 6,557,500
--------------------------------------------------------------------------------------------- ----------------
Total 27,126,249
--------------------------------------------------------------------------------------------- ----------------
REAL ESTATE--0.8%
---------------------------------------------------------------------------------------------
8,500,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 9,254,375
--------------------------------------------------------------------------------------------- ----------------
RETAILERS--0.7%
---------------------------------------------------------------------------------------------
7,600,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 8,018,000
--------------------------------------------------------------------------------------------- ----------------
SERVICES--1.8%
---------------------------------------------------------------------------------------------
7,633,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 8,491,712
---------------------------------------------------------------------------------------------
3,500,000 (a)Intertek Finance PLC, Sr. Sub. Note, 10.25%, 11/1/2006 3,596,250
---------------------------------------------------------------------------------------------
5,725,000 (a)KinderCare Learning Centers, Inc., Sr. Sub. Note, 9.50%, 2/15/2009 5,553,250
---------------------------------------------------------------------------------------------
$ 4,000,000 (a)Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 $ 4,020,000
--------------------------------------------------------------------------------------------- ----------------
Total 21,661,212
--------------------------------------------------------------------------------------------- ----------------
STEEL--2.8%
--------------------------------------------------------------------------------------------
5,250,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 5,538,750
--------------------------------------------------------------------------------------------
1,925,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 1,958,687
--------------------------------------------------------------------------------------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------------------
STEEL--CONTINUED
---------------------------------------------------------------------------------------------
3,600,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 3,528,000
---------------------------------------------------------------------------------------------
8,000,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 7,720,000
---------------------------------------------------------------------------------------------
7,400,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 7,751,500
---------------------------------------------------------------------------------------------
2,300,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 2,443,750
---------------------------------------------------------------------------------------------
4,850,000 Republic Engineered Steel, Inc., 1st Mtg. Note, 9.875%, 12/15/2001 4,358,938
---------------------------------------------------------------------------------------------
1,000,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 1,035,000
--------------------------------------------------------------------------------------------- ----------------
Total 34,334,625
--------------------------------------------------------------------------------------------- ----------------
SURFACE TRANSPORTATION--3.1%
---------------------------------------------------------------------------------------------
5,000,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 5,100,000
---------------------------------------------------------------------------------------------
7,750,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 8,505,625
---------------------------------------------------------------------------------------------
9,150,000 Statia Terminals International N.V., 1st Mtg. Note, 11.75%, 11/15/2003 9,561,750
---------------------------------------------------------------------------------------------
8,800,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 9,372,000
---------------------------------------------------------------------------------------------
5,000,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 4,625,000
--------------------------------------------------------------------------------------------- ----------------
Total 37,164,375
--------------------------------------------------------------------------------------------- ----------------
TELECOMMUNICATIONS & CELLULAR--11.1%
---------------------------------------------------------------------------------------------
2,500,000 American Communications Services Inc., Sr. Disc. Note, 0/12.75%, 4/1/2006 1,425,000
---------------------------------------------------------------------------------------------
1,700,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%, 3/15/2008 739,500
---------------------------------------------------------------------------------------------
15,900,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 9,977,250
---------------------------------------------------------------------------------------------
2,500,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/11.875%, 11/1/2006 1,500,000
---------------------------------------------------------------------------------------------
6,050,000 (a)Cellular Communications of PR, Inc., Sr. Sub. Note, 10.00%, 2/1/2007 5,883,625
---------------------------------------------------------------------------------------------
8,850,000 Cellular Communications International, Inc., Sr. Disc. Note, 13.25%
accrual, 8/15/2000 6,504,750
---------------------------------------------------------------------------------------------
4,500,000 Dial Call Communications, Inc., Unit, 0/12.25%, 4/15/2004 3,341,250
---------------------------------------------------------------------------------------------
3,250,000 (a)Dobson Communications Corp., Sr. Note, 11.75%, 4/15/2007 3,193,125
---------------------------------------------------------------------------------------------
2,850,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 3,149,250
---------------------------------------------------------------------------------------------
12,500,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note, 0/12.50%, 5/15/ 2006 8,250,000
---------------------------------------------------------------------------------------------
8,250,000 (a)McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 4,578,750
---------------------------------------------------------------------------------------------
13,750,000 Millicom International Cellular S.A., Sr. Disc. Note, 0/13.50%, 6/1/2006 9,281,250
---------------------------------------------------------------------------------------------
8,250,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 5,671,875
--------------------------------------------------------------------------------------------
$ 4,500,000 Nextlink Communications, L.L.C., Sr. Note, Series AI, 12.50%, 4/15/2006 $ 4,567,500
--------------------------------------------------------------------------------------------
7,825,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 6,983,813
--------------------------------------------------------------------------------------------
4,575,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 4,151,813
--------------------------------------------------------------------------------------------
9,600,000 PanAmSat, LP, Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 9,072,000
--------------------------------------------------------------------------------------------
3,000,000 PhoneTel Technologies, Inc., Sr. Note, 12.00%, 12/15/2006 3,045,000
--------------------------------------------------------------------------------------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT,
UNITS,
OR SHARES VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR--CONTINUED
---------------------------------------------------------------------------------------------
5,000,000 (a)Qwest Communications International, Inc., Sr. Note, 10.875%, 4/1/2007 5,025,000
---------------------------------------------------------------------------------------------
6,750,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 6,733,125
---------------------------------------------------------------------------------------------
14,725,000 Teleport Communications Group, Inc., Sr. Disc. Note, 0/11.125%, 7/1/2007 9,939,375
---------------------------------------------------------------------------------------------
1,900,000 Teleport Communications Group, Inc., Sr. Note, 9.875%, 7/1/2006 1,966,500
---------------------------------------------------------------------------------------------
7,750,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 6,936,250
---------------------------------------------------------------------------------------------
12,975,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 13,007,438
--------------------------------------------------------------------------------------------- ----------------
Total 134,923,439
--------------------------------------------------------------------------------------------- ----------------
UTILITIES--2.0%
---------------------------------------------------------------------------------------------
2,000,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 2,110,000
---------------------------------------------------------------------------------------------
13,500,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 14,478,750
---------------------------------------------------------------------------------------------
6,700,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 7,213,153
--------------------------------------------------------------------------------------------- ----------------
Total 23,801,903
--------------------------------------------------------------------------------------------- ----------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $1,123,190,892) 1,143,750,819
--------------------------------------------------------------------------------------------- ----------------
COMMON STOCKS--0.5%
- ------------------------------------------------------------------------------------------------------------
583 (b)Advanstar Corp., Warrants 0
---------------------------------------------------------------------------------------------
7,500 (b)Affiliated Newspaper Investments, Inc. 453,750
---------------------------------------------------------------------------------------------
4,696 (b)Atlantic Gulf Communities Corp. 25,828
---------------------------------------------------------------------------------------------
3,984 (b)Australis Holdings Pty Limited, 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 80,500
---------------------------------------------------------------------------------------------
185,579 (b)Grand Union Co. 661,125
---------------------------------------------------------------------------------------------
4,750 (b)Hosiery Corp. of America, Inc., Class A 38,000
---------------------------------------------------------------------------------------------
25,200 (b)ICF Kaiser International, Inc., Warrants 6,300
---------------------------------------------------------------------------------------------
3,750 (a)(b)IHF Capital, Inc., Warrants 244,687
---------------------------------------------------------------------------------------------
71,200 (a)(b)Kane Industries, Inc., Warrants 0
---------------------------------------------------------------------------------------------
353 (a)(b)MAFCO Acquisition, Warrants 0
---------------------------------------------------------------------------------------------
1,750 (b)Motels of America, Inc. 21,438
---------------------------------------------------------------------------------------------
4,500 (b)NEXTEL Communications, Inc., Warrants 90
--------------------------------------------------------------------------------------------
$ 9,025 (b)Pegasus Communications Corp. $ 99,282
--------------------------------------------------------------------------------------------
315,000 (a)(b)Specialty Foods Acquisition Corp. 137,970
--------------------------------------------------------------------------------------------
6,325 (b)Sterling Chemicals Holdings, Inc., Warrants 221,375
--------------------------------------------------------------------------------------------
30,000 (b)Sullivan Broadcast Holdings Inc., Class B 300,000
--------------------------------------------------------------------------------------------
46 (a)(b)Sullivan Graphics, Inc. 0
--------------------------------------------------------------------------------------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- -------------------------------------------------------------------------------------------- ----------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------------------
775,071 (b)Triton Group Ltd. 726,629
---------------------------------------------------------------------------------------------
30,000 (b)Uniroyal Technology Corp., Warrants 30,000
---------------------------------------------------------------------------------------------
359,450 (b)Vagabond Inns, Inc. 0
---------------------------------------------------------------------------------------------
187,218 (b)Walter Industries, Inc. 2,550,846
---------------------------------------------------------------------------------------------
14,400 (b)Wireless One, Inc., Warrants 0
--------------------------------------------------------------------------------------------- ----------------
TOTAL COMMON STOCKS (IDENTIFIED COST $30,199,488) 5,729,820
--------------------------------------------------------------------------------------------- ----------------
PREFERRED STOCKS--3.3%
- ------------------------------------------------------------------------------------------------------------
BANKING--0.2%
---------------------------------------------------------------------------------------------
120,000 California Federal Preferred Capital Corp., REIT Perpetual Pfd. Stock,
Series A, $2.28 2,955,000
--------------------------------------------------------------------------------------------- ----------------
BROADCAST RADIO & TV--1.5%
---------------------------------------------------------------------------------------------
30,711 (a)American Radio Systems Corp., Cumulative Exchangeable Pfd. Stock, $11.38 3,063,422
---------------------------------------------------------------------------------------------
46,000 (a)Chancellor Broadcasting Co., Exchangeable Pfd. Stock, $12.00 4,669,000
---------------------------------------------------------------------------------------------
4,275 Pegasus Communications Corp., Unit, Series A 4,210,875
---------------------------------------------------------------------------------------------
7,500 SFX Broadcasting, Inc., Exchangeable Pfd. Stock, Series E 731,250
---------------------------------------------------------------------------------------------
50,000 (a)Sinclair Broadcast Group, Inc., Pfd., Series A, $11.63 4,900,000
--------------------------------------------------------------------------------------------- ----------------
Total 17,574,547
--------------------------------------------------------------------------------------------- ----------------
INDUSTRIAL PRODUCTS & EQUIPMENT--0.3%
---------------------------------------------------------------------------------------------
3,575 (a)Fairfield Manufacturing Co., Inc., Exchangeable Pfd. Stock, Series A, $11.25 3,575,000
--------------------------------------------------------------------------------------------- ----------------
PRINTING & PUBLISHING--1.0%
---------------------------------------------------------------------------------------------
108,726 K-III Communications Corp., Cumulative PIK Pfd., Series B, 11.625% 11,878,241
--------------------------------------------------------------------------------------------- ----------------
TELECOMMUNICATIONS & CELLULAR--0.3%
---------------------------------------------------------------------------------------------
3,107 PanAmSat Corp., PIK Pfd., 12.75% 3,775,005
--------------------------------------------------------------------------------------------- ----------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $37,959,435) 39,757,793
--------------------------------------------------------------------------------------------- ----------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,191,349,815)(C) $ 1,189,238,432
--------------------------------------------------------------------------------------------- ----------------
</TABLE>
(a) Denotes a private placement security. At March 31, 1997, these securities
amounted to $157,116,811 which represents 12.9% of total net assets.
(b) Non-income producing security.
(c) The cost of investments for federal tax purposes amounts to $1,191,436,063.
The net unrealized depreciation of investments on a federal tax basis
amounts to $2,197,631 which is comprised of $48,064,787 appreciation and
$50,262,418 depreciation at March 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($1,217,995,674) at March 31, 1997.
The following acronyms are used throughout this portfolio:
GTD--Guaranty
LP--Limited Partnership
PIK--Payment in Kind
PLC--Public Limited Company
REIT--Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
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.
On January 22, 1997, Mid-American Waste filed for protection under Chapter 11 of
the Bankruptcy Code. The company has agreed to be acquired by USA Waste
Services, Inc. The timing and outcome of this potential transaction are
uncertain. Mid-American Waste has been deemed illiquid as a result of
contractual agreements relating to litigation.
FEDERATED HIGH INCOME BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
MARCH 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $1,191,349,815 and tax cost $1,191,436,063)
$ 1,189,238,432
- ----------------------------------------------------------------------------------------------------------------
Income receivable 26,793,925
- ----------------------------------------------------------------------------------------------------------------
Receivable for investments sold 10,957,317
- ----------------------------------------------------------------------------------------------------------------
Receivable for shares sold 7,617,953
- ---------------------------------------------------------------------------------------------------------------- ----------------
Total assets 1,234,607,627
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for investments purchased $ 10,020,077
- -------------------------------------------------------------------------------------------------
Payable for shares redeemed 4,719,771
- -------------------------------------------------------------------------------------------------
Payable to bank 1,056,134
- -------------------------------------------------------------------------------------------------
Accrued expenses 815,971
- ------------------------------------------------------------------------------------------------- -------------
Total liabilities 16,611,953
- ---------------------------------------------------------------------------------------------------------------- ----------------
Net Assets for 107,703,059 shares outstanding $ 1,217,995,674
- ---------------------------------------------------------------------------------------------------------------- ----------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------------------
Paid in capital $ 1,241,966,162
- ----------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,111,383)
- ----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (22,495,713)
- ----------------------------------------------------------------------------------------------------------------
Undistributed net investment income 636,608
- ---------------------------------------------------------------------------------------------------------------- ----------------
Total Net Assets $ 1,217,995,674
- ---------------------------------------------------------------------------------------------------------------- ----------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($599,735,773 / 53,025,919 shares outstanding) $11.31
- ---------------------------------------------------------------------------------------------------------------- ----------------
Offering Price Per Share (100/95.50 of $11.31)* $11.84
- ---------------------------------------------------------------------------------------------------------------- ----------------
Redemption Proceeds Per Share $11.31
- ---------------------------------------------------------------------------------------------------------------- ----------------
CLASS B SHARES:
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($513,169,109 / 45,382,057 shares outstanding) $11.31
- ---------------------------------------------------------------------------------------------------------------- ----------------
Offering Price Per Share $11.31
- ---------------------------------------------------------------------------------------------------------------- ----------------
Redemption Proceeds Per Share (94.50/100 of $11.31)** $10.69
- ---------------------------------------------------------------------------------------------------------------- ----------------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($105,090,792 / 9,295,083 shares outstanding) $11.31
- ---------------------------------------------------------------------------------------------------------------- ----------------
Offering Price Per Share $11.31
- ---------------------------------------------------------------------------------------------------------------- ----------------
Redemption Proceeds Per Share (99.00/100 of $11.31)** $11.20
- ---------------------------------------------------------------------------------------------------------------- ----------------
</TABLE>
*See "Investing In The Fund" in the Prospectus.
**See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------------------
Dividends $ 1,703,261
- ------------------------------------------------------------------------------------------------------------------
Interest 104,400,848
- ------------------------------------------------------------------------------------------------------------------ --------------
Total income 106,104,109
- ------------------------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee $ 7,658,537
- ---------------------------------------------------------------------------------------------------
Administrative personnel and services fee 771,550
- ---------------------------------------------------------------------------------------------------
Custodian fees 121,728
- ---------------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 839,263
- ---------------------------------------------------------------------------------------------------
Directors'/Trustees' fees 15,504
- ---------------------------------------------------------------------------------------------------
Auditing fees 21,187
- ---------------------------------------------------------------------------------------------------
Legal fees 5,246
- ---------------------------------------------------------------------------------------------------
Portfolio accounting fees 167,266
- ---------------------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 2,744,139
- ---------------------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 622,842
- ---------------------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 1,430,515
- ---------------------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 914,713
- ---------------------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 207,614
- ---------------------------------------------------------------------------------------------------
Share registration costs 209,106
- ---------------------------------------------------------------------------------------------------
Printing and postage 110,578
- ---------------------------------------------------------------------------------------------------
Insurance premiums 11,406
- ---------------------------------------------------------------------------------------------------
Taxes 147,205
- ---------------------------------------------------------------------------------------------------
Miscellaneous 57,286
- --------------------------------------------------------------------------------------------------- -------------
Total expenses 16,055,685
- ---------------------------------------------------------------------------------------------------
Waivers--
- -------------------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares $ (189,664 )
- -------------------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (1,064 )
- ------------------------------------------------------------------------------------- ------------
Total waivers (190,728)
- --------------------------------------------------------------------------------------------------- -------------
Net expenses 15,864,957
- ------------------------------------------------------------------------------------------------------------------ --------------
Net investment income 90,239,152
- ------------------------------------------------------------------------------------------------------------------ --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 3,736,400
- ------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments 14,085,861
- ------------------------------------------------------------------------------------------------------------------ --------------
Net realized and unrealized gain on investments 17,822,261
- ------------------------------------------------------------------------------------------------------------------ --------------
Change in net assets resulting from operations $ 108,061,413
- ------------------------------------------------------------------------------------------------------------------ --------------
</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>
YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996
- ------------------------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------------
Net investment income $ 90,239,152 $ 59,138,421
- -------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($4,383,958 and $1,232,954 net
gains, respectively, as computed for federal tax purposes) 3,736,400 2,635,257
- -------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 14,085,861 26,130,711
- ------------------------------------------------------------------------------------------- ------------------ ------------------
Change in net assets resulting from operations 108,061,413 87,904,389
- ------------------------------------------------------------------------------------------- ------------------ ------------------
NET EQUALIZATION CREDITS (DEBITS)-- 711,322 589,954
- ------------------------------------------------------------------------------------------- ------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------------------------
Class A Shares (52,284,090) (45,324,508)
- -------------------------------------------------------------------------------------------
Class B Shares (30,228,197) (10,149,148)
- -------------------------------------------------------------------------------------------
Class C Shares (6,903,310) (3,664,765)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income
- -------------------------------------------------------------------------------------------
Class A Shares -- (235,156)
- -------------------------------------------------------------------------------------------
Class B Shares -- (52,656)
- -------------------------------------------------------------------------------------------
Class C Shares -- (19,014)
- ------------------------------------------------------------------------------------------- ------------------ ------------------
Change in net assets resulting from distributions
to shareholders (89,415,597) (59,445,247)
- ------------------------------------------------------------------------------------------- ------------------ ------------------
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS
ALLOCATED TO NET INVESTMENT INCOME)--
- -------------------------------------------------------------------------------------------
Proceeds from sale of shares 505,365,871 357,820,276
- -------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 45,806,089 29,736,515
- -------------------------------------------------------------------------------------------
Cost of shares redeemed (178,213,093) (104,637,232)
- ------------------------------------------------------------------------------------------- ------------------ ------------------
Change in net assets resulting from share transactions 372,958,867 282,919,559
- ------------------------------------------------------------------------------------------- ------------------ ------------------
Change in net assets 392,316,005 311,968,655
- -------------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------------
Beginning of period 825,679,669 513,711,014
- ------------------------------------------------------------------------------------------- ------------------ ------------------
End of period (including undistributed net investment
income of $636,608 and $0, respectively) $ 1,217,995,674 $ 825,679,669
- ------------------------------------------------------------------------------------------- ------------------ ------------------
</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>
YEAR ENDED MARCH 31,
1997 1996 1995 1994(A) 1993 1992 1991
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.08 $ 10.54 $ 10.99 $ 11.19 $ 10.80 $ 8.79 $ 8.96
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 1.04 1.00 1.01 1.05 1.13 1.23 1.21
- ---------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.22 0.55 (0.43) (0.19) 0.41 1.99 (0.14)
- --------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
Total from investment operations 1.26 1.55 0.58 0.86 1.54 3.22 1.07
- --------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (1.03) (1.00) (1.03) (1.06) (1.15) (1.21) (1.24)
- ---------------------------------------------
Distributions in excess of net investment
income (b) -- (0.01) -- -- -- -- --
- --------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
Total distributions (1.03) (1.01) (1.03) (1.06) (1.15) (1.21) (1.24)
- --------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.31 $ 11.08 $ 10.54 $ 10.99 $ 11.19 $ 10.80 $ 8.79
- --------------------------------------------- --------- --------- --------- ----------- --------- --------- ---------
TOTAL RETURN (C) 11.88% 15.24% 5.74% 7.82% 15.39% 38.83% 14.20%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 1.21% 1.22% 1.21% 1.18% 1.08% 1.02% 1.03%
- ---------------------------------------------
Net investment income 9.19% 9.07% 9.64% 9.27% 10.44% 12.40% 14.62%
- ---------------------------------------------
Expense waiver/reimbursement (d) 0.03% 0.06% 0.05% 0.05% 0.08% -- --
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $599,736 $530,203 $448,040 $439,149 $417,015 $351,087 $252,147
- ---------------------------------------------
Portfolio turnover 55% 53% 52% 76% 49% 37% 32%
- ---------------------------------------------
<CAPTION>
1990 1989 1988
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.99 $ 11.20 $ 12.53
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 1.33 1.40 1.42
- ---------------------------------------------
Net realized and unrealized gain (loss) on
investments (1.98) (0.20) (1.31)
- --------------------------------------------- --------- --------- ---------
Total from investment operations (0.65) 1.20 0.11
- --------------------------------------------- --------- --------- ---------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (1.38) (1.41) (1.44)
- ---------------------------------------------
Distributions in excess of net investment
income (b) -- -- --
- --------------------------------------------- --------- --------- ---------
Total distributions (1.38) (1.41) (1.44)
- --------------------------------------------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.96 $ 10.99 $ 11.20
- --------------------------------------------- --------- --------- ---------
TOTAL RETURN (C) (6.82%) 11.34% 1.30%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 1.02% 1.00% 1.05%
- ---------------------------------------------
Net investment income 13.01% 12.55% 12.37%
- ---------------------------------------------
Expense waiver/reimbursement (d) -- -- --
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $282,149 $379,876 $360,409
- ---------------------------------------------
Portfolio turnover 40% 43% 52%
- ---------------------------------------------
</TABLE>
(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 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>
YEAR ENDED MARCH 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995(A)
--------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.08 $ 10.54 $ 10.57
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.96 0.95 0.51
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.21 0.51 (0.07)
- ------------------------------------------------------------------------------------------------ --------- --------- -----------
Total from investment operations 1.17 1.46 0.44
- ------------------------------------------------------------------------------------------------ --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Distributions from net investment income (0.94) (0.91) (0.47)
- ------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.01) --
- ------------------------------------------------------------------------------------------------ --------- --------- -----------
Total distributions (0.94) (0.92) (0.47)
- ------------------------------------------------------------------------------------------------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.31 $ 11.08 $ 10.54
- ------------------------------------------------------------------------------------------------ --------- --------- -----------
TOTAL RETURN (C) 10.99% 14.31% 4.47%
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 1.99% 2.03% 2.02%*
- ------------------------------------------------------------------------------------------------
Net investment income 8.39% 8.29% 9.47%*
- ------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) -- 0.01% 0.05%*
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $513,169 $238,055 $33,295
- ------------------------------------------------------------------------------------------------
Portfolio turnover 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>
YEAR ENDED MARCH 31,
--------------------------------------------
<S> <C> <C> <C> <C>
1997 1996 1995 1994(A)(B)
--------- --------- --------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.08 $ 10.54 $ 10.99 $ 11.18
- ---------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------
Net investment income 0.95 0.92 0.94 0.92
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.22 0.54 (0.44) (0.23)
- --------------------------------------------------------------------------------- --------- --------- --------- -------------
Total from investment operations 1.17 1.46 0.50 0.69
- --------------------------------------------------------------------------------- --------- --------- --------- -------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------
Distributions from net investment income (0.94) (0.91) (0.95) (0.88)
- ---------------------------------------------------------------------------------
Distributions in excess of net investment income (c) -- (0.01) -- --
- --------------------------------------------------------------------------------- --------- --------- --------- -------------
Total distributions (0.94) (0.92) (0.95) (0.88)
- --------------------------------------------------------------------------------- --------- --------- --------- -------------
NET ASSET VALUE, END OF PERIOD $ 11.31 $ 11.08 $ 10.54 $ 10.99
- --------------------------------------------------------------------------------- --------- --------- --------- -------------
TOTAL RETURN (D) 11.00% 14.35% 4.91% 6.23%
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------
Expenses 1.99% 2.00% 1.98% 1.99%*
- ---------------------------------------------------------------------------------
Net investment income 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) $105,091 $57,422 $32,376 $24,360
- ---------------------------------------------------------------------------------
Portfolio turnover 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
- --------------------------------------------------------------------------------
MARCH 31, 1997
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. Listed equity
securities are valued at the last sale price reported on a national
securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-
dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
equalization. The following reclassifications have been made to the
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
- ---------------------------------------------
<S> <C>
UNDISTRIBUTED NET
PAID-IN CAPITAL INVESTMENT INCOME
$711,322 $ (711,322)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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 Board of 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 March 31, 1997,
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
-------- ---------------- ----------------
<S> <C> <C>
Tracor, Inc., Sr. Sub. Note 2/28/1997 $ 3,984,080
First Nationwide Escrow Corp., Sr. Sub. Note 9/13/1996-9/19/1996 11,204,963
Delta Beverage Group, Inc., Sr. Note 12/17/1996 1,193,563
Electric Retailing Systems, International, Inc., Unit 1/21/1997 3,387,974
Australis Holdings Pty Limited, Sr. Disc. Note 10/29/1996 2,346,028
Diamond Cable Communications PLC, Sr. Disc. Note 2/21/1997-3/12/1997 2,181,257
TCI Satellite Entertainment, Inc., Sr. Sub. Disc. Note 2/14/1997 2,011,961
TCI Satellite Entertainment, Inc., Sr. Sub. Note 2/14/1997-3/27/1994 3,161,875
ISP Holding, Inc., Sr. Note 10/15/1996 5,584,376
ISP Holding, Inc., Sr. Note 4/2/1994 2,320,000
Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note 1/29/1997-2/11/1997 3,260,313
GFSI, Inc., Sr. Sub. Note 2/20/1997-2/21/1997 2,790,250
Glenoit Corp., Sr. Sub. Note 3/26/1997 3,393,506
ICON Fitness Corp., Sr. Disc. Note 11/15/1996 3,615,676
Renaissance Cosmetics, Inc., Sr. Note 2/3/1997 6,975,000
Kane Industries, Inc., Sr. Sub. Disc. Note 10/1/1986 1,784,512
Plastic Containers, Inc., Sr. Secd. Note 12/11/1996-12/12/1996 4,412,063
Allied Waste North America, Inc., Sr. Sub. Note 11/25/1996-3/5/1997 8,757,875
Fairchild Semiconductor Corp., Sr. Sub. Note 3/6/1997 5,481,500
International Home Foods, Inc., Sr. Sub. Note 10/29/1996 8,000,000
MBW Foods Inc., Sr. Sub. Note 2/5/1997-3/11/1997 4,045,000
Uniforet Inc., Sr. Note 10/7/1996-10/16/1996 4,483,750
Continental Global Group, Inc., Sr. Sub. Note 3/26/1997 4,425,000
Hawk Corp., Sr. Note 11/22/1996-3/26/1997 4,010,000
Forcenergy, Inc., Sr. Sub. Note 2/11/1997 6,953,660
Intertek Finance PLC, Sr. Sub. Note 10/31/1996 3,500,000
KinderCare Learning Centers, Inc., Sr. Sub. Note 2/10/1997-3/14/1997 5,765,313
Cellular Communications of PR, Inc., Sr. Sub. Note 8/17/1995-1/16/1997 5,797,683
Dobson Communications Corp., Sr. Sub. Note 2/25/1997 3,250,000
McLeod, Inc., Sr. Disc. Note 2/27/1997 5,040,605
Qwest Communications International, Inc., Sr. Note 3/25/1997 7,077,875
MAFCO Acquisition, Warrants 7/1/1991 80,625
IHF Capital, Inc., Warrants 11/4/1994 37,050
Kane Industries, Inc., Warrants 3/16/1990 62,656
Specialty Foods Acquisition Corp. 8/10/1993-8/27/1993 $ 250,415
Sullivan Graphics, Inc. 2/8/1990 217,112
Bar Technologies, Inc., Warrants 8/27/1996 0
American Radio Systems Corp., Cumulative
Exchangeable Pfd. Stock 1/27/1997-3/4/1997 3,073,944
Chancellor Broadcasting Co., Exchangeable Pfd. Stock 1/17/1997 4,600,000
Sinclair Broadcast Group, Inc. Pfd. 3/5/1997 5,000,000
Fairfield Manufacturing Co., Inc., Exchangeable Pfd. Stock 3/7/1997 3,575,000
</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 March 31, 1997, par value shares ($0.01 per share) authorized were as
follows:
<TABLE>
<CAPTION>
# OF PAR
VALUE
CAPITAL SHARES
CLASS NAME AUTHORIZED
- ---------- ---------------
<S> <C>
Class A Shares 4,000,000,000
Class B Shares 2,000,000,000
Class C Shares 2,000,000,000
Unclassified Shares 2,000,000,000
-----------------
10,000,000,000
-----------------
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 11,332,321 $ 127,059,070 9,541,576 $ 104,603,928
- ---------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 2,477,211 27,712,430 2,113,256 23,120,673
- ---------------------------------------------------------------------
Shares redeemed (8,642,783) (96,856,760) (6,317,775) (69,286,925)
- --------------------------------------------------------------------- ------------ -------------- ------------ --------------
Net change resulting from
Class A Share transactions 5,166,749 $ 57,914,740 5,337,057 $ 58,437,676
- --------------------------------------------------------------------- ------------ -------------- ------------ --------------
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 28,139,746 $ 316,878,366 19,654,299 $ 215,828,295
- ---------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 1,241,207 13,936,174 424,401 4,675,171
- ---------------------------------------------------------------------
Shares redeemed (5,486,949) (61,971,208) (1,750,975) (19,251,125)
- --------------------------------------------------------------------- ------------ -------------- ------------ --------------
Net change resulting from
Class B Share transactions 23,894,004 $ 268,843,332 18,327,725 $ 201,252,341
- --------------------------------------------------------------------- ------------ -------------- ------------ --------------
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,462,599 $ 61,428,435 3,399,750 $ 37,388,053
- ---------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 370,644 4,157,485 176,754 1,940,671
- ---------------------------------------------------------------------
Shares redeemed (1,720,918) (19,385,125) (1,466,781) (16,099,182)
- --------------------------------------------------------------------- ------------ -------------- ------------ --------------
Net change resulting from
Class C Share transactions 4,112,325 $ 46,200,795 2,109,723 $ 23,229,542
- --------------------------------------------------------------------- ------------ -------------- ------------ --------------
Net change resulting from
Fund share transactions 33,173,078 $ 372,958,867 25,774,505 $ 282,919,559
- --------------------------------------------------------------------- ------------ -------------- ------------ --------------
</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.
FEDERATED HIGH INCOME BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
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 March 31, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 891,980,666
- ------------------------------------------------------------------------------------------------------------------ --------------
Sales $ 542,421,761
- ------------------------------------------------------------------------------------------------------------------ --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
FEDERATED HIGH INCOME BOND FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Federated High Income Bond Fund, Inc. (a Maryland Corporation), including the
schedule of portfolio investments, as of March 31, 1997, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmation from brokers and, when
replies were not received, we carried out other alternative auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated High Income Bond Fund, Inc. as of March 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
April 24, 1997
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
J. Christopher Donahue J. Christopher Donahue
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President,
John E. Murray, Jr. Treasurer and Secretary
Wesley W. Posvar S. Elliott Cohan
Marjorie P. Smuts Assistant Secretary
</TABLE>
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]
A DYNAMIC AMERICAN MARKET
WHAT ARE HIGH YIELD BONDS?
High yield bonds are lower-rated corporate bonds that typically offer
higher
interest than high-quality, investment-grade bonds. The higher yields
can help compensate investors for the real and perceived risks that are
greater than that of higher-rated bonds. Among these risks are greater
price volatility, more risk to principal and income, and increased
possibilities for default.
Technically, Standard & Poor's Ratings Group defines high yield bonds as
any issue rated BB+ or less, while Moody's Investors Service, Inc.
defines high yield bonds as Ba1 and below.
The companies that issue high yield bonds usually fall into one of three
categories:
* smaller companies,
* rapidly growing companies,
* or private companies willing to issue public debt to accomplish
management or leveraged buyouts
In the 70's and 80's, lower rated corporate debt was termed `junk
bonds.''Over time, the reality and the perception of high yield bonds
has matured and stabilized, and they may now be used as a key tool for
leveraged financing. Although they still carry higher risks than other
types of bonds, high yield bonds are no longer dominated by highly
speculative issues or underwriters. Companies like AMF, Playtex, Revlon
and Viacom have been just a few `household-name'' issuers of high yield
bonds.
In short, high yield bonds are part of the mainstream financial
marketplace, with more than 50 investment firms actively trading and
issuing high yield debt. This market offers income opportunities to
investors. It has risen, phoenix-like, from 1990's $1.4 billion of new
issues to 1996's issuance of $73 billion.*
WHY DO THEY BELONG IN YOUR PORTFOLIO?
High yield bonds represent an asset class of bonds in a distinct market
that offers equally distinct advantages to investors: Income and broad
industry diversification in a bond investment that behaves, at times,
like a stock or bond.
For stock investors, high yield bonds can offer:
* A `stock-like'' investment that can rise and fall with the street's
perception of the strength of the issuing company.
* Attractive income that can help mitigate the volatility of equity
holdings.
For bond investors who want income, high yield bonds can offer:
* Less sensitivity to interest rate swings than long-term Treasury
securities.**
* A performance advantage over U.S. Treasury or government agency
holdings, consistent with the credit and interest rate risk associated
with corporate securities.**
The key to participation in this market? Understand what you're buying,
and that high yield issues have inherent credit risk. Rely on
professional bond managers and then seek out the broad diversification
of a mutual fund's portfolio. And, maintain an investment time frame of
at least three to five years. Mutual funds also provide for reinvestment
of income to build for future income needs.
[Graphic]
High yield bonds are issued by many major companies whose products and
services we use every day.
* Source: Chase Securities
** Unlike corporate bonds, U.S. government and Treasury securities are
guaranteed as to the payment of principal and interest.
20 YEARS...
OF INCOME TO SHAREHOLDERS
OF EXPERT BOND MANAGEMENT
OF ASSET GROWTH
1977
Federated High Income Bond Fund, Inc. created. Becomes one of only 10 bond
funds to invest primarily in high yield bonds.
Lehman Brothers offers the first of many `junk bonds.''
High yield bond market value totals $24 billion; $1 billion in new high yield
bonds issued.*
[Graphic]
1980
Investment banking firm Drexel Burnham Lambert champions high yield bond
market as vehicle for financing corporate takeovers, creating a financial
revolution. Over time, the number of underwriters expands to include Donaldson
Lufkin & Jenrette, First Boston, Goldman Sachs, Merrill Lynch and Morgan
Stanley. Currently, banks such as Bankers Trust, Chase Manhattan and
NationsBanc also emerge as major underwriters of high yield bonds.
FUND ASSET GROWTH:
$25 MILLION TO $1 BILLION
FUND'S YEAR-BY-YEAR GROWTH
1977
1977-$25.0 million
1979-$57.2 million
1981-$54.0 million
1982
1983-$153.9 million
1985-$212.9 million
* Source: Chase Securities
** Morningstar proprietary ratings reflect risk-adjusted performance through
3/31/97. They are subject to change every month. Ratings are calculated
from the funds' 3-, 5-, and 10-year average annual returns in excess of
90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. The
1-year rating is calculated using the same methodologies, but is not a
component of the overall ratings. The top 10% of funds in a rating
universe receive 5 stars; the next 22.5% receive 4 stars; the middle 35%
receive 3 stars; the next 22.5% receive 2 stars and the bottom 10% receive
1 star. Ratings quoted are for the Class A Shares. Star ratings for other
share classes may vary and are available only for classes with at least
three years of performance history. The fund's 1-, 3-, 5- and 10-year
ratings were: HHHH out of 1,696 taxable bond funds, HHHHH out of 1,172
taxable bond funds, HHHHH out of 630 taxable bond funds, and HHHHH out of
258 taxable bond funds, respectively, as of March 31, 1997.
[Graphic]
1989
After 12 consecutive years of growth, high yield bond market value peaks at
$244 billion.*
The decade's wave of restructuring transactions, including the RJR Nabisco
buyout, created tremendous wealth for investors and society as a whole.
During the 1980s, the Dow Jones Industrial Average tripled from 1,000 to 3,000
and the market value of public firms' equity more than doubled from $1.4 to
$3 trillion...Millions of new jobs were created in the process.''
- -Daniel Fischel, Payback, 1995, pp. 9-11
[Graphic]
1986
Fund assets top
$300 million
1987
1987-$390.1 million
1989-$379.8 million
1991-$252.1 million
1988
Largest buyout in American history, RJR Nabisco by Kohlberg Kravis Roberts &
Co. (KKR), for $25 billion; a leveraged buyout transaction financed almost
exclusively by debt, including billions of dollars in high yield bonds.
[Graphic]
1990
High yield bond market chills, losing 10% of
its value; new high yield bond issuance shrinks to $1.4 billion.* After
dominating the high yield market, Drexel Burnham Lambert collapses. Savings
and loan industry problems and U.S. recession also impact the high yield bond
market.
[Graphic]
1991
The total demise of the high yield market was a little
premature. More underwriters appear. Higher grade credit issuers come to
market successfully. High yield bond market begins road to recovery.
[Graphic]
1992
$46 billion in new high yield bond issues.*
[Graphic]
1997
In its 20th year of operation, Federated High Income Bond Fund receives HHHHH
overall rating from Morningstar for risk-adjusted performance, placing it in
the top 10% among 1,172 taxable bond funds as of March 31, 1997.** The fund's
portfolio consists of 260 issues, broadly diversified across industry sectors,
with an average rating of B.
1992
1993-$417.0 million
1995-$516.7 million
1997-$1.2 billion
[Graphic]
1993
Fund assets top $400 million, with 16,000 shareholders invested
[Graphic]
1996
Federated High Income Bond Fund reaches $1 billion in assets.
Issuance of high yield bonds tops $73 billion. High yield bond market value
totals $354 billion.* More investment banking firms and domestic and foreign
banks participate in leverage financing.
20th Anniversary
THE HIGH YIELD BOND MARKET
A HISTORY OF COMPETITIVE RETURNS
Growth of a $1,000 Initial Investment in Federated High Income Bond Fund vs.
the Average High Yield Bond Fund, High Grade Corporate Bond Fund, and U.S.
Government Fund.
Past performance does not guarantee future results. Chart portrays the growth
of a hypothetical $1,000 invested in Federated High Income Bond Fund-Class A
Shares and the Lipper High Current Yield Funds Average, Lipper A Rated
Corporate Debt Funds Average and Lipper General U.S. Government Funds Average
on 11/30/77 and reinvestment of dividends and capital gains. Figures do not
reflect the fund's sales charge. 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.
GRAPHIC PRESENTATION `A8'' OMITTED. SEE APPENDIX.
THE DYNAMIC HIGH YIELD MARKET
Growth in the High Yield Market's Total Value
GRAPHIC PRESENTATION `A9'' OMITTED. SEE APPENDIX.
Source: Chase Securities
[Graphic]
20 Years of Achievement
SPECIAL ANNUAL REPORT SUPPLEMENT
NOTES
- --------------------------------------------------------------------------------
[LOGO FEDERATED INVESTORS]
Federated Securities Corp., Distributor
Cusip 314195108
Cusip 314195207
Cusip 314195306
8042507 (5/97)
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 3/31/97. The `y'' axis is measured in increments of
$20,000 ranging from $0 to $160,000 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 $142,198 on 3/31/97.
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 3/31/97. The `y'' axis is measured in increments of
$10,000 ranging from $0 to $80,000 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 $72,202 on 3/31/97.
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 3/31/86 to 3/31/97. The `y'' axis is measured in increments
of $5,000 ranging from $0 to $20,000 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 $14,981 on 3/31/97.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class A Shares of Federated High Income Bond Fund, Inc., based on a 4.50%
sales charge, are represented by a solid line. The Lipper High Current
Yield Funds Average (the `LHCYFA'') is represented by a broken line and
the Lehman Brothers Single B Rated Index (the `LBSBRI'') is represented by
a dotted line. The line graph is a visual representation of a comparison of
change in value of a $20,000 hypothetical investment in the Class A Shares
of the fund, the LHCYFA and the LBSBRI. The `x'' axis reflects computation
periods from 11/30/77 to 3/31/97. The `y'' axis reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class A Shares, based on a 4.50% sales charge, as
compared to the LHCYFA and the LBSBRI. The ending values were $142,198,
$136,379, and $149,200, respectively. The legend in the bottom quadrant of
the graphic presentation indicates the fund's Class A Shares Average Annual
Total Returns for the one-year, five-year and 10-year periods ended 3/31/97
and from the fund's start of performance (11/30/77) to 3/31/97. The total
returns were 6.86%, 10.12%, 10.44% and 10.68%, respectively.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
A Shares of Federated High Income Bond Fund, Inc. are represented by a
solid line. The LHCYFA is represented by a broken line and the LBSBRI is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class A Shares of the fund, the LHCYFA and the LBSBRI. The `x'' axis
reflects computation periods from 3/31/87 to 3/31/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund's Class A Shares as
compared to the LHCYFA and the LBSBRI. The ending values were $26,990,
$23,992, and $26,521, respectively. The legend in the bottom quadrant of
the graphic presentation indicates the fund's Class A Shares Average Annual
Total Returns for the one-year, five-year and 10-year periods ended 3/31/97
and from the start of performance of Class A Shares (11/30/77) to 3/31/97.
The total returns were 6.86%, 10.12%, 10.44%, and 10.68%, respectively.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
B Shares of Federated High Income Bond Fund, Inc. are represented by a
solid line. The LHCYFA is represented by a broken line and the LBSBRI is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class B Shares of the fund, the LHCYFA and the LBSBRI. The `x'' axis
reflects computation periods from 9/27/94 to 3/31/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund's Class B Shares as
compared to the LHCYFA and the LBSBRI. The ending values were $12,762,
$13,003, and $13,690, respectively. The legend in the bottom quadrant of
the graphic presentation indicates the fund's Class B Shares Average Annual
Total Returns for the one-year period ended 3/31/97 and from the start of
performance of Class B Shares (9/27/94) to 3/31/97. The total returns were
5.01% and 10.21%, respectively.
A7. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
C Shares of Federated High Income Bond Fund, Inc. are represented by a
solid line. The LHCYFA is represented by a broken line and the LBSBRI is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class C Shares of the fund, the LHCYFA and the LBSBRI. The `x'' axis
reflects computation periods from 4/30/93 to 3/31/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund's Class C Shares as
compared to the LHCYFA and the LBSBRI. The ending values were $14,146,
$14,391, and $14,812, respectively. The legend in the bottom quadrant of
the graphic presentation indicates the fund's Class C Shares Average Annual
Total Returns for the one-year period ended 3/31/97 and from the start of
performance of Class C Shares (4/30/93) to 3/31/97. The total returns were
9.92% and 9.26%, respectively.
A8. The graphic presentation here displayed consists of a line graph,
which is a visual representation of the narrative text beside it. The Class
A Shares of Federated High Income Bond Fund, Inc. are represented by a
solid white line. The Lipper High Current Yield Funds Average is
represented by a solid black line. The Lipper A Rated Corporate Debt Funds
Average is represented by a broken black line. The Lipper General U.S.
Government Funds Average is represented by a broken white line. The line
graph is a visual representation of a comparison of change in value of a
$1,000 hypothetical investment on 11/30/77 in the Class A Shares of the
fund, the Lipper High Current Yield Funds Average, the Lipper A Rated
Corporate Debt Funds Average, and the Lipper General U.S. Government Funds
Average. The `x'' axis reflects computation periods from 1977 to 1997. The
`y'' axis reflects the cost of the investment. The right margin reflects
the ending value of the hypothetical investment in the fund's Class A
Shares as compared to the Lipper High Current Yield Funds Average, the
Lipper A Rated Corporate Debt Funds Average, and the Lipper General U.S.
Government Funds Average. The ending values were $7,448, $6,830, $5,165,
and $4,525, respectively.
A9. The graphic presentation here displayed consists of a bar chart. Each
bar represents the total value of the high yield market for each year from
1977 through 1996. The values are as follows: 1977-$24 billion; 1978-$26
billion; 1979-$28 billion; 1980-$30 billion; 1981-$32 billion; 1982-$35
billion; 1983-$43 billion; 1984-$59 billion; 1985-$83 billion; 1986-$138
billion; 1987-$183 billion; 1988-$207 billion; 1989-$244 billion; 1990-$215
billion; 1991-$201 billion; 1992-$199 billion; 1993-$234 billion; 1994-$270
billion; 1995-$297 billion; and 1996-$354 billion.
