[Graphic]
Federated
High Income Bond
Fund, Inc.
22ND SEMI-ANNUAL REPORT
SEPTEMBER 30, 1998
ESTABLISHED 1977
PRESIDENT'S MESSAGE
[Graphic]
Dear Fellow Shareholder:
Federated High Income Bond Fund, Inc. was created in 1977, and I am pleased to
present its 22nd Semi-Annual Report. On September 30, 1998, the fund's $1.9
billion in assets were widely diversified across approximately 300 carefully
researched high-yield issues that spanned the entire business and industrial
spectrum. The fund is designed to pursue high monthly income from a broadly
diversified portfolio of high-yield bonds.* In the past six months, fund
shareholders have been paid over $78 million in income dividends, and the fund
has paid 320 consecutive monthly dividends.
This report covers the first half of the fund's fiscal year, which is the
six-month period from April 1, 1998 through September 30, 1998. It begins with a
discussion with the fund's portfolio manager, Mark E. Durbiano, Senior Vice
President of Federated Advisers. Following his discussion are three additional
items of shareholder interest. First is a series of graphs showing the fund's
long-term investment performance as a high-yield bond fund. Second is a complete
listing of the fund's high-yielding corporate bond holdings, and third is the
publication of the fund's financial statements.
After an extended period of positive performance, the high-yield bond market was
negatively impacted by many of the same worldwide economic and political
problems that beset the stock markets. In this environment, the returns of
Federated High Income Bond Fund, Inc. were consistent with the market overall,
but were higher than that of the average high-yield bond fund. While a decrease
in share price impacted total return, the fund continued to pay a strong income
stream. Individual share class total return performance, including income
dividends, follows.**
TOTAL INCOME
RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
Class A Shares (4.30%) $0.50 $12.10 to $11.10 = (8.26%)
Class B Shares (4.67%) $0.45 $12.09 to $11.09 = (8.27%)
Class C Shares (4.67%) $0.45 $12.09 to $11.09 = (8.27%)
* Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
** Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price, for Class A, B, and C Shares were (8.60%), (9.91%), and (5.62%),
respectively.
Currently, high-yield bonds represent attractive long-term value compared to
U.S. Treasury securities, as investors are being compensated with significantly
higher yields for assuming the credit risk involved in owning these corporate
bonds.
Whenever the fund's share price declines, some investors become concerned. I
would like to point out that in the fund's 22-year history, share prices have
increased and decreased due to the stock market and, to some extent, due to
interest rates. In the past 10 years, shareholders saw the fund's share value
decline approximately 11% in 1990, rise over 57% in 1991, decline approximately
1% in 1994, and increase approximately 18% in 1995.
It is the nature of high-yield investing that income is generous, and share
price fluctuation is volatile. As I have always recommended buying more shares
when prices are down, I again believe that now is one of those buying
opportunities. I recommend adding to your account, as the fund's income return
is especially attractive.
Thank you for investing a portion of your wealth in Federated High Income Bond
Fund, Inc. Your questions, comments, or suggestions about the fund are always
welcome.
Very sincerely yours,
[Graphic]
Richard B. Fisher
President
November 15, 1998
INVESTMENT REVIEW
[Graphic]
Mark E. Durbiano
Senior Vice President
Federated Advisers
[Graphic]
AFTER BENEFITING FROM AN EXTENDED AND EXTREMELY FAVORABLE ECONOMIC ENVIRONMENT,
HIGH-YIELD BONDS WEAKENED IN THE SECOND AND THIRD QUARTERS OF 1998. WHAT IS YOUR
ANALYSIS OF THE HIGH- YIELD BOND MARKET DURING THE REPORTING PERIOD?
The high-yield bond market was negatively impacted by uncertain economic,
political, and financial conditions worldwide during the six-month reporting
period ended September 30, 1998. These conditions included economic and currency
problems in Asia and Russia, declining equity prices worldwide, and concerns
about the impact of the Asian and Russian problems on other emerging markets
such as Latin America. All of these uncertainties cast doubts on the ability of
the U.S. to be an "oasis of prosperity" in a world beset with economic problems.
From a high-yield bond perspective, a less robust U.S. economy would most likely
lead to lower debt protection measures for high-yield issuers and rising default
rates. These concerns led to widening credit spreads that more than offset the
positive impact of falling interest rates.
[Graphic]
HOW DID HIGH-YIELD BONDS PERFORM RELATIVE TO OTHER FIXED-INCOME INVESTMENTS
DURING THE REPORTING PERIOD?
High-yield bonds underperformed high-quality bonds during the six-month
reporting period ended September 30, 1998. For example, the Lehman Brothers
Aggregate Bond Index,* a measure of high-quality bond performance, returned
6.66%, which was far superior to the (3.50%) return generated by the Lehman
Brothers High Yield Bond Index* and the (6.84%) return of the Lipper High
Current Yield Funds Average.**
* The Lehman Brothers Aggregate Bond Index is an unmanaged index comprising
securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-
Backed Securities Index, and the Asset-Backed Securities Index. Lehman Brothers
High Yield Bond Index is an unmanaged index that covers the universe of
fixed-rate, publicly issued, non-investment grade debt securities. Actual
investments cannot be made in an index.
** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. These figures do not reflect sales charges.
Given the financial market and economic concerns that dominated the period,
investors left higher yielding securities and moved into relatively safe,
high-quality securities -- especially attractive were U.S. Treasury securities.
This was best illustrated by the widening of spreads between the First Boston
High Yield Bond Index*** and a comparable Treasury security. This spread, which
measured the extra yield investors demand to compensate for the credit risk
inherent in high-yield bonds, went from 3.78% on March 31, 1998 to 6.91% on
September 30, 1998.
The following graph illustrates the spread difference between Treasuries and
high-yield corporate bonds.
[Graphic]
Past performance is not indicative of future results. This chart is for
illustrative purposes only and does not represent the performance of any
particular fund.
*** The First Boston High Yield Bond Index is an unmanaged index that serves
as a benchmark to evaluate the performance of low quality bonds. Actual
investments cannot be made in an index.
[Graphic]
HOW DID FEDERATED HIGH INCOME BOND FUND, INC.
PERFORM OVER THE REPORTING PERIOD?
Relative to the Lipper universe of high-yield bond funds, the fund performed
very well, although the fund's absolute returns were negative, which was
consistent with the overall asset class. For the six-month period ended
September 30, 1998, the fund's Class A, B, and C Shares produced total returns,
based on net asset value, of (4.30%), (4.67%), and (4.67%), respectively, which
were far superior to the Lipper High Current Yield Funds Average return of
(6.84%).+
[Graphic]
WHAT FACTORS WERE THE MAJOR INFLUENCES ON FUND
PERFORMANCE?
The fund's performance was positively impacted by several factors. First, the
fund's higher quality bias, which has been part of our investment philosophy
since late 1997, benefited the fund given the relative outperformance of higher
quality corporate issuers. Second, the fund was underweighted in cyclical
industries such as forest products and metals, which underperformed given
recessionary fears and falling commodity prices. The fund was also underweighted
in the energy sector, which underperformed with falling oil prices. The fund had
minimal exposure to the emerging markets sector, which positively impacted
performance versus the Lipper average. Also, the announced merger between TCI
and AT&T early in the period caused most cable bonds, an overweighted sector for
the fund, to trade higher. In addition, our higher quality holdings, such as
VIACOM and QWEST COMMUNICATIONS, performed well as they held spread in an
overall spread widening environment.
Finally, several issues performed strongly during the period based on corporate
actions such as tenders or an outright sale of the issuer. These would include:
FIRST NATIONWIDE, CHEMICAL LEHMAN, CHARTER COMMUNICATIONS, SYGNET WIRELESS,
SULLIVAN BROADCASTING, TRACOR, and CURTIS BURNS. On the negative side, the fund
was hurt by its overweighted position in the telecommunications sector as well
as its overweighted position in zero/step-up securities (many of which are in
the telecommunications sector).
+ Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate so an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns for the period, based on offering price,
for Class A, B, and C Shares were (8.60%), (9.91%), and (5.62%), respectively.
[Graphic]
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF SEPTEMBER 30, 1998?
The top holdings out of more than 250 total issues were as
follows:
NAME PERCENTAGE OF
NET ASSETS
International Cabletel, Inc. 2.40%
Chancellor Media Corp. 2.10%
Tenet Healthcare Corp. 2.00%
Nextel/Nextel International 1.90%
Viacom, Inc. 1.90%
Premier Parks/Six Flags 1.70%
Level 3 Communications 1.70%
Sinclair Broadcast Group, Inc. 1.70%
Intermedia Communications 1.60%
Telewest Plc 1.50%
TOTAL 18.50%
[Graphic]
AS 1998 DRAWS TO A CLOSE, WHAT IS YOUR OUTLOOK FOR THE HIGH-
YIELD BOND MARKET, AND WHAT ARE YOUR SECTOR STRATEGIES GOING
FORWARD?
The performance of high-yield bonds for the balance of 1998 will be heavily
influenced by the performance of the U.S. economy and domestic equity prices. We
expect the U.S. economic expansion to continue to be driven by low interest
rates, high consumer confidence, high rates of employment, and an accommodative
Federal Reserve Board. However, the rate of growth may slow considerably from
1997's brisk pace, as problems in Asia and other emerging markets negatively
impact U.S. economic activity.
We believe markets will continue to be volatile but, at the current spread
level, high-yield bonds offer considerable value from a longer term perspective.
It is worth noting that the current spread levels have not been seen on
high-yield bonds since 1991.
From a portfolio perspective, we will continue to maintain our higher quality
bias as we believe corporate earning growth will slow. We will remain
overweighted in the telecommunication, cable television, and broadcasting
sectors on the belief that secular changes coupled with stable-to-growing demand
will make these sectors relatively strong performers. However, as spreads have
widened considerably, we expect to be opportunistic buyers over the next six to
twelve months in selected lower rated issues and cyclical issues that have
substantially underperformed.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED HIGH INCOME BOND FUND,
INC.
INITIAL INVESTMENT:
IF YOU MADE AN INITIAL INVESTMENT OF $21,000 IN 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
$166,428 ON 9/30/98. YOU WOULD HAVE EARNED A 10.45%* AVERAGE ANNUAL TOTAL RETURN
FOR THE INVESTMENT LIFESPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/98, the Class A Shares' average annual 1-year, 5-year, and 10- year
total returns were (3.68%), 8.50%, and 10.79%, respectively. Class B Shares'
average annual 1-year and since inception (9/28/94) total returns were (5.50%)
and 9.37%, respectively. Class C Shares' average annual 1- year, 5-year, and
since inception (5/1/93) total returns were (1.01%), 8.62%, and 8.53%,
respectively.**
Please see Appendix A.1.
* 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 that an investor's
shares, when redeemed, may be worth more or less than their original cost.
** The total return stated takes into account the 4.50% sales charge for Class
A Shares, the 5.50% contingent deferred sales charge for Class B Shares, and the
1.00% contingent deferred sales charge for Class C Shares.
FEDERATED HIGH INCOME BOND FUND, INC.
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH
YEAR FOR 20 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS)
GREW TO $81,430.
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 $21,000, but
your account would have reached a total value of $81,430* by 9/30/98. You would
have earned an average annual
total return of 11.25%.
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.
Please see Appendix A.2.
* This chart assumes that the subsequent annual investments are made on the
last day of the anniversary month. No method of investing can guarantee a profit
or protect against loss in down markets. However, by investing regularly over
time and buying shares at various prices, investors can purchase more shares at
lower prices. All accumulated shares have the ability to pay income to the
investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
FEDERATED HIGH INCOME BOND FUND, INC.
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR HIGH MONTHLY INCOME
Chuck Colby is a fictional investor who, like many other shareholders, is
looking for high monthly income opportunities.
Chuck is an attorney on his way up the corporate ladder. On September 30, 1988,
he invested $5,000 in the Class A Shares of Federated High Income Bond Fund,
Inc.
As this chart shows, over 10 years, his original $5,000 investment has grown to
$13,935. This represents a 10.79% average annual total return.* For Chuck, that
means extra money toward the construction of his first home.
Please see Appendix A.3.
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED HIGH INCOME BOND FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--90.8%
AEROSPACE & DEFENSE--0.0%
$ 1,000,000 Aviation Sales Co., Sr. Sub. Note, 8.125%, 2/15/2008 $ 935,000
AUTO/TRUCK--0.2%
4,000,000(a)HDA Parts System, Inc., Sr. Sub. Note, 12.00%, 8/1/2005 3,620,000
AUTOMOBILE--2.1%
4,725,000 Accuride Corp., Sr. Sub. Note, 9.25%, 2/1/2008 4,559,625
4,425,000 Aftermarket Technology Co., Sr. Sub. Note, Series B, 12.00%,
8/1/2004 4,718,156
1,875,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%,
8/1/2004 1,999,219
14,025,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%,
4/15/2006 14,761,313
6,000,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 6,420,000
2,000,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 2,012,500
2,550,000 OshKosh Truck Corp., Sr. Sub., 8.75%, 3/1/2008 2,435,250
4,125,000 Oxford Automotive, Inc., Sr. Sub. Note, 10.125%, 6/15/2007 4,063,125
Total 40,969,188
BANKING--1.1%
8,600,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 9,454,324
11,400,000(a)GS Escrow Corp., Sr. Note, 7.125%, 8/1/2005 11,705,178
Total 21,159,502
BEVERAGE & TOBACCO--0.4%
7,375,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 7,043,125
BROADCAST RADIO & TV--8.1%
11,800,000 ACME Television, LLC, Sr. Disc. Note, 0/10.875%, 9/30/2004 9,263,000
11,625,000 Big City Radio, Inc., Company Guarantee, 0/11.25%, 3/15/2005 8,079,375
5,412,100 CBS Radio, Inc., Sub. Deb., 11.375%, 1/15/2009 6,196,854
4,375,000 Capstar Broadcasting Partners, Inc., Sr. Sub. Note, 9.25%,
7/1/2007 4,418,750
5,200,000 Chancellor Media Corp., Company Guarantee, 10.50%, 1/15/2007 5,538,000
15,975,000 Chancellor Media Corp., Sr. Sub. Note, Series B, 8.125%,
12/15/2007 15,535,687
7,500,000 Chancellor Media Corp., Sr. Sub. Note, Series B, 8.75%,
6/15/2007 7,500,000
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BROADCAST RADIO & TV--CONTINUED
$ 2,500,000(a)Chancellor Media Corp., Sr. Sub. Note, 9.00%, 10/1/2008 $ 2,525,000
10,000,000 Chancellor Media Corp., Sr. Sub. Note, 9.375%, 10/1/2004 10,225,000
5,125,000 Cumulus Media, Inc., Sr. Sub. Note, 10.375%, 7/1/2008 5,201,875
20,625,000 Fox/Liberty Networks, LLC, Sr. Disc. Note, 0/9.75%, 8/15/
2007 13,612,500
5,900,000 Fox/Liberty Networks, LLC, Sr. Note, 8.875%, 8/15/2007 5,811,500
3,000,000 Lamar Advertising Co., Sr. Sub. Note, 8.625%, 9/15/2007 3,090,000
5,400,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 5,805,000
3,200,000 NWCG Holding Corp., Sr. Disc. Note, 13.50%, 6/15/1999 3,081,312
9,500,000 Outdoor Systems, Inc., Sr. Sub. Note, 8.875%, 6/15/2007 9,975,000
5,450,000 Outdoor Systems, Inc., Sr. Sub. Note, 9.375%, 10/15/2006 5,804,250
5,037,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 5,565,885
4,975,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 9/30/
2005 5,174,000
10,850,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 8.75%, 12/15/
2007 10,741,500
4,275,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 9.00%, 7/15/
2007 4,296,375
5,500,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 5,775,000
2,000,000 Young Broadcasting, Inc., Sr. Sub. Note, 11.75%, 11/15/2004 2,140,000
1,000,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 1,002,500
Total 156,358,363
BUILDING & DEVELOPMENT--0.8%
5,100,000 American Architectural Products Corp., Sr. Note, 11.75%,
12/1/2007 4,768,500
5,850,000 American Builders & Contractors Supply Co., Inc., Sr. Sub.
Note, 10.625%, 5/15/2007 5,389,312
4,600,000 Building Materials Corp. of America, Sr. Note, 8.625%, 12/
15/2006 4,703,500
Total 14,861,312
BUSINESS EQUIPMENT & SERVICES--2.3%
3,800,000(a)American Business Information, Sr. Sub. Note, 9.50%, 6/15/
2008 3,439,000
10,525,000 Dialog Corp. PLC, Sr. Sub. Note, 11.00%, 11/15/2007 10,867,062
4,850,000 Electronic Retailing Systems International, Inc., Sr. Disc.
Note, 0/13.25%, 2/1/2004 1,867,250
8,325,000 Fisher Scientific International, Inc., Sr. Sub. Note, 9.00%,
2/1/2008 8,033,625
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
BUSINESS EQUIPMENT & SERVICES--CONTINUED
$ 13,600,000(a)U.S. Office Products Co., Sr. Sub. Note, 9.75%, 6/15/2008 $ 11,628,000
5,166,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/
2005 5,785,920
3,300,000 United Stationers Supply Co., Sr. Sub. Note, 8.375%, 4/15/
2008 3,283,500
Total 44,904,357
CABLE TELEVISION--10.6%
91,523 Australis Media Ltd., Sr. Disc. Note, 0/15.75%, 5/15/2003 2,288
5,350,000 Australis Media Ltd., Unit, 0/14.00%, 5/15/2003 133,750
3,000,000 CSC Holdings, Inc., Sr. Note, 7.875%, 12/15/2007 3,112,500
1,075,000 CSC Holdings, Inc., Sr. Sub. Deb., 9.875%, 2/15/2013 1,198,625
10,100,000 CSC Holdings, Inc., Sr. Sub. Note, 9.25%, 11/1/2005 10,655,500
4,175,000 CSC Holdings, Inc., Sr. Sub. Note, 9.875%, 5/15/2006 4,550,750
3,325,000 Charter Communications Holdings, Inc., Sr. Disc. Note, 0/
14.00%, 3/15/2007 2,876,125
5,875,000 Charter Communications Southeast, LP, Sr. Note, 11.25%, 3/
15/2006 6,491,875
5,750,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 6,123,750
3,250,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 2,648,750
13,275,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%,
2/15/2007 9,226,125
7,175,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/11.75%,
12/15/2005 5,740,000
3,750,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/13.25%,
9/30/2004 3,618,750
8,425,000(a)Diva Systems Corp., Unit, 0/12.625%, 3/1/2008 2,906,625
13,025,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/
13.125%, 3/15/2004 11,787,625
2,600,000 Echostar DBS Corp., Company Guarantee, 12.50%, 7/1/2002 2,756,000
10,850,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/
10.875%, 10/15/2003 10,904,250
14,525,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%,
2/1/2006 11,837,875
9,200,000 International Cabletel, Inc., Sr. Disc. Note, 0/12.75%, 4/
15/2005 8,188,000
5,300,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 5,578,250
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
CABLE TELEVISION--CONTINUED
$ 2,150,000 Lenfest Communications Inc., Sr. Sub. Note, 10.50%, 6/15/
2006 $ 2,445,625
5,600,000 Lenfest Communications Inc., Sr. Sub. Note, 8.25%, 2/15/2008 5,712,000
24,700,000(a)NTL, Inc., Sr. Defd. Cpn. Note, 0/9.75%, 4/1/2008 15,067,000
4,000,000 Pegasus Communications Corp., Sr. Note, 9.625%, 10/15/2005 3,880,000
4,500,000 Pegasus Media, Note, 12.50%, 7/1/2005 4,927,500
4,225,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 12/1/2007 4,668,625
7,225,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 3/15/2005 7,983,625
6,500,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/
2015 7,393,750
34,225,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 28,406,750
14,150,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 5,943,000
15,650,000 United International Holdings, Inc., Sr. Secd. Disc. Note,
0/10.75%, 2/15/2008 7,512,000
Total 204,277,288
CHEMICALS & PLASTICS--2.3%
1,350,000 Buckeye Cellulose Corp., Sr. Sub. Note, 8.50%, 12/15/2005 1,336,500
6,025,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 6,085,250
2,500,000 Foamex L.P., Sr. Sub. Note, 13.50%, 8/15/2005 2,962,500
5,600,000 ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 5,838,000
3,270,000 ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 3,449,850
4,950,000 Polymer Group, Inc., Sr. Sub. Note, 8.75%, 3/1/2008 4,702,500
15,750,000 Polymer Group, Inc., Sr. Sub. Note, 9.00%, 7/1/2007 15,120,000
9,625,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%,
8/15/2008 4,379,375
Total 43,873,975
CLOTHING & TEXTILES--1.6%
4,175,000 Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note,
10.00%, 1/15/2007 4,195,875
6,025,000 Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 5,211,625
4,100,000 GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 3,813,000
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
CLOTHING & TEXTILES--CONTINUED
$ 7,075,000 Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 $ 6,924,656
6,750,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 6,969,375
4,800,000 Pillowtex Corp., Sr. Sub. Note, 9.00%, 12/15/2007 4,560,000
Total 31,674,531
CONGLOMERATES--0.4%
9,125,000 Eagle Picher Industries, Inc., Sr. Sub. Note, 9.375%,
3/1/2008 8,349,375
CONSUMER PRODUCTS--4.7%
13,500,000(a)Albecca, Inc., Sr. Sub. Note, 10.75%, 8/15/2008 12,993,750
4,300,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 4,149,500
3,975,000 Amscan Holdings, Inc., Sr. Sub. Note, 9.875%, 12/15/2007 3,517,875
7,500,000 Chattem, Inc., Sr. Sub. Note, 8.875%, 4/1/2008 7,312,500
1,400,000(a)Diamond Brands Operating Corp., Sr. Sub. Note, 10.125%,
4/15/2008 1,309,000
2,375,000(a)Diamond Brands, Inc., Sr. Disc. Deb., 0/12.875%, 4/15/2009 1,080,625
4,050,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/
2002 4,272,750
6,900,000 ICON Fitness Corp., Sr. Disc. Note, 0/14.00%, 11/15/2006 103,500
1,000,000 NBTY, Inc., Sr. Sub. Note, 8.625%, 9/15/2007 972,500
10,175,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/
2003 10,353,062
1,475,000 Playtex Products, Inc., Sr. Note, 8.875%, 7/15/2004 1,504,500
3,500,000 Revlon Consumer Products Corp., Sr. Note, 8.125%, 2/1/2006 3,456,250
24,625,000 Revlon Consumer Products Corp., Sr. Sub. Note, 8.625%, 2/1/
2008 24,132,500
5,050,000 Sealy Mattress Co., Company Guarantee, 12/15/2007 3,194,125
2,400,000 Sealy Mattress Co., Sr. Sub. Note, 9.875%, 12/15/2007 2,376,000
5,250,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 5,565,000
4,950,000(a)The Boyds Collection, Ltd., Sr. Sub. Note, 9.00%, 5/15/2008 4,727,250
Total 91,020,687
CONTAINER & GLASS PRODUCTS--0.9%
2,150,000(a)Ball Corp., Sr. Sub. Note, 8.25%, 8/1/2008 2,225,250
4,350,000 Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 4,524,000
11,075,000 Tekni-Plex, Inc., Sr. Sub. Note, 9.25%, 3/1/2008 10,770,437
Total 17,519,687
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
ECOLOGICAL SERVICES & EQUIPMENT--1.3%
$ 17,325,000 Allied Waste Industries, Inc., Sr. Disc. Note, 0/11.30%, 6/
1/2007 $ 12,907,125
10,800,000 Allied Waste North America, Inc., Company Guarantee, 10.25%,
12/1/2006 11,826,000
Total 24,733,125
ELECTRONICS--1.0%
3,075,000(a)PX Escrow Corp., Sr. Sub. Disc. Note, 0/9.625%, 2/1/2006 1,768,125
12,650,000(a)Telecommunications Techniques Co., LLC, Sr. Sub. Note,
9.75%, 5/15/2008 11,448,250
1,325,000 Viasystems, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 1,166,000
5,425,000 Viasystems, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 4,774,000
Total 19,156,375
FARMING & AGRICULTURE--0.2%
3,825,000 Purina Mills, Inc., Sr. Sub. Note, 9.00%, 3/15/2010 3,767,625
FINANCIAL INTERMEDIARIES--0.3%
6,000,000 ContiFinancial Corp., Sr. Note, 8.125%, 4/1/2008 5,213,160
FOOD & DRUG RETAILERS--1.5%
5,775,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 6,670,125
4,750,000 Community Distributors, Inc., Sr. Note, 10.25%, 10/15/2004 4,465,000
4,700,000 DiGiorgio Corp., Sr. Note, 10.00%, 6/15/2007 4,394,500
9,525,000 Jitney-Jungle Stores of America, Inc., Sr. Sub. Note,
10.375%, 9/15/2007 9,572,625
150,000 Meyer (Fred), Inc., Company Guarantee, 7.45%, 3/1/2008 158,304
3,200,000 Stater Brothers Holdings, Inc., Sr. Sub. Note, 9.00%, 7/1/
2004 3,056,000
Total 28,316,554
FOOD PRODUCTS--1.3%
3,250,000 Aurora Foods, Inc., Sr. Sub. Note, 9.875%, 2/15/2007 3,493,750
5,350,000 Aurora Foods, Inc., Sr. Sub. Note, 9.875%, 2/15/2007 5,751,250
700,000 Aurora Foods, Inc., Sr. Sub. Note, Series E, 8.75%, 7/1/2008 724,500
3,500,000 Eagle Family Foods, Inc., Sr. Sub. Note, 8.75%, 1/15/2008 3,167,500
10,950,000 International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/
1/2006 11,607,000
Total 24,744,000
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FOOD SERVICES--0.9%
$ 16,975,000 AmeriServe Food Distribution, Inc., Sr. Sub. Note, 10.125%,
7/15/2007 $ 15,192,625
4,965,000 Nebco Evans Holding Co., Sr. Disc. Note, 0/12.375%, 7/15/
2007 2,507,325
Total 17,699,950
FOREST PRODUCTS--1.6%
4,250,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 4,377,500
7,200,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 6,660,000
5,850,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 6,405,750
8,950,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 8,905,250
2,675,000 Stone Container Corp., Sr. Note, 12.58%, 8/1/2016 2,661,625
1,000,000 Stone Container Corp., Unit, 12.25%, 4/1/2002 965,000
Total 29,975,125
HEALTHCARE--3.7%
4,000,000 Alliance Imaging, Inc., Sr. Sub. Note, 9.625%, 12/15/2005 3,700,000
5,825,000 CONMED Corp., Sr. Sub. Note, 9.00%, 3/15/2008 5,388,125
9,350,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 10,098,000
5,675,000(a)Everest Healthcare Services Corp., Sr. Sub. Note, 9.75%, 5/
1/2008 5,533,125
3,100,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 10/1/
2006 3,022,500
3,250,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/
2005 3,250,000
3,275,000 Hudson Respiratory Care, Inc., Sr. Sub. Note, 9.125%, 4/15/
2008 2,374,375
2,000,000(a)Tenet Healthcare Corp., Sr. Note, 7.625%, 6/1/2008 1,990,300
11,250,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 11,596,725
13,300,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 1/15/2007 13,865,250
10,050,000(a)Tenet Healthcare Corp., Sr. Sub., 8.125%, 12/1/2008 10,225,875
Total 71,044,275
HOME PRODUCTS & FURNISHINGS--0.4%
8,550,000 Falcon Building Products, Inc., Sr. Sub. Disc. Note, 0/
10.50%, 6/15/2007 4,745,250
2,000,000 Falcon Building Products, Inc., Sr. Sub. Note, 9.50%, 6/15/
2007 1,690,000
2,025,000 Werner Holdings Enterprises, Inc., Sr. Sub. Note, 10.00%,
11/15/2007 1,933,875
Total 8,369,125
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
HOTELS, MOTELS, INNS & CASINOS--1.2%
$ 4,550,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 $ 4,777,500
17,625,000 HMH Properties, Inc., Sr. Note, Series B, 7.875%, 8/1/2008 17,492,812
Total 22,270,312
INDUSTRIAL PRODUCTS & EQUIPMENT--4.6%
5,975,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 5,885,375
4,600,000 Anchor Lamina, Inc., Sr. Sub. Note, 9.875%, 2/1/2008 3,749,000
6,650,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%,
7/15/2005 7,198,625
6,895,000 Continental Global Group, Inc., Sr. Note, 11.00%, 4/1/2007 6,239,975
6,850,000 Euramax International Plc, Sr. Sub. Note, 11.25%, 10/1/2006 6,815,750
5,000,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%,
7/1/2001 5,100,000
1,800,000(a)Grove Holdings, LLC, Sr. Disc. Deb., 0/11.625%, 5/1/2009 783,000
1,600,000(a)Grove Worldwide, LLC, Sr. Sub. Note, 9.25%, 5/1/2008 1,400,000
1,335,000 Hawk Corp., Sr. Note, 10.25%, 12/1/2003 1,381,725
2,900,000 International Utility Structures, Inc., Sr. Sub. Note,
10.75%, 2/1/2008 2,566,500
6,325,000(a)JTM Industries, Inc., Sr. Sub. Note, 10.00%, 4/15/2008 6,419,875
4,125,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%,
8/15/2005 4,310,625
4,000,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%,
8/15/2005 4,180,000
6,850,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 4/15/2007 7,535,000
5,650,000 Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 5,791,250
5,000,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 5,000,000
12,075,000 WESCO Distribution, Inc., Sr. Sub. Note, 9.125%, 6/1/2008 11,773,125
6,750,000 WESCO International, Inc., Sr. Disc. Note, 0/11.125%, 6/1/
2008 3,678,750
Total 89,808,575
LEISURE & ENTERTAINMENT--4.9%
10,502,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 6,458,730
2,450,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 2,168,250
4,700,000(a)Loews Cineplex Entertainment, Inc., Sr. Sub. Note, 8.875%,
8/1/2008 4,664,750
11,325,000 Premier Parks, Inc., Sr. Disc. Note, 0/10.00%, 4/1/2008 7,134,750
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
LEISURE & ENTERTAINMENT--CONTINUED
$ 4,000,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 $ 4,340,000
2,650,000 Premier Parks, Inc., Sr. Note, 9.25%, 4/1/2006 2,643,375
500,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 535,000
12,000,000(a)Regal Cinemas, Inc., Sr. Sub. Note, 9.50%, 6/1/2008 12,180,000
17,450,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%,
6/15/2005 18,933,250
34,925,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 35,841,781
Total 94,899,886
MACHINERY & EQUIPMENT--1.5%
7,025,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 7,130,375
8,375,000 Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 8,500,625
5,150,000 Columbus McKinnion Corp., Sr. Sub. Note, 8.50%, 4/1/2008 4,866,750
6,300,000(a)National Equipment Services, Inc., Sr. Sub. Note, 10.00%,
11/30/2004 5,827,500
2,994,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 3,428,130
Total 29,753,380
METALS & MINING--0.4%
6,900,000(a)AEI Holding Co., Inc., Sr. Note, 10.00%, 11/15/2007 6,486,000
2,000,000 Anker Coal Group, Inc., Sr. Note, 9.75%, 10/1/2007 1,210,000
1,875,000 Royal Oak Mines, Inc., Sr. Sub. Note, 12.75%, 8/15/2006 796,875
Total 8,492,875
OIL & GAS--3.3%
5,925,000 Chiles Offshore, LLC, Sr. Note, 10.00%, 5/1/2008 4,888,125
10,250,000(a)Continental Resources, Inc., Sr. Sub. Note, 10.25%, 8/1/2008 8,507,500
3,275,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 2,529,937
12,225,000 Dailey Petroleum Services Corp., Company Guarantee, 9.50%,
2/15/2008 7,396,125
12,225,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 8.50%,
2/15/2007 8,802,000
4,700,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%, 11/
1/2006 3,478,000
6,575,000 KCS Energy, Inc., Sr. Sub. Note, 8.875%, 1/15/2008 5,358,625
2,875,000 Nuevo Energy Co., Sr. Sub. Note, 8.875%, 6/1/2008 2,896,563
6,150,000 Ocean Energy, Inc., Sr. Sub. Note, 10.375%, 10/15/2005 6,519,000
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
OIL & GAS--CONTINUED
$ 2,575,000 Pacalta Resources Ltd., Sr. Note, 10.75%, 6/15/2004 $ 2,278,875
3,700,000 Pride Petroleum Services, Inc., Sr. Note, 9.375%, 5/1/2007 3,496,500
1,550,000 The Houston Exploration Co., Sr. Sub. Note, 8.625%, 1/1/2008 1,511,250
3,025,000(a)Universal Compression Holdings, Inc., Sr. Disc. Note, 0/
11.375%, 2/15/2009 1,663,750
9,100,000(a)Universal Compression Holdings, Inc., Sr. Disc. Note, 0/
9.875%, 2/15/2008 5,323,500
Total 64,649,750
PRINTING & PUBLISHING--2.1%
11,850,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note, 0/
13.25%, 7/1/2006 11,672,250
3,750,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/
2004 4,068,750
5,225,000 Garden State Newspapers, Inc., Sr. Sub. Note, 8.75%, 10/1/
2009 5,094,375
5,050,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 2/1/2006 5,201,500
3,675,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 3/15/2007 3,803,625
750,000 K-III Communications Corp., Company Guarantee, Series B,
8.50%, 2/1/2006 753,750
4,800,000 Primedia, Inc., Sr. Note, 7.625%, 4/1/2008 4,632,000
5,275,000 Ziff-Davis, Inc., Sr. Sub. Note, 8.50%, 5/1/2008 5,195,875
Total 40,422,125
REAL ESTATE--0.3%
4,814,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 5,355,575
RETAILERS--0.2%
3,750,000 Leslie's Poolmart, Inc., Sr. Note, 10.375%, 7/15/2004 3,768,750
SERVICES--0.7%
9,208,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 9,783,500
4,475,000 SITEL Corp., Sr. Sub. Note, 9.25%, 3/15/2006 3,960,375
Total 13,743,875
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
STEEL--0.5%
$ 1,125,000 AK Steel Corp., Sr. Note, 9.125%, 12/15/2006 $ 1,136,250
7,400,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/
2004 6,475,000
1,000,000 Metals USA, Inc., Sr. Sub. Note, 8.625%, 2/15/2008 870,000
1,000,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 1,154,030
Total 9,635,280
SURFACE TRANSPORTATION--2.6%
3,450,000 Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007 3,415,500
6,975,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/
2005 1,429,875
7,750,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 8,098,750
9,250,000 Statia Terminals International N.V., 1st Mtg. Note, 11.75%,
11/15/2003 9,296,250
12,700,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 13,144,500
6,000,000 Stena AB, Sr. Note, 8.75%, 6/15/2007 5,640,000
6,000,000 Stena Line AB, Sr. Note, 10.625%, 6/1/2008 5,430,000
4,400,000(a)The Holt Group, Inc., Sr. Note, 9.75%, 1/15/2006 3,102,000
Total 49,556,875
TELECOMMUNICATIONS & CELLULAR--19.8%
11,425,000(a)American Cellular Corp., Sr. Note, 10.50%, 5/15/2008 11,139,375
2,200,000(a)Arch Communications, Inc., Sr. Note, 12.75%, 7/1/2007 2,178,000
14,325,000 Call-Net Enterprises, Inc., Sr. Disc. Note, 0/8.94%, 8/15/
2008 8,380,125
11,875,000 Call-Net Enterprises, Inc., Sr. Disc. Note, 0/9.27%, 8/15/
2007 7,689,063
8,450,000 Comcast Cellular Holdings, Inc., Sr. Note, 9.50%, 5/1/2007 8,957,000
4,975,000 E.Spire Communications, Inc., Sr. Disc. Note, 0/12.75%, 4/1/
2006 3,756,125
4,100,000 E.Spire Communications, Inc., Sr. Disc. Note, 0/13.00%, 11/
1/2005 3,259,500
3,200,000 E.Spire Communications, Inc., Sr. Note, 13.75%, 7/15/2007 3,440,000
3,550,000 Esprit Telecom Group PLC, Sr. Note, 11.50%, 12/15/2007 3,328,125
12,050,000 Hermes Europe Railtel B.V., Sr. Note, 11.50%, 8/15/2007 12,833,250
4,200,000 HighwayMaster Communications, Inc., Sr. Note, 13.75%, 9/15/
2005 1,323,000
4,800,000 ICG Holdings, Inc., Sr. Disc. Note, 0/11.625%, 3/15/2007 2,918,304
6,075,000 ICG Holdings, Inc., Sr. Disc. Note, 0/12.50%, 5/1/2006 4,265,561
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
TELECOMMUNICATIONS & CELLULAR--CONTINUED
$ 5,475,000 ICG Services, Inc., Sr. Disc. Note, 0/9.875%, 5/1/2008 $ 2,696,438
6,125,000 IXC Communications, Inc., Sr. Sub. Note, 9.00%, 4/15/2008 6,117,344
6,175,000 Intermedia Communications, Inc., Sr. Disc. Note, 0/11.25%,
7/15/2007 4,492,313
18,300,000 Intermedia Communications, Inc., Sr. Disc. Note, 0/12.50%,
5/15/2006 15,189,000
7,300,000 Intermedia Communications, Inc., Sr. Note, 8.60%, 6/1/2008 7,263,500
4,500,000 Intermedia Communications, Inc., Sr. Note, 8.875%, 11/1/2007 4,545,000
35,125,000 Level 3 Communications, Inc., Sr. Note, 9.125%, 5/1/2008 33,368,750
13,325,000 McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 9,727,250
3,000,000 McLeod, Inc., Sr. Note, 8.375%, 3/15/2008 2,970,000
4,725,000 McLeod, Inc., Sr. Note, 9.25%, 7/15/2007 4,866,750
6,975,000 MetroNet Communications Corp., Sr. Disc. Note, 0/10.75%,
11/1/2007 4,272,188
6,650,000 MetroNet Communications Corp., Sr. Note, 12.00%, 8/15/2007 7,115,500
19,500,000 MetroNet Escrow Corp., Sr. Disc. Note, 0/9.95%, 6/15/2008 10,968,750
15,250,000 Millicom International Cellular S. A., Sr. Disc. Note, 0/
13.50%, 6/1/2006 9,683,750
10,225,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/10.65%, 9/15/
2007 6,544,000
32,250,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.95%, 2/15/
2008 19,511,250
3,225,000 NEXTLINK Communications, Inc., Sr. Disc. Note, 0/9.45%,
4/15/2008 1,862,438
8,650,000 NEXTLINK Communications, Inc., Sr. Note, 9.00%, 3/15/2008 8,195,875
3,500,000 NEXTLINK Communications, Inc., Sr. Note, 9.625%, 10/1/2007 3,421,250
6,750,000 Nextel International, Inc., Sr. Disc. Note, 0/12.125%, 4/15/
2008 3,138,750
8,000,000 Orange PLC, Sr. Note, 8.00%, 8/1/2008 7,840,000
11,450,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 11,421,375
5,225,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 5,251,125
8,400,000(a)Pathnet, Inc., Unit, 12.25%, 4/15/2008 7,308,000
7,475,000 PsiNet, Inc., Sr. Note, 10.00%, 2/15/2005 7,549,750
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
TELECOMMUNICATIONS & CELLULAR--CONTINUED
$ 7,525,000 Qwest Communications International, Inc., Sr. Disc. Note, 0/
8.29%, 2/1/2008 $ 5,606,125
8,600,000 Qwest Communications International, Inc., Sr. Disc. Note, 0/
9.47%, 10/15/2007 6,686,500
10,600,000 Qwest Communications International, Inc., Sr. Note, 10.875%,
4/1/2007 12,243,000
8,650,000 Rogers Cantel Mobile, Inc., Sr. Sub. Note, 8.80%, 10/1/2007 8,390,500
7,750,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 8,718,750
7,625,000 Telesystem International Wireless, Inc., Sr. Disc. Note, 0/
10.50%, 11/1/2007 3,583,750
13,050,000 Telesystem International Wireless, Inc., Sr. Disc. Note, 0/
13.25%, 6/30/2007 7,112,250
7,000,000 Teligent, Inc., Sr. Disc. Note, 0/11.50%, 3/1/2008 2,695,000
9,800,000 Teligent, Inc., Sr. Note, 11.50%, 12/1/2007 7,595,000
18,450,000(a)Triton PCS, Inc., Sr. Disc. Note, 0/11.00%, 5/1/2008 8,394,750
5,050,000(a)US Xchange, LLC, Sr. Note, 15.00%, 7/1/2008 5,012,125
7,750,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 7,013,750
12,975,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 13,169,625
3,000,000 Viatel, Inc., Sr. Disc. Note, 0/12.50%, 4/15/2008 1,485,000
7,775,000 Viatel, Inc., Sr. Disc. Note, 11.25%, 4/15/2008 6,958,625
Total 383,452,524
UTILITIES--1.0%
1,800,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 1,953,000
4,350,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 4,627,313
7,975,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 9,202,911
4,000,000 Niagara Mohawk Power Corp., Sr. Disc. Note, Series H, 0/
8.50%, 7/1/2010 2,979,480
Total 18,762,704
TOTAL CORPORATE BONDS (IDENTIFIED COST $1,832,613,014) $ 1,754,158,190
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--0.1%
7,500(b)Affiliated Newspaper Investments, Inc. $ 450,000
77,506(b)Alarmguard Holdings, Inc. 561,918
3,184 Australis Holdings Property Ltd., Warrants 0
2,400(a)(b)Bar Technologies, Inc., Warrants 132,000
8,050(b)Cellular Communications International, Inc., Warrants 386,400
136(a)(b)CS Wireless Systems, Inc., Warrants 0
4,850(a)Electronic Retailing Systems International, Inc., Warrants 48,500
4,200 HighwayMaster Communications, Inc., Warrants 210
4,750(b)Hosiery Corp. of America, Inc. 34,437
25,200(b)ICF Kaiser International, Inc., Warrants 756
3,750(a)(b)IHF Capital, Inc., Warrants 1,875
353(a)(b)MAFCO Acquisition, Warrants 0
6,650(a)MetroNet Communications Corp., Warrants 172,900
1,750(b)Motels of America, Inc. 14,438
4,500(b)NEXTEL Communications, Inc., Warrants 135
8,400 Pathnet, Inc., Warrants 126,000
9,025(b)Pegasus Communications Corp. 143,836
5,775 Pegasus Communications Corp., Warrants 190,575
237,897(b)Royal Oak Mines, Inc. 163,554
315,000(a)(b)Specialty Foods Acquisition Corp. 6,300
6,325(b)Sterling Chemicals Holdings, Inc., Warrants 132,825
46(a)(b) Sullivan Holdings, Inc., Warrants 0
14,150 UIH Australia/Pacific, Warrants 42,450
14,400(b)Wireless One, Inc., Warrants 0
TOTAL COMMON STOCKS (IDENTIFIED COST $8,099,888) 2,609,109
PREFERRED STOCKS--4.5%
BANKING--0.2%
120,000 California Federal Preferred Capital Corp., REIT Perpetual
Pfd. Stock, Series A, $2.28 3,067,500
BROADCAST RADIO & TV--1.4%
5,350 Benedek Communications Corp., Sr. Exchangeable PIK 4,574,250
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
PREFERRED STOCKS--CONTINUED
BROADCAST RADIO & TV--CONTINUED
42,602 Capstar Broadcasting Partners, Inc., Sr. Pfd., $12.00 $ 4,867,279
4,825 Cumulus Media, Inc., Cumulative Sr. Red. Pfd. Stk., Series
A, $3.44 4,969,750
13,535 SFX Broadcasting, Inc., Exchangeable Pfd. Stock, Series E 1,617,425
114,150 Sinclair Broadcast Group, Inc., Pfd., $11.63 12,042,825
Total 28,071,529
CABLE TELEVISION--0.6%
2,449 Echostar Communications Corp., Sr. Red. Pfd. Stk., Series B,
$12.13 2,338,776
8,696 Pegasus Communications Corp., PIK Pfd., Series A, 12.75% 9,544,205
Total 11,882,981
FOOD SERVICES--0.2%
47,599 Nebco Evans Holding Co., Exchangeable Pfd. Stock 3,117,738
HEALTHCARE--0.1%
17,200 River Holding Corp., Sr. Exchangeable PIK 1,126,600
INDUSTRIAL PRODUCTS & EQUIPMENT--0.2%
3,575 Fairfield Manufacturing Co., Inc., Exchangeable Pfd. Stock 3,449,875
31(a)International Utility Structures, Inc., Unit 3,281
475(a)International Utility Structures, Inc., Unit, $13.00 439,375
Total 3,892,531
PRINTING & PUBLISHING--0.9%
118,225 Primedia, Inc., Exchangeable Pfd. Stock, Series H, $2.16 10,876,700
72,500 Primedia, Inc., Pfd., Series F, $9.20 7,213,750
Total 18,090,450
TELECOMMUNICATIONS & CELLULAR--0.5%
2,258 IXC Communications, Inc., Jr. Exchangeable Pfd. Stock,
Series B 2,415,424
3,357 NEXTEL Communications, Inc., Exchangeable Pfd. Stock,
Series E 3,071,655
3,713 NEXTEL Communications, Inc., Pfd., Series D 3,842,820
5,365 Viatel, Inc., Conv. PIK Pfd., Series A, 10.00% 324,584
Total 9,654,483
UTILITIES--0.4%
153,000 Texas Utilities Co., Cumulative PRIDES, $4.63 8,606,250
TOTAL PREFERRED STOCKS (IDENTIFIED COST $88,076,965) 87,510,062
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)REPURCHASE AGREEMENTS--2.6%
$ 50,065,000 Credit Suisse First Boston, Inc., 5.50%, dated 9/30/1998,
due 10/1/1998 (at amortized cost) $ 50,065,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,978,854,867)(D) $ 1,894,342,361
</TABLE>
(a) Denotes a restricted security. At September 30, 1998, these securities
amounted to $195,386,709 which represents 10% of total net assets.
(b) Non-income producing security.
(c) The repurchase agreement is fully collateralized by U.S. government and/ or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $1,978,854,867.
The net unrealized depreciation of investments on a federal tax basis amounts to
$84,512,506 which is comprised of $39,947,061 appreciation and $124,459,567
depreciation at September 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($1,932,023,240) at September 30, 1998.
The following acronyms are used throughout this portfolio: GTD --Guaranty LLC
- --Limited Liability Corporation LP --Limited Partnership PIK --Payment in Kind
PLC --Public Limited Company PRIDES--Preferred Redeemable Increased Dividend
Equity Securities REIT --Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost
$1,978,854,867) $1,894,342,361
Cash 25,135
Income receivable 40,347,102
Receivable for investments sold 1,575,847
Receivable for shares sold 6,472,355
Prepaid expenses 89,659
Total assets 1,942,852,459
LIABILITIES:
Payable for investments purchased $8,833,243
Payable for shares redeemed 936,797
Income distribution payable 2,406
Payable for taxes withheld 81
Accrued expenses 1,056,692
Total liabilities 10,829,219
NET ASSETS for 174,173,255 shares outstanding $1,932,023,240
NET ASSETS CONSIST OF:
Paid in capital $2,025,937,279
Net unrealized depreciation of investments (84,512,506)
Accumulated net realized loss on investments (11,676,064)
Undistributed net investment income 2,274,531
Total net assets $1,932,023,240
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($716,203,754 / 64,548,363 shares
outstanding) $11.10
Offering Price Per Share (100/95.50 of $11.10)* $11.62
Redemption Proceeds Per Share $11.10
CLASS B SHARES:
Net Asset Value Per Share ($1,026,275,711 / 92,537,863 shares
outstanding) $11.09
Offering Price Per Share $11.09
Redemption Proceeds Per Share (94.50/100 of $11.09)** $10.48
CLASS C SHARES:
Net Asset Value Per Share ($189,543,775 / 17,087,029 shares
outstanding) $11.09
Offering Price Per Share $11.09
Redemption Proceeds Per Share (99.00/100 of $11.09)** $10.98
</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
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,766,401
Interest (net of foreign taxes withheld of $81) 91,175,217
Total income 95,941,618
EXPENSES:
Investment advisory fee $ 7,382,843 Administrative personnel and services fee
742,222 Custodian fees 56,470 Transfer and dividend disbursing agent fees and
expenses 618,137 Directors'/Trustees' fees 5,906 Auditing fees 9,947 Legal fees
6,891 Portfolio accounting fees 106,881 Distribution services fee--Class B
Shares 3,843,585 Distribution services fee--Class C Shares 735,088 Shareholder
services fee--Class A Shares 934,723 Shareholder services fee--Class B Shares
1,281,195 Shareholder services fee--Class C Shares 245,029 Share registration
costs 49,821 Printing and postage 92,012 Insurance premiums 5,906 Taxes 91,260
Miscellaneous 9,741 Total expenses 16,217,657 Net investment income 79,723,961
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on
investments 6,866,901 Net change in unrealized appreciation(depreciation) of
investments (178,283,154) Net realized and unrealized loss on investments
(171,416,253) Change in net assets resulting from operations $ (91,692,292)
</TABLE> (See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1998 MARCH 31,
(UNAUDITED) 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 79,723,961 $ 125,828,694
Net realized gain on investments ($6,866,901 and $7,052,046,
respectively, as computed for federal tax purposes) 6,866,901 3,952,748
Net change in unrealized appreciation (depreciation) (178,283,154) 95,882,031
Change in net assets resulting from operations (91,692,292) 225,663,473
NET EQUALIZATION CREDITS (DEBITS)-- 0 541,802
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (31,525,929) (57,323,230)
Class B Shares (39,368,294) (57,006,059)
Class C Shares (7,516,908) (11,174,312)
Change in net assets resulting from distributions to
shareholders (78,411,131) (125,503,601)
SHARE TRANSACTIONS--
Proceeds from sale of shares 411,044,318 806,888,506
Net asset value of shares issued to shareholders in payment
of distributions declared 40,257,102 63,870,285
Cost of shares redeemed (268,073,044) (270,557,852)
Change in net assets resulting from share transactions 183,228,376 600,200,939
Change in net assets 13,124,953 700,902,613
NET ASSETS:
Beginning of period 1,918,898,287 1,217,995,674
End of period (including undistributed net investment income
of $2,274,531 and $961,701, respectively) $1,932,023,240 $ 1,918,898,287
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.10 $11.31 $11.08 $10.54 $10.99 $11.19
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.51 1.00 1.04 1.00 1.01 1.05
Net realized and unrealized gain (loss) on investments (1.01) 0.79 0.22 0.55 (0.43) (0.19)
Total from investment operations (0.50) 1.79 1.26 1.55 0.58 0.86
LESS DISTRIBUTIONS
Distributions from net investment income (0.50) (1.00) (1.03) (1.00) (1.03) (1.06)
Distributions in excess of net investment income(a) -- -- -- (0.01) -- --
Total distributions (0.50) (1.00) (1.03) (1.01) (1.03) (1.06)
NET ASSET VALUE, END OF PERIOD $11.10 $12.10 $11.31 $11.08 $10.54 $10.99
TOTAL RETURN(B) (4.30%) 16.48% 11.88% 15.24% 5.74% 7.82%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18%* 1.21% 1.21% 1.22% 1.21% 1.18%
Net investment income 8.56%* 8.46% 9.19% 9.07% 9.64% 9.27%
Expense waiver/reimbursement(c) -- 0.01% 0.03% 0.06% 0.05% 0.05%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $716,204 $748,294 $599,736 $530,203 $448,040 $439,149
Portfolio turnover 35% 58% 55% 53% 52% 76%
</TABLE>
* Computed on an annualized basis.
(a) 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.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.09 $11.31 $11.08 $10.54 $10.57
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.45 0.91 0.96 0.95 0.51
Net realized and unrealized gain (loss) on investments (1.00) 0.78 0.21 0.51 (0.07)
Total from investment operations (0.55) 1.69 1.17 1.46 0.44
LESS DISTRIBUTIONS
Distributions from net
investment income (0.45) (0.91) (0.94) (0.91) (0.47)
Distributions in excess of net investment income(b) -- -- -- (0.01) --
Total distributions (0.45) (0.91) (0.94) (0.92) (0.47)
NET ASSET VALUE, END OF PERIOD $11.09 $12.09 $11.31 $11.08 $10.54
TOTAL RETURN(C) (4.67%) 15.52% 10.99% 14.31% 4.47%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.93%* 1.97% 1.99% 2.03% 2.02%*
Net investment income 7.82%* 7.76% 8.39% 8.29% 9.47%*
Expense waiver/reimbursement(d) -- -- -- 0.01% 0.05%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $1,026,276 $980,125 $513,169 $238,055 $33,295
Portfolio turnover 35% 58% 55% 53% 52%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 27, 1994 (date of initial
public investment) to March 31, 1995.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994(A)(B)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.09 $11.31 $11.08 $10.54 $10.99 $11.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.46 0.91 0.95 0.92 0.94 0.92
Net realized and unrealized gain (loss) on investments (1.01) 0.78 0.22 0.54 (0.44) (0.23)
Total from investment operations (0.55) 1.69 1.17 1.46 0.50 0.69
LESS DISTRIBUTIONS
Distributions from net investment income (0.45) (0.91) (0.94) (0.91) (0.95) (0.88)
Distributions in excess of net investment income(c) -- -- -- (0.01) -- --
Total distributions (0.45) (0.91) (0.94) (0.92) (0.95) (0.88)
NET ASSET VALUE, END OF PERIOD $11.09 $12.09 $11.31 $11.08 $10.54 $10.99
TOTAL RETURN(D) (4.67%) 15.51% 11.00% 14.35% 4.91% 6.23%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.93%* 1.97% 1.99% 2.00% 1.98% 1.99%*
Net investment income 7.81%* 7.74% 8.38% 8.30% 8.90% 8.54%*
Expense waiver/reimbursement(e) -- -- -- 0.03% 0.05% 0.05%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $189,544 $190,480 $105,095 $57,422 $32,376 $24,360
Portfolio turnover 35% 58% 55% 53% 52% 76%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 30, 1993 (date of initial
public investment) to March 31, 1994.
(b) As of July 29, 1994, Select Shares were no longer offered and were
reclassified as Class C Shares. For the year ended March 31, 1994, Select Shares
net assets (000) omitted) were $838.
(c) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
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.
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.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute
to shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
At March 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $14,461,005, 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.
EQUALIZATION--Effective April 1, 1998, the Fund discontinued its use of
equalization. Equalization is an accounting practice whereby a portion of the
proceeds of sales and costs of redemptions of Fund shares is credited or charged
to undistributed net investment income on a per share basis, as determined on
the date of the transaction. This change in accounting policy does not effect
the Fund's net assets, net asset value per share, or net investment income.
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 September 30,
1998 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Ameri Truck Distribution Corp.,
Sr. Sub. Note 11/10/95 - 10/22/97 $7,036,028
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements.
Actual results could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At September 30, 1998, par value shares ($0.01 per share) authorized were as
follows:
NUMBER OF
PAR VALUE
CAPITAL STOCK
CAPITAL STOCK AUTHORIZED
Class A Shares 4,000,000,000
Class B Shares 2,000,000,000
Class C Shares 4,000,000,000
TOTAL 10,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MARCH 31, 1998
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 10,706,655 $ 125,893,191 17,322,252 $ 204,316,349
Shares issued to shareholders in payment of
distributions declared 1,446,037 16,991,409 2,605,774 30,621,664
Shares redeemed (9,453,505) (111,228,077) (11,104,769) (131,161,460)
Net change resulting from Class A Share transactions 2,699,187 $ 31,656,523 8,823,257 $ 103,776,553
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MARCH 31, 1998
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 20,484,550 $ 240,532,566 42,537,839 $ 501,512,752
Shares issued to shareholders in payment of
distributions declared 1,593,952 18,708,877 2,239,670 26,393,364
Shares redeemed (10,589,212) (123,765,908) (9,110,993) (107,775,700)
Net change resulting from Class B Share transactions 11,489,290 $ 135,475,535 35,666,516 $ 420,130,416
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MARCH 31, 1998
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,793,844 $ 44,618,561 8,559,493 $101,059,405
Shares issued to shareholders in payment of
distributions declared 387,767 4,556,816 577,521 6,855,257
Shares redeemed (2,843,402) (33,079,059) (2,683,277) (31,620,692)
Net change resulting from
Class C Share transactions 1,338,209 $ 16,096,318 6,453,737 $ 76,293,970
Net change resulting from
share transactions 15,526,686 $183,228,376 50,943,510 $600,200,939
</TABLE>
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, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Class B Shares and Class C Shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund Shares 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 Corporation are Officers
and Directors or Trustees of the above companies.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the fund.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1998, were as follows:
PURCHASES $792,074,963
SALES $661,985,484
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
[Graphic]
Cusip 314195108
Cusip 314195207
Cusip 314195306
8110103 (11/98)
APPENDIX
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 11/30/77
to 9/30/98. The "y" axis is measured in increments of $40,000 ranging from $0 to
$200,000 and indicates that the ending value of hypothetical initial investment
of $21,000 (1,337 Shares) in the fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $166,428
(14,993 Shares) on 9/30/98.
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 from11/30/77
to 9/30/98. The "y" axis is measured in increments of $20,000 ranging from $0 to
$100,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 over 20 years in the fund's Class A Shares, assuming the reinvestment
of capital gains and dividends, would have grown to $81,430 (7,336 Shares) on
9/30/98.
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 beneath it. The "x" axis reflects computation periods from
9/30/88 to 9/30/98. The "y" axis is measured in increments of $2,000 ranging
from $0 to $16,000 and indicates that the ending value of a hypothetical
investment of $5,000 (426 Shares) in the fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $13,935 (1,255
Shares) on 9/30/98.
