SEMI-ANNUAL REPORT
[Graphic]
RICHARD B. FISHER
President
Federated High Income Bond Fund, Inc.
President's Message
Dear Fellow Shareholder:
Federated High Income Bond Fund, Inc. was created in 1977, and for over two
decades, investors who want generous income from high-yield bonds 1 have
received monthly dividends for over 262 consecutive months. I am pleased to
present the fund's 23rd Semi-Annual Report. On September 30, 1999, the fund's
$2.3 billion in assets were invested in over 330 carefully researched high-yield
issues that spanned the entire business and industrial spectrum.
This report covers the six-month period from April 1, 1999 through September 30,
1999. It begins with an interview with the fund's portfolio manager, Mark E.
Durbiano, Senior Vice President of Federated Investment Management Company.
Following his discussion are three additional items of shareholder interest.
First is a series of graphs showing the fund's long-term investment performance.
Second is a complete listing of the fund's high-yielding corporate bond
holdings, and third is the publication of the fund's financial statements.
Mark and his management team have 39 years in combined experience in the
high-yield corporate bond arena. The fund has earned an overall four-star
Morningstar TM Rating out of 1,585 taxable bond funds, and a five-star rating
out of 374 taxable bond funds as of September 30, 1999.2 In Mark's sales
management tenure, he has experienced rising bond prices as well as periods
similar to the current rising interest rate environment (1990 and again in
1994). It has been a difficult time for bond investors in general, as rising
interest rates have caused bond prices to decline. Due to the performance of
individual holdings and the fund's weighting in certain sectors, the returns of
Federated High Income Bond Fund, Inc. slightly underperformed the average
high-yield bond fund over the six-month reporting period. While a decrease in
share price impacted the fund's total return, the fund continued to pay a strong
income stream. A fund manager's best friend in this rate environment is broad
diversification by issuer and industry sector.
1 Lower rated bonds involve a higher degree of risk than investment-grade bonds
in return for higher yield potential.
2 Past performance is no guarantee of future results. Morningstar proprietary
ratings reflect historical risk-adjusted performance as of September 30, 1999.
The ratings are subject to change every month. Ratings are calculated from the
fund's three-, five-, and ten-year average annual total 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 top 10% of the
funds in a broad asset class receive five stars, the next 22.5% receive four
stars, the next 35% receive three stars, the next 22.5% receive two stars, and
the bottom 10% receive one star. The fund received two and four stars for the
three- and five-year periods and was rated among 1,585 and 1,153 taxable bond
funds, respectively. Ratings are for Class A Shares only; other classes may
vary.
Individual share class total return performance for the six-month reporting
period, including income distributions, follows. 3
<TABLE>
<CAPTION>
TOTAL RETURN INCOME DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares (2.83%) $0.49 $11.30 to $10.50 = (7.08%)
Class B Shares (3.20%) $0.45 $11.29 to $10.49 = (7.08%)
Class C Shares (3.28%) $0.45 $11.30 to $10.49 = (7.08%)
</TABLE>
Currently, high-yield bonds represent very attractive long-term value compared
to high-quality bonds, as investors are being compensated with significantly
higher yields for assuming the credit risk involved in owning these corporate
bonds.
While a decline in share prices is of concern to both managers and shareholders,
it is important to remember the nature of high-yield investing: income can be
generous and principal fluctuations are volatile. 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. Looking back, in the past 10 years, shareholders
saw the fund's share value decline approximately 11% in 1990; rise over 57% in
1991; decline about 1% in 1994; and increase approximately 18% in 1995.
Thank you for investing a portion of your wealth in Federated High Income Bond
Fund, Inc. I recommend that you consider adding to your account on a regular
basis. 4 Your questions, comments, or suggestions about the fund are always
welcome.
Very sincerely yours,
[Graphic]
Richard B. Fisher
President
November 15, 1999
3 Performance quoted is based on net asset value, reflects past performance and
is no guarantee of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the six-month reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A, B
and C Shares were (7.19%), (8.31%), and (4.21%), respectively.
4 Systematic investing does not ensure a profit or protect against loss in
declining markets.
[Graphic]
MARK E. DURBIANO
Senior Vice President
Federated Investment Management Company
Investment Review
WHAT IS YOUR VIEW OF THE HIGH-YIELD BOND MARKET, WHICH PRODUCED A SLIGHTLY
NEGATIVE RETURN FOR THE FIRST SIX MONTHS OF THE FUND'S CURRENT FISCAL YEAR?
The high-yield bond market generated unattractive total returns on both an
absolute as well as a relative basis over the six-month reporting period ended
September 30, 1999. Early in the reporting period, the high-yield bond market's
returns, while only modestly positive, were far superior to the returns on
investment-grade securities. However, August and September of 1999 witnessed
very weak relative returns for high-yield securities. As a result, the returns
of high-yield bonds were below those of investment-grade securities.
Early in 1999, strong economic growth led to substantial spread tightening and
very strong relative performance for high-yield bonds. However, various factors
have affected high-yield bonds-rising default rates, oversupply on the new issue
corporate calendar coupled with lessened demand by mutual funds (perhaps driven
by Year 2000 planning by both issuers and investors), and increasing credit
concerns about specific issuers in the consumer durable, theater exhibition,
health care, and satellite telephone sectors-led to very weak performance in the
high-yield sector. For example, the yield spread between high-yield bonds and
U.S. Treasuries began the period at 605 basis points, tightened to 564 basis
points at the end of July 1999 and then widened to 632 basis points by September
30, 1999.
For the reporting period as a whole, the Lehman Brothers High Yield Bond Index
returned (1.09%), underperforming the Lehman Brothers Aggregate Bond Index, a
measure of high-quality bond performance, which returned (0.20%). 1
According to the CS First Boston High Yield Index which is an unmanaged, trader
price portfolio constructed to mirror the high-yield debt market, the
accompanying chart indicates why managers are buyers of high-yield issues when
spreads are over 600 basis points. Actual investments cannot be made in an
index.
[Graphic]
Past performance is no guarantee of future results. This chart is for
illustrative purposes only and does not represent the performance of any
particular fund.
HOW DID FEDERATED HIGH INCOME BOND FUND, INC. PERFORM OVER THE SIX-MONTH
REPORTING PERIOD ENDED SEPTEMBER 30, 1999?
The fund's performance reflected the high-yield market's difficulties during the
reporting period. The fund's Class A, B and C Shares produced total returns of
(2.83%), (3.20%), and (3.28%), respectively, based on net asset value, for the
six-month reporting period ended September 30, 1999. 2 The fund underperformed
both the (0.90%) return of the Lipper High Current Yield Average3 during the
period and the (1.09%) return of the Lehman Brothers High Yield Bond Index.
WHAT FACTORS WERE THE MAJOR INFLUENCES ON THE FUND'S PERFORMANCE VERSUS THE
MARKET?
Several factors negatively impacted the fund's performance relative to its
benchmarks. The fund was underweighted in the energy sector, which generated
strong returns given the substantial recovery in energy prices. The fund's
holdings in the textile area underperformed on disappointing financial
performance by several issuers. The fund was negatively impacted by its
overweighted position in the B sector, which underperformed both the higher
quality BB sector and the lower quality CCC sector. Also, specific positions in
JITNEY-JUNGLE, a southern food retailer, STERLING CHEMICALS, a commodity
chemical producer, GENESIS HEALTH VENTURES, a long-term care provider, REGAL
CINEMAS, the largest theater exhibitor in the U.S. and PAGING NETWORK, the
largest paging company in the U.S., underperformed based on disappointing
operating performance. That's the bad news.
The good news is that the fund still has over 325 issues in which we have
confidence, subject, of course, to our rigorous reviews.
1 The Lehman Brothers High Yield Bond Index is an unmanaged index that covers
the universe of fixed-rate, publicly issued, non-investment grade debt
securities. The Lehman Brothers Aggregate Bond Index is an unmanaged index
comprised of securities from Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index, and the Asset-Backed Securities Index.
Investments cannot be made in an index.
2 Performance quoted is based on net asset value, reflects past performance and
is no guarantee of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the six-month reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A, B
and C Shares were (7.19%), (8.31%), and (4.21%), respectively.
3 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 take sales charges into account.
WHAT HAS BEEN THE FUND'S EXPERIENCE WITH DEFAULTS?
The fund's default experience remains well below the overall high-yield sector.
For example, the fund had no exposure to Iridium and ICO Global, two recent
high-profile defaults in the satellite telephone sector.
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF SEPTEMBER 30, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME NET ASSETS
<S> <C>
NTL, Inc. 3.4%
Allied Waste Industries, Inc. 2.4%
NEXTEL/ NEXTEL International 2.4%
Level 3 Communications, Inc. 2.3%
Chancellor Media Corp. 2.0%
Intermedia Communications, Inc. 1.7%
Tenet Healthcare Corp. 1.6%
NEXTLINK Communications, Inc. 1.6%
United International Holdings, Inc. 1.6%
Sinclair Broadcast Group, Inc. 1.4%
TOTAL 20.4%
</TABLE>
ARE YOU MAKING ANY MATERIAL CHANGES IN THE PORTFOLIO'S SECTOR WEIGHTINGS IN THE
NEAR TERM?
From a portfolio perspective, we will continue to overweight the
telecommunications sector given the powerful secular growth characteristics of
the entire industry. Also, positions that have underperformed recently, but
where we continue to see substantial value, are being maintained or selectively
increased.
AFTER AN UNEASY FIRST HALF YEAR, WHAT DO YOU EXPECT FROM THE HIGH-YIELD BOND
MARKET FOR THE REST OF THE FUND'S FISCAL YEAR, AND WHAT ARE YOUR SECTOR
STRATEGIES GOING FORWARD?
We believe that high-yield bonds offer attractive relative returns given strong
domestic economic growth and very attractive yield spreads. These two factors
together typically indicate strong relative return potential. However, the
technical environment may prove challenging over the short term, as Year 2000
concerns negatively impact the supply/demand balance in the high-yield market.
Also, default rates and credit downgrades have trended higher so far in 1999.
While rising default rates are a negative influence on the overall high-yield
market, they do tend to be somewhat of a lagging indicator. Most companies that
most likely will default in the balance of 1999 are already trading at
distressed levels. In fact, the last peak in default rates (1991) also coincided
with one of the best years in high-yield total return performance.
Shareholders should note that fund managers do not enjoy rising interest rates,
inflation fears, or defaults on the upswing, but since the fund began in 1977,
these forces have been dealt with, managed, and the income stream has continued.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU MADE AN INITIAL INVESTMENT OF $22,000 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, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$179,862 ON 9/30/99. YOU WOULD HAVE EARNED A 10.10% 1 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 9/30/99, the Class A Shares' average annual 1-year, 5-year and 10-year
total returns were (1.13%), 8.27%, and 10.47%, respectively. Class B Shares'
average annual 1-year, 5-year and since inception (9/28/94) total returns were
(2.47%), 8.11%, and 8.28%, respectively. Class C Shares' average annual 1-year,
5-year and since inception (5/1/93) total returns were 1.79%, 8.41%, and 7.60%,
respectively. 2
The graphic presentation here displayed consists of a legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 11/30/77
to 9/30/99. The "y" axis is measured in increments of $50,000 ranging from $0 to
$200,000 and indicates that the ending value of a hypothetical initial
investment of $22,000 in the fund's Class A Shares, assuming all sales charges
and the reinvestment of capital gains and dividends, would have grown to
$179,862 on 9/30/99.
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 is no guarantee of future results. Investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total return stated takes into account all applicable sales charges. The
maximum sales charge and contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 21
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $85,228.
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 $22,000, but
your account would have reached a total value of $85,228 1 by 9/30/99. You would
have earned an average annual total return of 10.72%.
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 can work for you when you invest
only $1,000 annually. You can take it one step at a time. Put time, money, and
compounding to work.
The graphic presentation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 11/30/77 to 9/30/99.
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
in the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $85,228 on 9/30/99.
1 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.
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, 1989,
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
$13,536. This represents a 10.47% average annual total return. 1 For Chuck, that
means extra money toward the construction of his first home.
The graphic presentation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 9/30/89 to 9/30/99. The
"y" axis is measured in increments of $3,000 ranging from $0 to $15,000 and
indicates that the ending value of hypothetical initial investment of $5,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $13,536 on 9/30/99.
1 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.
Portfolio of Investments
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-93.0%
AEROSPACE & DEFENSE-0.4%
$ 7,425,000 1, 2 Anteon Corp., Sr. Sub.
Note, 12.00%, 5/15/2009 $ 7,239,375
2,200,000 1, 2 Condor Systems, Inc., Sr.
Sub. Note, 11.875%,
5/1/2009 1,969,000
TOTAL 9,208,375
AUTO/TRUCK-0.3%
7,325,000 1, 2 J.L. French Automotive
Castings, Inc., Sr. Sub.
Note, 11.50%, 6/1/2009 7,270,063
AUTOMOBILE-3.0%
6,850,000 Accuride Corp., Sr. Sub.
Note, Series B, 9.25%,
2/1/2008 6,524,625
4,875,000 Aftermarket Technology
Co., Sr. Sub. Note, 12.00%,
8/1/2004 4,972,500
1,875,000 Aftermarket Technology
Co., Sr. Sub. Note, Series
D, 12.00%, 8/1/2004 1,912,500
9,000,000 1, 2 American Axle &
Manufacturing, Inc.,
9.75%, 3/1/2009 8,932,500
16,975,000 Collins & Aikman Products
Co., Sr. Sub. Note, 11.50%,
4/15/2006 16,253,562
4,900,000 1, 2 HDA Parts System, Inc., Sr.
Sub. Note, 12.00%,
8/1/2005 4,728,500
4,700,000 1, 2 Lear Corp., Sr. Note,
8.11%, 5/15/2009 4,563,230
6,000,000 Lear Corp., Sub. Note,
9.50%, 7/15/2006 6,180,000
8,700,000 1, 2 Transportation MFG
Operations, Sr. Sub. Note,
11.25%, 5/1/2009 8,700,000
6,825,000 Oxford Automotive, Inc.,
Company Guarantee,
10.125%, 6/15/2007 6,176,625
TOTAL 68,944,042
BANKING-0.6%
13,900,000 GS Escrow Corp., Sr. Note,
7.125%, 8/1/2005 13,279,226
BEVERAGE & TOBACCO-0.5%
1,000,000 Canandaigua Brands, Inc.,
Sr. Sub. Note, 8.50%,
3/1/2009 945,000
6,150,000 Dimon, Inc., Sr. Note,
8.875%, 6/1/2006 5,442,750
4,825,000 1, 2 National Wine & Spirits,
Inc., Sr. Note, 10.125%,
1/15/2009 4,849,125
TOTAL 11,236,875
BROADCAST RADIO & TV-6.8% 13,125,000 3 ACME Television
LLC, Sr.
Disc. Note, Series B,
0/10.875%, 9/30/2004 11,615,625
12,975,000 3 Big City Radio, Inc., Sr.
Disc. Note, 0/11.25%,
3/15/2005 8,952,750
4,375,000 Capstar Broadcasting
Partners, Inc., Sr. Sub.
Note, 9.25%, 7/1/2007 4,462,500
5,200,000 Chancellor Media Corp.,
Company Guarantee, 10.50%,
1/15/2007 5,616,000
8,050,000 1, 2 Chancellor Media Corp.,
Company Guarantee, 8.00%,
11/1/2008 7,929,250
150,000 Chancellor Media Corp.,
Company Guarantee, 9.00%,
10/1/2008 153,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BROADCAST RADIO & TV-
CONTINUED
$ 16,750,000 Chancellor Media Corp.,
Sr. Sub. Note, 8.125%,
12/15/2007 $ 16,415,000
7,500,000 Chancellor Media Corp.,
Sr. Sub. Note, 8.75%,
6/15/2007 7,425,000
10,000,000 Chancellor Media Corp.,
Sr. Sub. Note, 9.375%,
10/1/2004 10,150,000
6,375,000 Cumulus Media, Inc., Sr.
Sub. Note, 10.375%,
7/1/2008 6,566,250
22,625,000 3 Fox/Liberty Networks LLC,
Sr. Disc. Note, 0/9.75%,
8/15/2007 17,873,750
3,400,000 Fox/Liberty Networks LLC,
Sr. Note, 8.875%,
8/15/2007 3,451,000
3,000,000 Lamar Media Corp., Sr. Sub.
Note, 8.625%, 9/15/2007 2,970,000
3,900,000 Lamar Media Corp., Sr. Sub.
Note, 9.625%, 12/1/2006 3,978,000
7,275,000 Orion Network Systems, Sr.
Note, 11.25%, 1/15/2007 5,492,625
6,225,000 Outdoor Systems, Inc., Sr.
Sub. Note, 8.875%,
6/15/2007 6,427,312
5,950,000 Outdoor Systems, Inc., Sr.
Sub. Note, 9.375%,
10/15/2006 6,247,500
5,037,000 SFX Broadcasting, Inc.,
Sr. Sub. Note, 10.75%,
5/15/2006 5,616,255
4,975,000 Sinclair Broadcast Group,
Inc., Sr. Sub. Note,
10.00%, 9/30/2005 4,999,875
9,400,000 Sinclair Broadcast Group,
Inc., Sr. Sub. Note, 8.75%,
12/15/2007 8,836,000
5,975,000 Sinclair Broadcast Group,
Inc., Sr. Sub. Note, 9.00%,
7/15/2007 5,691,187
5,500,000 Young Broadcasting, Inc.,
Sr. Sub. Note, 10.125%,
2/15/2005 5,692,500
2,000,000 Young Broadcasting, Inc.,
Sr. Sub. Note, 11.75%,
11/15/2004 2,105,000
TOTAL 158,666,379
BUILDING & DEVELOPMENT-
1.4%
2,050,000 American Architectural
Products Corp., Sr. Note,
11.75%, 12/1/2007 932,750
5,850,000 American Builders &
Contractors Supply Co.,
Inc., Sr. Sub. Note,
10.625%, 5/15/2007 5,294,250
5,350,000 Building Materials Corp.
of America, Sr. Note,
8.625%, 12/15/2006 5,109,250
9,625,000 3 Falcon Building Products,
Inc., Sr. Sub. Disc. Note,
0/10.50%, 6/15/2007 7,026,250
2,000,000 Falcon Building Products,
Inc., Sr. Sub. Note, 9.50%,
6/15/2007 1,950,000
7,425,000 1, 2 Formica Corp., Sr. Sub.
Note, 10.875%, 3/1/2009 6,793,875
3,300,000 1, 2 Juno Lighting, Inc., Sr.
Sub. Note, 11.875%,
7/1/2009 3,052,500
2,250,000 NCI Building System, Inc.,
Sr. Sub. Note, Series B,
9.25%, 5/1/2009 2,092,500
TOTAL 32,251,375
BUSINESS EQUIPMENT &
SERVICES-2.3% 6,875,000 1, 2 Avis Rent A Car, Inc., Sr.
Sub. Note, 11.00%,
5/1/2009 7,081,250
10,525,000 Dialog Corp., Sr. Sub.
Note, 11.00%, 11/15/2007 9,235,687
4,850,000 3 Electronic Retailing
Systems International,
Inc., Sr. Disc. Note,
0/13.25%, 2/1/2004 1,188,250
10,825,000 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%, 2/1/2008 10,175,500
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BUSINESS EQUIPMENT &
SERVICES-CONTINUED
$ 12,500,000 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%, 2/1/2008 $ 11,750,000
14,400,000 U.S. Office Products Co.,
Sr. Sub. Note, 9.75%,
6/15/2008 7,848,000
5,166,000 United Stationers Supply
Co., Sr. Sub. Note, 12.75%,
5/1/2005 5,598,652
TOTAL 52,877,339
CABLE TELEVISION-10.6% 91,523 3, 4 Australis Media Ltd.,
Sr.
Secured Disc. Note,
0/15.75%, 5/15/2003 915
5,350,000 3, 4 Australis Media Ltd.,
Unit, 0/14.00%, 5/15/2003 53,500
3,000,000 CSC Holdings, Inc., Sr.
Note, 7.875%, 12/15/2007 2,984,550
3,850,000 CSC Holdings, Inc., Sr.
Sub. Deb., 9.875%,
2/15/2013 4,061,750
11,500,000 CSC Holdings, Inc., Sr.
Sub. Note, 9.25%,
11/1/2005 11,902,500
4,175,000 CSC Holdings, Inc., Sr.
Sub. Note, 9.875%,
5/15/2006 4,331,562
15,300,000 1, 2, 3 Charter Communications
Holdings Capital Corp.,
Sr. Disc. Note, 0/9.92%,
4/1/2011 9,141,750
3,250,000 3 Comcast UK Cable, Sr. Disc.
Deb., 0/11.20%, 11/15/2007 2,957,500
13,275,000 3 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/10.75%,
2/15/2007 10,420,875
7,675,000 3 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/11.75%,
12/15/2005 6,965,062
3,750,000 3 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/13.25%,
9/30/2004 4,045,312
5,500,000 3 Diva Systems Corp., Sr.
Disc. Note, 0/12.625%,
3/1/2008 1,732,500
24,100,000 1, 2 Echostar DBS Corp., Sr.
Note, 9.375%, 2/1/2009 23,919,250
14,525,000 3 International Cabletel,
Inc., Sr. Defd. Cpn. Note,
0/11.50%, 2/1/2006 12,709,375
6,250,000 3 International Cabletel,
Inc., Sr. Disc. Note,
0/12.75%, 4/15/2005 6,125,000
4,350,000 Lenfest Communications,
Inc., Sr. Secured Note,
8.375%, 11/1/2005 4,469,625
2,475,000 Lenfest Communications,
Inc., Sr. Sub. Note,
10.50%, 6/15/2006 2,778,187
5,600,000 Lenfest Communications,
Inc., Sr. Sub. Note, 8.25%,
2/15/2008 5,649,000
16,475,000 1, 2, 3 NTL, Inc., Sr. Defrd. Cpn.
Note, 0/12.375%, 10/1/2008 11,120,625
32,800,000 1, 2, 3 NTL, Inc., Sr. Defrd. Cpn.
Note, 0/9.75%, 4/1/2008 21,976,000
2,000,000 1, 2 NTL, Inc., Sr. Note,
11.50%, 10/1/2008 2,150,000
6,300,000 Pegasus Communications
Corp., Sr. Note, 9.625%,
10/15/2005 6,111,000
4,000,000 1, 2 Pegasus Communications
Corp., Sr. Note, 9.75%,
12/1/2006 3,860,000
4,500,000 Pegasus Media, Sr. Sub.
Note, 12.50%, 7/1/2005 4,972,500
10,925,000 3 RCN Corp., Sr. Disc. Note,
0/11.125%, 10/15/2007 7,155,875
400,000 3 RCN Corp., Sr. Disc. Note,
0/11.00%, 7/1/2008 238,000
2,375,000 3 RCN Corp., Sr. Disc. Note,
0/9.80%, 2/15/2008 1,413,125
6,500,000 Rogers Cablesystems Ltd.,
Sr. Sub. Gtd. Deb., 11.00%,
12/1/2015 7,345,000
30,525,000 3 TeleWest PLC, Sr. Disc.
Deb., 0/11.00%, 10/1/2007 27,586,969
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
CABLE TELEVISION-CONTINUED
$ 1,825,000 1, 2 TeleWest PLC, Sr. Note,
11.25%, 11/1/2008 $ 1,980,125
15,400,000 3 UIH Australia/Pacific, Sr.
Disc. Note, 0/14.00%,
5/15/2006 11,858,000
17,850,000 3 United International
Holdings, Inc., Sr. Secd.
Disc. Note, 0/10.75%,
2/15/2008 10,977,750
23,175,000 1, 2, 3 United Pan-Europe
Communications NV, Sr.
Disc. Note, 0/12.50%,
8/1/2009 13,093,875
TOTAL 246,087,057
CHEMICALS & PLASTICS-4.1%
1,350,000 Buckeye Cellulose Corp.,
Sr. Sub. Note, 8.50%,
12/15/2005 1,314,562
6,025,000 Buckeye Cellulose Corp.,
Sr. Sub. Note, 9.25%,
9/15/2008 6,055,125
2,500,000 Foamex LP, Sr. Sub. Note,
13.50%, 8/15/2005 2,337,500
1,600,000 1, 2 General Chemical
Industrial Products, Inc.,
Sr. Sub. Note, 10.625%,
5/1/2009 1,576,000
11,125,000 1, 2 Huntsman Corp., Sr. Sub.
Note, 9.50%, 7/1/2007 10,290,625
8,525,000 1, 2 Huntsman ICI Chemicals
LLC, Sr. Sub. Note,
10.125%, 7/1/2009 8,418,437
4,225,000 ISP Holding, Inc., Sr.
Note, 9.00%, 10/15/2003 4,129,937
3,270,000 ISP Holding, Inc., Sr.
Note, 9.75%, 2/15/2002 3,245,475
1,150,000 Lyondell Chemical Co., Sr.
Secd. Note, Series A,
9.625%, 5/1/2007 1,150,000
18,950,000 1, 2 Lyondell Chemical Co., Sr.
Sub. Note, Series B,
10.875%, 5/1/2009 19,139,500
7,900,000 Polymer Group, Inc., Sr.
Sub. Note, 8.75%, 3/1/2008 7,445,750
18,125,000 Polymer Group, Inc., Sr.
Sub. Note, 9.00%, 7/1/2007 17,264,062
9,625,000 3 Sterling Chemicals
Holdings, Inc., Sr.
Secured Disc. Note,
0/13.50%, 8/15/2008 1,973,125
1,725,000 1, 2 Sterling Chemicals, Inc.,
Sr. Secured Note, 12.375%,
7/15/2006 1,630,125
500,000 Sterling Chemicals, Inc.,
Sr. Sub. Note, 11.25%,
4/1/2007 292,500
6,150,000 Sterling Chemicals, Inc.,
Sr. Sub. Note, 11.75%,
8/15/2006 3,720,750
6,450,000 Texas Petrochemicals
Corp., Sr. Sub. Note,
11.125%, 7/1/2006 5,450,250
TOTAL 95,433,723
CLOTHING & TEXTILES-1.0%
4,575,000 Collins & Aikman
Floorcoverings, Inc., Sr.
Sub. Note, 10.00%,
1/15/2007 4,369,125
6,025,000 Dyersburg Corp., Sr. Sub.
Note, 9.75%, 9/1/2007 2,259,375
7,225,000 GFSI, Inc., Sr. Sub. Note,
9.625%, 3/1/2007 5,093,625
7,075,000 Glenoit Corp., Sr. Sub.
Note, 11.00%, 4/15/2007 4,280,375
6,750,000 Pillowtex Corp., Sr. Sub.
Note, 10.00%, 11/15/2006 4,623,750
5,700,000 Pillowtex Corp., Sr. Sub.
Note, 9.00%, 12/15/2007 3,562,500
TOTAL 24,188,750
CONGLOMERATES-0.4%
10,700,000 Eagle Picher Industries,
Inc., Sr. Sub. Note,
9.375%, 3/1/2008 9,469,500
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
CONSUMER PRODUCTS-4.2%
$ 13,500,000 Albecca, Inc., Company
Guarantee, 10.75%,
8/15/2008 $ 10,327,500
3,900,000 American Safety Razor Co.,
Sr. Note, 9.875%, 8/1/2005 3,841,500
6,450,000 Amscan Holdings, Inc., Sr.
Sub. Note, 9.875%,
12/15/2007 5,063,250
9,250,000 Chattem, Inc., Sr. Sub.
Note, 8.875%, 4/1/2008 8,787,500
1,400,000 Diamond Brands Operating
Corp., Sr. Sub. Note,
10.125%, 4/15/2008 1,099,000
2,375,000 3 Diamond Brands, Inc., Sr.
Disc. Deb., 0/12.875%,
4/15/2009 439,375
2,150,000 NBTY, Inc., Sr. Sub. Note,
8.625%, 9/15/2007 1,806,000
10,175,000 Playtex Family Products
Corp., Sr. Sub. Note,
9.00%, 12/15/2003 10,225,875
3,500,000 Revlon Consumer Products
Corp., Sr. Note, 8.125%,
2/1/2006 3,185,000
25,825,000 Revlon Consumer Products
Corp., Sr. Sub. Note,
8.625%, 2/1/2008 21,176,500
4,125,000 1, 2 Scotts Co., Sr. Sub. Note,
8.625%, 1/15/2009 3,960,000
5,050,000 3 Sealy Mattress Co.,
Company Guarantee, Sr.
Sub. Disc. Note,
0/10.875%, 12/15/2007 3,358,250
2,400,000 Sealy Mattress Co., Sr.
Sub. Note, 9.875%,
12/15/2007 2,316,000
2,300,000 1, 2 Simmons Co., Sr. Sub. Note,
10.25%, 3/15/2009 2,277,000
2,475,000 1, 2 Sleepmaster LLC, Sr. Sub.
Note, 11.00%, 5/15/2009 2,475,000
2,958,000 1, 2 The Boyds Collection Ltd.,
Sr. Sub. Note, Series B,
9.00%, 5/15/2008 2,898,840
4,225,000 1, 2 True Temper Sports, Inc.,
Sr. Sub. Note, Series B,
10.875%, 12/1/2008 4,034,875
4,425,000 1, 2 United Industries Corp.,
Sr. Sub. Note, 9.875%,
4/1/2009 3,871,875
7,475,000 1, 2 Volume Services America,
Inc., Sr. Sub. Note,
11.25%, 3/1/2009 7,475,000
TOTAL 98,618,340
CONTAINER & GLASS
PRODUCTS-0.6%
5,350,000 1, 2 Russell Stanley Holdings,
Inc., Sr. Sub. Note,
10.875%, 2/15/2009 5,002,250
10,100,000 Tekni-Plex, Inc., Sr. Sub.
Note, 9.25%, 3/1/2008 9,645,500
TOTAL 14,647,750
ECOLOGICAL SERVICES &
EQUIPMENT-2.4%
28,800,000 1, 2 Allied Waste North
America, Inc., Company
Guarantee, 7.875%,
1/1/2009 25,200,000
34,200,000 Allied Waste North
America, Inc., Sr. Sub.
Note, 10.00%, 8/1/2009 31,378,500
TOTAL 56,578,500
ELECTRONICS-1.4%
3,325,000 1, 2 Fairchild Semiconductor
Corp., Sr. Sub. Note,
10.375%, 10/1/2007 3,291,750
5,550,000 1, 2 SCG Holding Corp. /
Semiconductor Components
Industries LLC, 12.00%,
8/1/2009 5,716,500
19,800,000 Telecommunications
Techniques Co. LLC, Sr.
Sub. Note, 9.75%,
5/15/2008 18,909,000
4,800,000 Viasystems, Inc., Sr. Sub.
Note, 9.75%, 6/1/2007 4,164,000
TOTAL 32,081,250
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FARMING & AGRICULTURE-0.1%
$ 2,100,000 1, 2 Royster-Clark, Inc., 1st
Mtg. Note, 10.25%,
4/1/2009 $ 1,953,000
FOOD & DRUG RETAILERS-0.3%
4,750,000 Community Distributors,
Inc., Sr. Note, 10.25%,
10/15/2004 4,108,750
9,525,000 Jitney-Jungle Stores of
America, Inc., Sr. Sub.
Note, 10.375%, 9/15/2007 1,905,000
TOTAL 6,013,750
FOOD PRODUCTS-1.9%
11,675,000 1, 2 Agrilink Foods, Inc.,
Company Guarantee,
11.875%, 11/1/2008 10,770,187
2,950,000 Aurora Foods, Inc., Sr.
Sub. Note, 9.875%, Series
B, 2/15/2007 2,986,875
4,225,000 Aurora Foods, Inc., Sr.
Sub. Note, 9.875%, Series
D, 2/15/2007 4,277,812
6,875,000 Eagle Family Foods, Inc.,
Sr. Sub. Note, 8.75%,
1/15/2008 5,190,625
10,950,000 International Home Foods,
Inc., Sr. Sub. Note,
10.375%, 11/1/2006 11,196,375
9,625,000 1, 2 Triarc Consumer Products
Group LLC, Sr. Sub. Note,
10.25%, 2/15/2009 9,240,000
TOTAL 43,661,874
FOOD SERVICES-1.4%
5,200,000 Advantica Restaurant
Group, Sr. Note, 11.25%,
1/15/2008 4,628,000
19,500,000 AmeriServe Food
Distribution, Inc., Sr.
Sub. Note, 10.125%,
7/15/2007 13,162,500
6,100,000 1, 2 Carrols Corp., Sr. Sub.
Note, 9.50%, 12/1/2008 5,215,500
7,725,000 1, 2 Domino's, Inc., Company
Guarantee, 10.375%,
1/15/2009 7,416,000
4,965,000 3 Nebco Evans Holding Co.,
Sr. Disc. Note, 0/12.375%,
7/15/2007 1,861,875
TOTAL 32,283,875
FOREST PRODUCTS-1.2%
4,250,000 Container Corp. of
America, Sr. Note, 11.25%,
5/1/2004 4,409,375
3,750,000 1, 2 Packaging Corp. of
America, Sr. Sub. Note,
9.625%, 4/1/2009 3,796,875
5,775,000 S. D. Warren Co., Sr. Sub.
Note, 12.00%, 12/15/2004 6,121,500
9,150,000 Stone Container Corp., Sr.
Note, 11.50%, 10/1/2004 9,550,313
2,675,000 Stone Container Corp., Sr.
Note, 12.58%, 8/1/2016 2,875,625
1,000,000 Stone Container Corp.,
Unit, 9.875%, 4/1/2002 1,012,500
TOTAL 27,766,188
HEALTHCARE-4.0%
1,175,000 Alliance Imaging, Inc.,
Sr. Sub. Note, 9.54%,
12/15/2005 1,192,625
7,000,000 Alliance Imaging, Inc.,
Sr. Sub. Note, 9.625%,
12/15/2005 7,105,000
9,850,000 CONMED Corp., Sr. Sub.
Note, 9.00%, 3/15/2008 9,111,250
1,800,000 Columbia/HCA Healthcare
Corp., Sr. Note, 6.91%,
6/15/2005 1,613,610
9,950,000 Dade International, Inc.,
Sr. Sub. Note, 11.125%,
5/1/2006 10,348,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
HEALTHCARE-CONTINUED
$ 6,175,000 Everest Healthcare
Services Corp., Sr. Sub.
Note, 9.75%, 5/1/2008 $ 5,619,250
2,750,000 Genesis Health Ventures,
Inc., Sr. Sub. Note, 9.25%,
10/1/2006 1,333,750
1,300,000 Genesis Health Ventures,
Inc., Sr. Sub. Note, 9.75%,
6/15/2005 630,500
4,350,000 1, 2 Genesis Health Ventures,
Inc., Sr. Sub. Note,
9.875%, 1/15/2009 2,109,750
3,450,000 1, 2 Hanger Orthopedic Group,
Inc., Sr. Sub. Note,
11.25%, 6/15/2009 3,501,750
3,275,000 Hudson Respiratory Care,
Inc., Sr. Sub. Note,
9.125%, 4/15/2008 2,570,875
12,325,000 Kinetic Concepts, Inc.,
Company Guarantee, 9.625%,
11/1/2007 8,935,625
2,000,000 1, 2 Tenet Healthcare Corp.,
Sr. Note, 7.625%, 6/1/2008 1,835,000
12,625,000 Tenet Healthcare Corp.,
Sr. Note, 8.00%, 1/15/2005 12,088,437
11,950,000 1, 2 Tenet Healthcare Corp.,
Sr. Sub. Note, 8.125%,
12/1/2008 10,964,125
13,300,000 Tenet Healthcare Corp.,
Sr. Sub. Note, 8.625%,
1/15/2007 12,734,750
2,250,000 1, 2 Unilab Corp., Sr. Sub.
Note, 12.75%, 10/1/2009 2,238,750
TOTAL 93,933,047
HOTELS, MOTELS, INNS &
CASINOS-2.0%
4,550,000 Courtyard by Marriott II
LP, Sr. Note, 10.75%,
2/1/2008 4,515,875
14,250,000 Florida Panthers Holdings,
Inc., Company Guarantee,
9.875%, 4/15/2009 13,323,750
1,000,000 HMH Properties, Inc., Sr.
Note, Series A, 7.875%,
8/1/2005 937,500
19,625,000 HMH Properties, Inc., Sr.
Note, Series B, 7.875%,
8/1/2008 17,662,500
9,750,000 HMH Properties, Inc., Sr.
Note, Series C, 8.45%,
12/1/2008 9,030,937
TOTAL 45,470,562
INDUSTRIAL PRODUCTS &
EQUIPMENT-4.0%
8,075,000 Amphenol Corp., Sr. Sub.
Note, 9.875%, 5/15/2007 8,115,375
2,000,000 1, 2 Blount, Inc., Sr. Sub.
Note, 13.00%, 8/1/2009 2,080,000
6,650,000 Cabot Safety Acquisition
Corp., Sr. Sub. Note,
12.50%, 7/15/2005 7,115,500
6,895,000 Continental Global Group,
Inc., Sr. Note, 11.00%,
4/1/2007 4,171,475
7,850,000 Euramax International PLC,
Sr. Sub. Note, 11.25%,
10/1/2006 7,889,250
1,335,000 Hawk Corp., Sr. Note,
10.25%, 12/1/2003 1,335,000
5,600,000 1, 2 Hexcel Corporation, Sr.
Sub. Note, Series B, 9.75%,
1/15/2009 4,844,000
6,325,000 ISG Resources, Inc., Sr.
Sub. Note, 10.00%,
4/15/2008 6,103,625
3,350,000 International Utility
Structures, Inc., Sr. Sub.
Note, 10.75%, 2/1/2008 3,115,500
4,000,000 Johnstown America
Industries, Inc., Sr. Sub.
Note, 11.75%, 8/15/2005 4,100,000
4,850,000 Johnstown America
Industries, Inc., Sr. Sub.
Note, 11.75%, 8/15/2005 4,971,250
11,325,000 1, 2 MMI Products, Inc., Sr.
Sub. Note, 11.25%,
4/15/2007 11,523,187
3,000,000 1, 2 Neenah Corp., Sr. Sub.
Note, 11.125%, 5/1/2007 2,790,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
INDUSTRIAL PRODUCTS &
EQUIPMENT-CONTINUED
$ 7,400,000 Neenah Corp., Sr. Sub.
Note, 11.125%, 5/1/2007 $ 6,882,000
5,000,000 Unifrax Investment Corp.,
Sr. Note, 10.50%,
11/1/2003 5,037,500
14,075,000 WESCO Distribution, Inc.,
Sr. Sub. Note, 9.125%,
6/1/2008 13,230,500
TOTAL 93,304,162
LEISURE & ENTERTAINMENT-
2.6%
10,502,000 3 AMF Bowling Worldwide,
Inc., Sr. Sub. Disc. Note,
0/12.25%, 3/15/2006 6,196,180
2,450,000 AMF Bowling Worldwide,
Inc., Sr. Sub. Note,
10.875%, 3/15/2006 1,788,500
4,700,000 Loews Cineplex
Entertainment Corp., Sr.
Sub. Note, 8.875%,
8/1/2008 4,206,500
18,625,000 3 Premier Parks, Inc., Sr.
Disc. Note, 0/10.00%,
4/1/2008 12,059,688
2,650,000 Premier Parks, Inc., Sr.
Note, 9.25%, 4/1/2006 2,524,125
16,950,000 Premier Parks, Inc., Sr.
Note, 9.75%, 6/15/2007 16,483,875
23,800,000 Regal Cinemas, Inc., Sr.
Sub. Note, 9.50%, 6/1/2008 16,422,000
TOTAL 59,680,868
MACHINERY & EQUIPMENT-3.4% 4,886,000 Alvey Systems, Inc.,
Sr.
Sub. Note, 11.375%,
1/31/2003 5,008,150
8,375,000 Clark Material Handling
Corp., Sr. Note, 10.75%,
11/15/2006 6,741,875
5,150,000 Columbus McKinnon Corp.,
Sr. Sub. Note, 8.50%,
4/1/2008 4,660,750
8,200,000 Fairchild Corp., Sr. Sub.
Note, 10.75%, 4/15/2009 7,011,000
6,300,000 1, 2 National Equipment
Services, Inc., Sr. Sub.
Note, 10.00%, 11/30/2004 6,268,500
9,850,000 National Equipment
Services, Inc., Sr. Sub.
Note, Series C, 10.00%,
11/30/2004 9,800,750
10,700,000 NationsRent, Inc., Company
Guarantee, 10.375%,
12/15/2008 10,593,000
13,200,000 United Rentals, Inc.,
Company Guarantee, 9.25%,
1/15/2009 12,672,000
10,850,000 1, 2 United Rentals, Inc.,
Company Guarantee, Series
B, 9.00%, 4/1/2009 10,253,250
6,000,000 1, 2 WEC Co., Sr. Note, 12.00%,
7/15/2009 5,970,000
TOTAL 78,979,275
METALS & MINING-0.8% 8,625,000 1, 2 AEI Holding Co.,
Inc., Sr.
Note, 10.50%, 12/15/2005 7,374,375
11,475,000 1, 2 AEI Resources, Inc., Sr.
Sub. Note, 11.50%,
12/15/2006 10,155,375
1,450,000 Murrin Murrin Holdings
Pty. Ltd., Sr. Secd. Note,
9.375%, 8/31/2007 1,290,500
TOTAL 18,820,250
OIL & GAS-2.9% 5,925,000 Chiles Offshore LLC Sr.
Note, 10.00%, 5/1/2008 5,243,625
1,975,000 1, 2 Comstock Resources, Inc.,
Sr. Note, 11.25%, 5/1/2007 2,039,188
10,250,000 Continental Resources,
Inc., Sr. Sub. Note,
10.25%, 8/1/2008 8,507,500
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
OIL & GAS-CONTINUED
$ 3,275,000 DI Industries, Inc., Sr.
Note, 8.875%, 7/1/2007 $ 2,963,875
9,400,000 4 Forcenergy, Inc., Sr. Sub.
Note, 8.50%, 2/15/2007 8,225,000
1,375,000 4 Forcenergy, Inc., Sr. Sub.
Note, 9.50%, 11/1/2006 1,203,125
5,825,000 1, 2 Pogo Producing Co., Sr.
Sub. Note, 10.375%,
2/15/2009 6,072,563
4,700,000 Pride Petroleum Services,
Inc., Sr. Note, 9.375%,
5/1/2007 4,747,000
1,000,000 1, 2 R&B Falcon Corp., Company
Guarantee, 9.50%,
12/15/2008 955,000
7,125,000 1, 2 R&B Falcon Corp., Sr. Note,
12.25%, 3/15/2006 7,588,125
800,000 R&B Falcon Corp., Sr. Note,
6.75%, 4/15/2005 684,000
2,500,000 RBF Finance Co., Company
Guarantee, 11.00%,
3/15/2006 2,650,000
5,025,000 RBF Finance Co., Sr.
Secured Note, 11.375%,
3/15/2009 5,326,500
2,225,000 The Houston Exploration
Co., Sr. Sub. Note, 8.625%,
1/1/2008 2,147,125
2,000,000 Triton Energy Corp., Sr.
Note, 8.75%, 4/15/2002 1,970,000
3,025,000 1, 2, 3 Universal Compression
Holdings, Inc., Sr. Disc.
Note, 0/11.375%, 2/15/2009 1,739,375
10,100,000 1, 2, 3 Universal Compression
Holdings, Inc., Sr. Disc.
Note, 0/9.875%, 2/15/2008 6,161,000
TOTAL 68,223,001
PRINTING & PUBLISHING-1.0%
6,225,000 Garden State Newspapers,
Inc., Sr. Sub. Note, 8.75%,
10/1/2009 5,820,375
5,050,000 Hollinger International
Publishing, Inc., Sr. Sub.
Note, 9.25%, 2/1/2006 5,037,375
2,900,000 Hollinger International
Publishing, Inc., Sr. Sub.
Note, 9.25%, 3/15/2007 2,885,500
750,000 K-III Communications
Corp., Company Guarantee,
Sr. Note, 8.50%, 2/1/2006 738,750
4,800,000 Primedia, Inc., Sr. Note,
7.625%, 4/1/2008 4,512,000
4,275,000 Ziff-Davis, Inc., Sr. Sub.
Note, 8.50%, 5/1/2008 3,997,125
TOTAL 22,991,125
REAL ESTATE-0.2%
4,371,000 Trizec Finance Ltd., Sr.
Note, 10.875%, 10/15/2005 4,655,115
RETAILERS-0.2%
3,750,000 Leslie's Poolmart, Inc.,
Sr. Note, 10.375%,
7/15/2004 3,618,750
SERVICES-1.6%
7,600,000 Coinmach Corp., Sr. Note,
11.75%, 11/15/2005 8,018,000
8,200,000 1, 2, 3 Crown Castle International
Corp., Sr. Disc. Note,
0/11.25%, 8/1/2011 4,715,000
24,400,000 3 Crown Castle International
Corp., Sr. Disc. Note,
0/10.375%, 5/15/2011 13,908,000
5,150,000 SITEL Corp., Sr. Sub. Note,
9.25%, 3/15/2006 4,506,250
7,075,000 1, 2 URS Corp., Sr. Sub. Note,
Series B, 12.25%, 5/1/2009 7,181,125
TOTAL 38,328,375
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS-continued
STEEL-0.9%
$ 750,000 AK Steel Corp., Sr. Note,
9.125%, 12/15/2006 $ 750,000
1,200,000 1, 2 California Steel
Industries, Inc., Sr.
Note, 8.50%, 4/1/2009 1,128,000
6,325,000 Metals USA, Inc., Sr. Sub.
Note, 8.625%, 2/15/2008 5,787,375
5,400,000 1, 2 National Steel Corp., 1st
Mtg. Bond, 9.875%,
3/1/2009 5,332,500
6,200,000 1, 2 Republic Technologies
International, Inc., Unit,
13.75%, 7/15/2009 5,983,000
1,000,000 Ryerson Tull, Inc., Sr.
Note, 9.125%, 7/15/2006 1,006,500
TOTAL 19,987,375
SURFACE TRANSPORTATION-
1.9%
5,800,000 Allied Holdings, Inc., Sr.
Note, 8.625%, 10/1/2007 5,278,000
6,975,000 4 AmeriTruck Distribution
Corp., Sr. Sub. Note,
12.25%, 11/15/2005 383,625
7,750,000 Gearbulk Holding Ltd., Sr.
Note, 11.25%, 12/1/2004 7,846,875
4,475,000 Railworks Corp., Company
Guarantee, 11.50%,
4/15/2009 4,363,125
12,700,000 Stena AB, Sr. Note, 10.50%,
12/15/2005 12,573,000
6,450,000 Stena AB, Sr. Note, 8.75%,
6/15/2007 5,837,250
6,000,000 Stena Line AB, Sr. Note,
10.625%, 6/1/2008 4,230,000
4,400,000 1, 2 The Holt Group, Inc.,
Company Guarantee, 9.75%,
1/15/2006 3,014,000
TOTAL 43,525,875
TELECOMMUNICATIONS &
CELLULAR-22.1%
4,475,000 3 AirGate PCS, Inc., Unit,
0/13.50%, 10/1/2009 2,461,250
11,425,000 1, 2 American Cellular Corp.,
Sr. Note, 10.50%,
5/15/2008 11,882,000
2,200,000 Arch Communications, Inc.,
Sr. Note, Series B, 12.75%,
7/1/2007 1,551,000
9,925,000 3 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/10.80%, 5/15/2009 5,235,438
20,125,000 3 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/8.94%, 8/15/2008 11,119,063
12,375,000 3 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/9.27%, 8/15/2007 7,425,000
8,975,000 1, 2 Centennial Cellular Corp.,
Sr. Sub. Note, 10.75%,
12/15/2008 9,423,750
12,150,000 1, 2, 3 Dolphin Telecom PLC, Sr.
Disc. Note, 0/14.00%,
5/15/2009 4,981,500
4,975,000 3 E.Spire Communications,
Inc., Sr. Disc. Note,
0/12.75%, 4/1/2006 2,611,875
2,125,000 3 E.Spire Communications,
Inc., Sr. Disc. Note,
0/13.00%, 11/1/2005 1,200,625
9,025,000 1, 2 Hermes Europe Railtel
B.V., Sr. Note, 10.375%,
1/15/2009 8,844,500
14,200,000 Hermes Europe Railtel
B.V., Sr. Note, 11.50%,
8/15/2007 14,342,000
5,225,000 3 ICG Holdings, Inc., Sr.
Disc. Note, 0/11.625%,
3/15/2007 3,453,464
10,350,000 3 ICG Holdings, Inc., Sr.
Disc. Note, 0/12.50%,
5/1/2006 7,951,698
5,475,000 3 ICG Services, Inc., Sr.
Exchange Disc. Note,
0/9.875%, 5/1/2008 2,900,984
9,200,000 IXC Communications, Inc.,
Sr. Sub. Note, 9.00%,
4/15/2008 9,119,500
9,650,000 3 Intermedia Communications,
Inc., Sr. Disc. Note,
0/11.25%, 7/15/2007 6,610,250
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<C> <S> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 18,300,000 3 Intermedia Communications,
Inc., Sr. Disc. Note,
0/12.50%, 5/15/2006 $ 15,006,000
12,650,000 3 Intermedia Communications,
Inc., Sr. Disc. Note,
0/12.25%, 3/1/2009 6,388,250
7,300,000 Intermedia Communications,
Inc., Sr. Note, 8.60%,
6/1/2008 6,332,750
4,500,000 Intermedia Communications,
Inc., Sr. Note, 8.875%,
11/1/2007 3,971,250
40,225,000 1, 2, 3 Level 3 Communications,
Inc., Sr. Disc. Note,
0/10.50%, 12/1/2008 22,727,125
33,800,000 1, 2 Level 3 Communications,
Inc., Sr. Note, 9.125%,
5/1/2008 30,758,000
16,025,000 3 McLeod, Inc., Sr. Disc.
Note, 0/10.50%, 3/1/2007 12,900,125
4,725,000 1, 2 McLeod, Inc., Sr. Note,
8.125%, 2/15/2009 4,394,250
3,000,000 McLeod, Inc., Sr. Note,
8.375%, 3/15/2008 2,820,000
4,725,000 McLeod, Inc., Sr. Note,
9.25%, 7/15/2007 4,713,188
5,200,000 McLeod, Inc., Sr. Note,
9.50%, 11/1/2008 5,226,000
6,650,000 MetroNet Communications
Corp., Sr. Note, 12.00%,
8/15/2007 7,780,500
7,875,000 3 MetroNet Communications
Corp., Sr. Disc. Note,
0/9.95%, 6/15/2008 6,162,188
5,100,000 1, 2 MetroNet Communications
Corp., Sr. Note, 10.625%,
11/1/2008 5,845,875
19,275,000 3 Millicom International
Cellular S. A., Sr. Disc.
Note, 0/13.50%, 6/1/2006 13,685,250
17,875,000 3 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/10.65%, 9/15/2007 13,316,875
39,325,000 3 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/9.95%, 2/15/2008 27,625,813
25,350,000 3 NEXTLINK Communications,
Inc., Sr. Disc. Note,
0/12.25%, 6/1/2009 14,703,000
6,325,000 3 NEXTLINK Communications,
Inc., Sr. Disc. Note,
0/9.45%, 4/15/2008 3,731,750
10,275,000 NEXTLINK Communications,
Inc., Sr. Note, 10.75%,
6/1/2009 10,403,438
8,650,000 NEXTLINK Communications,
Inc., Sr. Note, 9.00%,
3/15/2008 8,066,125
6,750,000 3 Nextel International,
Inc., Sr. Disc. Note,
0/12.125%, 4/15/2008 3,504,060
6,700,000 1, 2, 3 Nextel Partners, Inc., Sr.
Disc. Note, 0/14.00%,
2/1/2009 4,020,000
9,700,000 Orange PLC, Sr. Note,
8.00%, 8/1/2008 9,409,000
11,450,000 Paging Network, Inc., Sr.
Sub. Note, 10.00%,
10/15/2008 3,091,500
5,225,000 Paging Network, Inc., Sr.
Sub. Note, 10.125%,
8/1/2007 1,463,000
8,400,000 Pathnet, Inc., Unit,
12.25%, 4/15/2008 4,914,000
12,025,000 PsiNet, Inc., Sr. Note,
10.00%, 2/15/2005 11,604,125
6,475,000 1, 2 PsiNet, Inc., Sr. Note,
11.00%, 8/1/2009 6,410,250
6,200,000 PsiNet, Inc., Sr. Note,
11.50%, 11/1/2008 6,324,000
7,525,000 3 Qwest Communications
International, Inc., Sr.
Disc. Note, 0/8.29%,
2/1/2008 5,559,094
8,600,000 3 Qwest Communications
International, Inc., Sr.
Disc. Note, 0/9.47%,
10/15/2007 6,708,000
5,000,000 Qwest Communications
International, Inc., Sr.
Note, 10.875%, 4/1/2007 5,612,500
11,050,000 Rogers Cantel Mobile,
Inc., Sr. Sub. Note, 8.80%,
10/1/2007 11,298,625
<CAPTION>
PRINCIPAL
AMOUNT, UNITS OR SHARES VALUE
<C> <S> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 2,000,000 1, 2 Tele1 Europe B.V., Sr.
Note, 13.00%, 5/15/2009 $ 1,970,000
7,625,000 1, 2, 3 Telesystem International
Wireless, Inc., Sr. Disc.
Note, 0/10.50%, 11/1/2007 3,164,375
15,050,000 3 Telesystem International
Wireless, Inc., Sr. Disc.
Note, 0/13.25%, 6/30/2007 7,299,250
13,775,000 3 Teligent, Inc., Sr. Disc.
Note, 0/11.50%, 3/1/2008 7,369,625
10,625,000 Teligent, Inc., Sr. Note,
11.50%, 12/1/2007 9,828,125
5,800,000 1, 2, 3 Tritel PCS, Inc., Sr. Sub.
Disc. Note, 0/12.75%,
5/15/2009 3,364,000
18,450,000 3 Triton PCS, Inc., Sr. Disc.
Note, 0/11.00%, 5/1/2008 12,499,875
5,625,000 US Xchange LLC, Sr. Note,
15.00%, 7/1/2008 5,582,813
7,550,000 USA Mobile Communications,
Inc., Sr. Note, 9.50%,
2/1/2004 5,813,500
4,600,000 1, 2 Verio, Inc., Sr. Note,
11.25%, 12/1/2008 4,738,000
4,050,000 1, 2 Viatel, Inc., Sr. Note,
11.50%, 3/15/2009 3,948,750
8,575,000 3 Viatel, Inc., Unit, Sr.
Disc. Note, 0/12.50%,
4/15/2008 5,016,375
7,775,000 Viatel, Inc., Unit, Sr.
Note, 11.25%, 4/15/2008 7,502,875
2,150,000 Williams Communications
Group, Inc., Sr. Note,
10.70%, 10/1/2007 2,150,000
7,600,000 Williams Communications
Group, Inc., Sr. Note,
10.875%, 10/1/2009 7,542,924
9,375,000 3 WinStar Communications,
Inc., Sr. Sub. Defd. Deb.,
0/11.00%, 3/15/2008 8,296,875
TOTAL 513,677,165
UTILITIES-0.7%
3,500,000 CMS Energy Corp., Sr. Note,
7.50%, 1/15/2009 3,223,325
3,500,000 1, 2 Caithness Coso Funding
Corp., Sr. Secd. Note,
9.05%, 12/15/2009 3,447,500
7,975,000 El Paso Electric Co., 1st
Mtg. Note, 9.40%, 5/1/2011 8,766,838
2,100,000 3 Niagara Mohawk Power
Corp., Sr. Disc. Note,
Series H, 0/8.50%,
7/1/2010 1,568,049
TOTAL 17,005,712
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$2,369,883,839) 2,164,717,888
COMMON STOCKS-0.3% 4
7,500 Affiliated Newspaper
Investments, Inc. 937,500
3,184 1, 2 Australis Holdings
Property Ltd., Warrants 0
2,400 1, 2 Bar Technologies, Inc.,
Warrants 48,000
136 1, 2 CS Wireless Systems, Inc. 19
16,500 Diva Systems Corp.,
Warrants 132,000
4,850 1, 2 Electronic Retailing
Systems International,
Inc., Warrants 24,250
3,750 1, 2 IHF Capital, Inc.,
Warrants 1,875
353 1 MAFCO Acquisition,
Warrants 0
<CAPTION>
UNITS OR SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
6,650 1, 2 MetroNet Communications
Corp., Warrants $ 532,000
1,750 1, 2 Motels of America, Inc. 438
8,400 1, 2 Pathnet, Inc., Warrants 85,050
9,025 Pegasus Communications
Corp. 407,253
5,775 Pegasus Communications
Corp., Warrants 436,013
4,425 1, 2 R&B Falcon Corp., Warrants 111,731
237,797 Royal Oak Mines, Inc. 0
6,325 Sterling Chemicals
Holdings, Inc., Warrants 75,900
46 1, 2 Sullivan Graphics, Inc. 0
2,000 1, 2 Tele1 Europe B.V.,
Warrants 130,000
14,150 UIH Australia/Pacific,
Warrants 353,750
94,523 Weatherford International,
Inc. 3,024,735
14,400 Wireless One, Inc.,
Warrants 0
TOTAL COMMON STOCKS
(IDENTIFIED COST
$4,558,256) 6,300,514
PREFERRED STOCKS-3.8%
BANKING-0.1%
120,000 California Federal
Preferred Capital Corp.,
REIT Perpetual Pfd. Stock,
Series A, $2.28 2,820,000
BROADCAST RADIO & TV-1.3%
5,350 Benedek Communications
Corp., Sr. Exchangeable
PIK 4,092,750
15,296 Capstar Broadcasting
Corp., Cumulative
Exchangeable Pfd. Stock,
Series E 1,843,168
47,867 Capstar Broadcasting
Partners, Inc., Sr. Pfd.,
$12.00 5,516,672
6,154 Cumulus Media, Inc.,
Cumulative Sr. Red. Pfd.
Stk., Series A, $3.44 6,615,821
119,150 Sinclair Capital, Inc.,
Cumulative Pfd., $11.63 11,974,575
TOTAL 30,042,986
CABLE TELEVISION-0.4%
9,840 Pegasus Communications
Corp., Cumulative PIK
Pfd., Series A, 12.75% 9,839,732
FOOD SERVICES-0.1%
53,181 Nebco Evans Holding Co.,
Exchangeable Pfd. Stock 1,941,107
FOREST PRODUCTS-0.1%
18,250 1, 2 Packaging Corp. of
America, Sr. Exchangeable
PIK 1,975,562
HEALTHCARE-0.1%
19,280 1, 2 River Holding Corp., Sr.
Exchangeable PIK 1,315,089
<CAPTION>
PRINCIPAL
AMOUNT, UNITS OR SHARES VALUE
<C> <S> <C>
PREFERRED STOCKS-continued
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.2%
3,575 Fairfield Manufacturing
Co., Inc., Cumulative
Exchangeable Pfd. Stock $ 3,700,125
94 1, 2 International Utility
Structures, Inc., Unit 85,775
475 1, 2 International Utility
Structures, Inc., Unit,
$13.00 441,750
TOTAL 4,227,650
OIL & GAS-0.2%
5,768 R&B Falcon Corp., PIK Pfd.,
13.875% 5,509,242
PRINTING & PUBLISHING-0.9%
13,675 Primedia, Inc., Cumulative
Pfd., Series D, $10.00 1,360,663
128,025 Primedia, Inc.,
Exchangeable Pfd. Stock,
Series G, $2.16 11,714,288
72,500 Primedia, Inc., Pfd.,
$9.20 6,923,750
TOTAL 19,998,701
TELECOMMUNICATIONS &
CELLULAR-0.5%
2,550 IXC Communications, Inc.,
Cumulative Jr.
Exchangeable Pfd. Stock 2,715,750
4,216 NEXTEL Communications,
Inc., Cumulative PIK Pfd.,
Series D, 13.00% 4,468,960
3,744 NEXTEL Communications,
Inc., Exchangeable Pfd.
Stock, Series E 3,612,960
TOTAL 10,797,670
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$93,193,203) 88,467,739
REPURCHASE AGREEMENT-1.0% 5
$ 23,580,000 ABN AMRO, Inc., 5.45%,
dated 9/30/1999, due
10/1/1999 (AT AMORTIZED
COST) 23,580,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$2,491,215,298) 6 $ 2,283,066,141
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
federal securities law. At September 30, 1999, these securities amounted to
$574,487,984 which represents 24.7% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $574,487,984.
2 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's Board of Directors.
3 These securities are issued with a zero coupon which increases to the stated
rate at a set date in the future.
4 Non-income producing security.
5 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.
6 The cost of investments for federal tax purposes amounts to $2,491,215,298.
The net unrealized depreciation of investments on a federal tax basis amounts to
$208,149,157 which is comprised of $22,369,125 appreciation and $230,518,282
depreciation at September 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($2,327,480,652) at September 30, 1999.
The following acronyms are used throughout this portfolio:
GTD -Guaranteed
LLC -Limited Liability Corporation
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
Statement of Assets and Liabilities
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$2,491,215,298) $ 2,283,066,141
Cash 3,909
Income receivable 50,029,053
Receivable for investments
sold 4,123,777
Receivable for shares sold 3,426,925
TOTAL ASSETS 2,340,649,805
LIABILITIES:
Payable for investments
purchased $ 10,006,841
Payable for shares
redeemed 2,031,068
Accrued expenses 1,131,244
TOTAL LIABILITIES 13,169,153
Net assets for 221,785,102
shares outstanding $ 2,327,480,652
NET ASSETS CONSIST OF:
Paid in capital $ 2,554,420,030
Net unrealized
depreciation of
investments (208,149,157)
Accumulated net realized
loss on investments (21,250,502)
Undistributed net
investment income 2,460,281
TOTAL NET ASSETS $ 2,327,480,652
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($836,662,057 / 79,695,969
shares outstanding) $10.50
Offering Price Per Share
(100/95.50 of $10.50) 1 $10.99
Redemption Proceeds Per
Share $10.50
CLASS B SHARES:
Net Asset Value Per Share
($1,237,901,209 /
117,984,782 shares
outstanding) $10.49
Offering Price Per Share $10.49
Redemption Proceeds Per
Share (94.50/100 of
$10.49) 1 $9.91
CLASS C SHARES:
Net Asset Value Per Share
($252,917,386 / 24,104,351
shares outstanding) $10.49
Offering Price Per Share $10.49
Redemption Proceeds Per
Share (99.00/100 of
$10.49) 1 $10.39
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,683,534
Interest 115,560,062
TOTAL INCOME 120,243,596
EXPENSES:
Investment advisory fee $ 8,860,782
Administrative personnel
and services fee 890,804
Custodian fees 67,203
Transfer and dividend
disbursing agent fees and
expenses 890,006
Directors'/Trustees' fees 9,184
Auditing fees 9,853
Legal fees 61,053
Portfolio accounting fees 119,810
Distribution services fee-
Class B Shares 4,731,358
Distribution services fee-
Class C Shares 941,903
Shareholder services fee-
Class A Shares 1,062,507
Shareholder services fee-
Class B Shares 1,577,119
Shareholder services fee-
Class C Shares 313,968
Share registration costs 114,897
Printing and postage 223,264
Insurance premiums 2,898
Taxes 84,444
Miscellaneous 7,633
TOTAL EXPENSES 19,968,686
Net investment income 100,274,910
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 44,431
Net change in unrealized
depreciation of
investments (175,070,898)
Net realized and
unrealized gain (loss) on
investments (175,026,467)
Change in net assets
resulting from operations $ (74,751,557)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
SEPTEMBER 30, MARCH 31,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 100,274,910 $ 169,463,587
Net realized gain (loss) on
investments ($44,431 and
$3,084,749, respectively,
as computed for federal tax
purposes) 44,431 (3,007,024)
Net change in unrealized
depreciation of
investments (175,070,898) (126,848,907)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (74,751,557) 39,607,656
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (38,001,146) (66,152,957)
Class B Shares (51,595,735) (85,852,247)
Class C Shares (10,257,796) (16,122,978)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (99,854,677) (168,128,182)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 519,903,928 976,452,940
Net asset value of shares
issued to shareholders in
payment of
distributions declared 51,999,951 86,755,128
Cost of shares redeemed (370,320,972) (553,081,850)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 201,582,907 510,126,218
Change in net assets 26,976,673 381,605,692
NET ASSETS:
Beginning of period 2,300,503,979 1,918,898,287
End of period (including
undistributed net
investment income of
$2,460,281 and $2,040,048,
respectively) $ 2,327,480,652 $ 2,300,503,979
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.30 $12.10 $11.31 $11.08 $10.54 $10.99
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.49 1.01 1.00 1.04 1.00 1.01
Net realized and
unrealized gain (loss) on
investments (0.80) (0.81) 0.79 0.22 0.55 (0.43)
TOTAL FROM
INVESTMENT OPERATIONS (0.31) 0.20 1.79 1.26 1.55 0.58
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.49) (1.00) (1.00) (1.03) (1.00) (1.03)
Distributions in excess of
net investment income 1 - - - - (0.01) -
TOTAL DISTRIBUTIONS (0.49) (1.00) (1.00) (1.03) (1.01) (1.03)
NET ASSET VALUE, END
OF PERIOD $10.50 $11.30 $12.10 $11.31 $11.08 $10.54
TOTAL RETURN 2 (2.83%) 1.94% 16.48% 11.88% 15.24% 5.74%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 3 1.21% 4 1.19% 1.22% 1.24% 1.28% 1.26%
Net investment income 3 8.94% 4 8.79% 8.45% 9.16% 9.01% 9.59%
Expenses (after waivers) 1.21% 4 1.19% 1.21% 1.21% 1.22% 1.21%
Net investment income
(after waivers) 8.94% 4 8.79% 8.46% 9.19% 9.07% 9.64%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $836,662 $829,982 $748,294 $599,736 $530,203 $448,040
Portfolio turnover 11% 28% 58% 55% 53% 52%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principals. These distributions do
not represent a return of capital for federal income tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.29 $12.09 $11.31 $11.08 $10.54 $10.57
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.45 0.92 0.91 0.96 0.95 0.51
Net realized and
unrealized gain (loss) on
investments (0.80) (0.80) 0.78 0.21 0.51 (0.07)
TOTAL FROM
INVESTMENT OPERATIONS (0.35) 0.12 1.69 1.17 1.46 0.44
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.45) (0.92) (0.91) (0.94) (0.91) (0.47)
Distributions in excess of
net investment income 2 - - - - (0.01) -
TOTAL DISTRIBUTIONS (0.45) (0.92) (0.91) (0.94) (0.92) (0.47)
NET ASSET VALUE, END OF
PERIOD $10.49 $11.29 $12.09 $11.31 $11.08 $10.54
TOTAL RETURN 3 (3.20%) 1.18% 15.52% 10.99% 14.31% 4.47%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 1.96% 5 1.94% 1.97% 1.99% 2.04% 2.07% 5
Net investment income 4 8.19% 5 8.05% 7.76% 8.39% 8.28% 9.42% 5
Expenses (after waivers) 1.96% 5 1.94% 1.97% 1.99% 2.03% 2.02% 5
Net investment income
(after waivers) 8.19% 5 8.05% 7.76% 8.39% 8.29% 9.47% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $1,237,901 $1,239,882 $980,125 $513,169 $238,055 $33,295
Portfolio turnover 11% 28% 58% 55% 53% 52%
</TABLE>
1 Reflects operations for the period from September 27, 1994 (date of initial
public investment) to March 31, 1995.
2 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principals. These distributions do
not represent a return of capital for federal income tax purposes.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.30 $12.09 $11.31 $11.08 $10.54 $10.99
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.45 0.92 0.91 0.95 0.92 0.94
Net realized and
unrealized gain (loss) on
investments (0.81) (0.79) 0.78 0.22 0.54 (0.44)
TOTAL FROM
INVESTMENT OPERATIONS (0.36) 0.13 1.69 1.17 1.46 0.50
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.45) (0.92) (0.91) (0.94) (0.91) (0.95)
Distributions in excess of
net investment income 1 - - - - (0.01) -
TOTAL DISTRIBUTIONS (0.45) (0.92) (0.91) (0.94) (0.92) (0.95)
NET ASSET VALUE, END OF
PERIOD $10.49 $11.30 $12.09 $11.31 $11.08 $10.54
TOTAL RETURN 2 (3.28%) 1.26% 15.51% 11.00% 14.35% 4.91%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.96% 4 1.94% 1.97% 1.99% 2.03% 2.03%
Net investment income 3 8.19% 4 8.05% 7.74% 8.38% 8.27% 8.85%
Expenses (after waivers) 1.96% 4 1.94% 1.97% 1.99% 2.00% 1.98%
Net investment income
(after waivers) 8.19% 4 8.05% 7.74% 8.38% 8.30% 8.90%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $252,917 $230,640 $190,480 $105,095 $57,422 $32,376
Portfolio turnover 11% 28% 58% 55% 53% 52%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principals. These distributions do
not represent a return of capital for federal income tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1999 (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 60 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, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $11,376,256, 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
the year 2000.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each illiquid restricted security held at September
30, 1999 is as follows:
<TABLE>
<CAPTION>
SECURITY Acquisition Date Acquisition Cost
<S> <C> <C>
MAFCO Acquisition, Warrants 7/1/1991 $80,625
</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.
CAPITAL STOCK
At September 30, 1999, par value shares ($0.01 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
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
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS A: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 20,065,106 $ 219,323,746 29,051,474 $ 329,949,439
Shares issued to
shareholders in payment of
distributions declared 1,927,237 21,174,064 3,159,810 35,962,978
Shares redeemed (15,746,446) (171,114,007) (20,610,388) (235,722,033)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 6,245,897 $ 69,383,803 11,600,896 $ 130,190,384
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS B: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 20,631,170 $ 227,321,472 47,477,727 $ 540,422,390
Shares issued to
shareholders in payment of
distributions declared 2,248,749 24,698,011 3,615,144 41,080,058
Shares redeemed (14,680,102) (160,910,364) (22,356,479) (254,626,564)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 8,199,817 $ 91,109,119 28,736,392 $ 326,875,884
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS C: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,627,918 $ 73,258,710 9,326,161 $ 106,081,111
Shares issued to
shareholders in payment of
distributions declared 564,257 6,127,876 853,417 9,712,092
Shares redeemed (3,504,352) (38,296,601) (5,511,870) (62,733,253)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 3,687,823 $ 41,089,985 4,667,708 $ 53,059,950
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 18,133,537 $ 201,582,907 45,004,996 $ 510,126,218
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund Shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC 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 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $395,676,805
Sales $263,065,057
</TABLE>
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
WILLIAM J. COPELAND
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. THOMAS MADDEN
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
MARK E. DURBIANO
Vice President
RICHARD J. THOMAS
Treasurer
C. GRANT ANDERSON
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
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Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF SEPTEMBER 30, 1999 Federated High Income Bond Fund, Inc.
Established 1977
23RD SEMI-ANNUAL REPORT
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Federated
Federated High Income Bond Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 314195108
Cusip 314195207
Cusip 314195306
8110103 (11/99)
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