[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 I am pleased
to present its 22nd Annual Report. The fund is designed to provide high
monthly income from a broadly diversified portfolio of high-yield bonds. 1
The fund's assets now exceed $2.3 billion, and it has earned an enviable
overall five-star Morningstar Rating TM out of 1521 taxable bond funds as of
March 31, 1999. 2
This report covers the 12-month reporting period from April 1, 1998 through
March 31, 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.
The fund's recently completed fiscal year saw a weaker high-yield bond market,
as overseas economic difficulties during the year caused investors to flee to
the comfort of U.S. Treasuries, sending the yields of high-yield bonds higher
and prices lower. This development was particularly acute in the third quarter
of 1998, when the equity markets tumbled worldwide and high-yield bonds recorded
extremely negative returns. The market improved in the second half of the
reporting period, but not enough to counter the effects of the third quarter
results. Bond prices reflected concern, not so much with the individual holdings
of the fund, but on the perception of the bonds' outlook. The fund's holdings
are well-diversified across more than 320 issues, and in many cases, are
well-known, successful corporations which have issued high-yield bonds.
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 risk-adjusted performance through 3/31/99. They are subject to
change every month. Ratings are calculated from the funds' 3-, 5-, and 10-year
average annual returns in excess of 90-day Treasury-bill returns with
appropriate fee adjustments, and a risk factor that reflects fund performance
below 90-day Treasury-bill returns. The top 10% of funds in a rating universe
receive 5 stars; the next 22.5% receive 4 stars; the middle 35% receive 3 stars;
the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The fund
received 3, 5, and 5 stars for the 3-, 5-, and 10-year periods and was rated
among 1521, 1048, and 371 taxable bond funds, respectively. Ratings are for the
A Shares class only; other classes may vary.
For the fiscal year ended March 31, 1999, Federated High Income Bond Fund, Inc.
produced a strong level of income and modestly positive returns that
outperformed the overall returns of the high-yield market and the negative
returns of the average high-yield bond fund. Individual share class total return
performance, including income distributions, follows. 3
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares 1.94% $1.00 $12.10 to $11.30 = (7%)
Class B Shares 1.18% $0.92 $12.09 to $11.29 = (7%)
Class C Shares 1.26% $0.92 $12.09 to $11.30 = (7%)
</TABLE>
Our high-yield bond managers are proud of their long-term performance in a
market that has experienced both price appreciation as well as price declines.
Volatility is the nature of the high-yield bond market.
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
May 15, 1999
3 Performance quoted is based on net asset value, represents 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 (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (2.64%), (3.96%), and 0.33%, respectively.
[Graphic]
MARK E. Durbiano
Senior Vice President
Federated Investment Management Company
Investment Review
HOW DID HIGH-YIELD BONDS PERFORM DURING THE FUND'S FISCAL YEAR?
Total returns for high-yield bonds were disappointing for the 12-month period
ended March 31, 1999 in comparison to high-quality corporate bonds and U.S.
Treasury bonds. For example, the Lehman Brothers Aggregate Bond Index, 1 a
measure of high-quality bond performance, returned 6.49%, which was far superior
to the 0.38% return generated by the Lehman Brothers High Yield Bond Index 1 and
the (1.94%) return of the Lipper High Current Yield Funds Average.
2
WHAT FACTORS IMPACTED THE PERFORMANCE OF HIGH-YIELD BONDS DURING THE
REPORTING PERIOD?
High-yield bonds underperformed high-quality fixed-income assets because of
investor concerns that U.S. economic growth would slow in 1999. This led
investors to expect increased credit risk and rising default rates. These
concerns developed because of substantial volatility in world financial markets
and weakness in foreign economies, especially emerging markets, during much of
1998.
1 The Lehman Brothers Aggregate Bond Index is an unmanaged index composed of
securities from the 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 includes all fixed
income securities having a maximum quality rating of Ba1, a minimum amount
outstanding of $100 million and at least one year to maturity. Investments
cannot be made in an index.
2 Lipper figures represent the average of the total returns reported by all
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category indicated. These figures do not reflect sales charges.
For example, the yield spread (or risk premium) between the First Boston High
Yield Bond Index 3 and a comparable U.S. Treasury increased from 378 basis
points on March 31, 1998 to 605 basis points on March 31, 1999. When yield
spreads increase, high-yield bonds exhibit poor price performance relative to
higher quality fixed-income securities. These conditions peaked in the third
quarter of 1998 (June 30th through September 30th) when equity markets tumbled
worldwide and high-yield bonds recorded some of their worst returns. The
economy's strong performance at the end of 1998 and into 1999 coupled with three
Federal Reserve Board interest rate cuts spurred some improvement in the fourth
quarter of 1998 and the first quarter of 1999, although not enough to offset the
damage done.
WHAT SPECIFIC SECTORS WERE THE BEST AND WORST PERFORMERS DURING THE REPORTING
PERIOD?
The telecommunications sector, the cable television sector and the broadcasting
sector (the three largest industry exposures for the fund) turned in strong
performances during the reporting period. These sectors were positively impacted
by regulatory changes, consolidation activity, and generally strong overall
financial performance.
On the negative side, falling oil and gas prices caused energy related
securities to substantially decline in value. Likewise, declining prices for
many industrial commodities caused chemical, metal and mining related securities
to decline in price. Finally, the implementation of new reimbursement
regulations for long-term care providers caused the price of health care related
securities to substantially decline.
HOW DID FEDERATED HIGH INCOME BOND FUND, INC. PERFORM DURING THE FUND'S
FISCAL YEAR ENDED MARCH 31, 1999?
On a relative basis, the fund performed well. The fund outperformed the overall
high-yield market and the average high-yield bond fund. For the 12-month
reporting period ended March 31, 1999, the fund's Class A, B, and C Shares
produced total returns of 1.94%, 1.18%, and 1.26%, respectively, based on net
asset value. 4 These returns were superior to the Lehman Brothers High Yield
Bond Index return of 0.38% and the Lipper High Current Yield Funds Average
return of (1.94%).
WHAT HOLDINGS HAVE AFFECTED THE FUND'S RETURN OVER THE REPORTING PERIOD BOTH ON
AN ABSOLUTE BASIS AS WELL AS RELATIVE TO THE INDICES?
Several factors led to the fund's strong relative performance. First, the
fund's large holdings in cable television and broadcasting issuers performed
well. Securities of PEGASUS MEDIA, ECHOSTAR DBS CORP. and NTL, INC. were
standout performers. The telecommunications sector, the funds largest
industry exposure, while volatile given the developing nature of many
companies in the sector, positively impacted performance. Positions in QWEST
COMMUNICATIONS INTERNATIONAL, INC., METRONET COMMUNICATIONS CORP. and NEXTEL
COMMUNICATIONS, INC. were especially strong performers for the fund.
3 The First Boston High Yield Bond Index is an unmanaged index that serves as a
benchmark to evaluate the performance of low-quality bonds, which are defined as
BBB to CCC and defaults. Investments cannot be made in an index.
4 Performance quoted is based on net asset value, represents 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 (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (2.64%), (3.96%), and 0.33%, respectively.
The fund also benefited from underweighted positions in the energy sector and
the health care sector, which substantially underperfomed the overall market.
The fund was positively impacted by calls and tenders from VIACOM, INC., SYGNET
WIRELESS, INC., ALLIED WASTE INDUSTRIES, INC., VANGUARD CELLULAR SYSTEMS, INC.
and SIMMONS CO.
On the negative side, AMERITRUCK DISTRIBUTION CORP. and FORCENERGY, INC.
filed for Chapter 11 bankruptcy protection during the year. AMERITRUCK was
negatively impacted by its failure to successfully integrate a major
acquisition, and FORCENERGY was impacted by low oil and gas prices. Also, KCS
ENERGY, INC. and THE HOLT GROUP, INC. substantially underperformed the
overall market. Despite the two defaults mentioned above, the default
experience of Federated High Income Bond Fund, Inc. remains better than the
overall market and security selection positively impacted performance
relative to its peers.
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF MARCH 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME NET ASSETS
<S> <C>
Level 3 Communications, Inc. 2.45%
Chancellor Media Corp. 2.27%
NEXTEL/NEXTEL International 2.13%
Intermedia Communications, Inc. 1.88%
Tenet Healthcare Corp. 1.71%
Sinclair Broadcast Group, Inc. 1.62%
MetroNet Communications Corp. 1.56%
NTL, Inc. 1.46%
Telewest PLC 1.41%
McLeod, Inc. 1.36%
TOTAL 17.85%
</TABLE>
LOOKING INTO 1999, WHAT IS YOUR OUTLOOK FOR THE HIGH-YIELD BOND MARKET, AND WHAT
ARE YOUR SECTOR STRATEGIES FOR FEDERATED HIGH INCOME BOND FUND, INC.?
For the balance of 1999, we believe that high-yield bonds offer the potential
for attractive relative returns. The biggest plus should be the resilient
domestic economy, which has continued to surprise most economists with its
vibrant non-inflationary growth. This surprising strong non-inflationary growth
should lead to additional spread tightening. Sectors that have underperformed
recently such as energy, long-term care, metals and mining have already
reflected difficult operating conditions and may possess upside potential. The
fund remains overweighted in the telecommunications, broadcasting and cable
television sectors as operating performance and consolidation activity continue
to provide attractive potential returns. We are selectively looking for
opportunities in specific sectors and selected securities that have
underperformed over the past 12 months for the benefit of the fund's
shareholders. As always, broad diversification coupled with rigorous analysis
will be employed to identify attractive investment opportunities.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU HAD 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
$185,105 ON 3/31/99. YOU WOULD HAVE EARNED A 10.52% 1 AVERAGE ANNUAL TOTAL
RETURN FOR THE INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 3/31/99, Class A Shares' average annual 1-year, 5-year, and 10-year total
returns were (2.64%), 9.10%, and 11.01%, respectively. Class B Shares' average
annual 1-year and since inception (9/27/94) total returns were (3.96%) and
9.88%, respectively. Class C Shares' average annual 1-year, 5- year, and since
inception (4/30/93) total returns were 0.33%, 9.27%, and 8.88%, respectively. 2
[Graphic representation "A1" omitted. See Appendix.]
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.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges 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 $87,712.
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 $87,712 1 by 3/31/99. You would
have earned an average annual total return of 11.32%.
A practical investment plan helps you pursue long-term performance from
high-yield corporate bonds. Through systematic investing, you buy shares on a
regular basis and reinvest all earnings. An investment plan works for you when
you invest only $1,000 annually. You can take it one step at a time. Put time,
money, and compounding to work.
[Graphic representation "A2" omitted. See Appendix.]
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
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 March 31, 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
$14,204. This represents an 11.01% average annual total return. For Chuck, that
means extra money toward the construction of his first home.
[Graphic representation "A3" omitted. See Appendix.]
This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated High Income Bond Fund, Inc.-
Class A Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in
Federated High Income Bond Fund, Inc. (Class A Shares) (the "Fund") from March
31, 1989 to March 31, 1999 compared to the Lehman Brothers Single B Rated Index
(LBSBRI) and the Lipper High Current Yield Funds Average (LHCYFA). 2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999
<S> <C>
1 Year (2.64%)
5 Years 9.10%
10 Years 11.01%
Start of Performance (11/30/77) 10.52%
</TABLE>
[Graphic representation "A4" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBSBRI and the LHCYFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
2 The LBSBRI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission (the "SEC") requires to be reflected
in the Fund's performance. This index is unmanaged. The LHCYFA represents the
average of the total returns reported by all of the mutual funds designated by
Lipper Analytical Services, Inc. as falling in the category indicated, and is
not adjusted to reflect any sales charges. However, these total returns are
reported net of expenses or other fees that the SEC requires to be reflected in
a fund's performance.
3 Total return quoted reflects all applicable sales charges.
Federated High Income Bond Fund, Inc.-
Class B Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in
Federated High Income Bond Fund, Inc. (Class B Shares) (the "Fund") from
September 27, 1994 (start of performance) to March 31, 1999 compared to the
Lehman Brothers Single B Rated Index (LBSBRI) and the Lipper High Current Yield
Funds Average (LHCYFA). 2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999
<S> <C>
1 Year (3.96%)
Start of Performance (9/27/94) 9.88%
</TABLE>
[Graphic representation "A5" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 2.00% contingent deferred sales charge on any redemption
less than five years from the purchase date. The maximum contingent deferred
sales charge is 5.50% on any redemption less than one year from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBSBRI and the LHCYFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
2 The LBSBRI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission (the "SEC") requires to be reflected
in the Fund's performance. This index is unmanaged. The LHCYFA represents the
average of the total returns reported by all of the mutual funds designated by
Lipper Analytical Services, Inc. as falling into the category indicated and is
not adjusted to reflect any sales charges. However, these total returns are
reported net of expenses or other fees that the SEC requires to be reflected in
a fund's performance.
3 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Federated High Income Bond Fund, Inc.-
Class C Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated High Income Bond Fund, Inc. (Class C Shares) (the "Fund") from April
30, 1993 (start of performance) to March 31, 1999 compared to the Lehman
Brothers Single B Rated Index (LBSBRI) and the Lipper High Current Yield Funds
Average (LHCYFA). 2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999
<S> <C>
1 Year 0.33%
5 Years 9.27%
Start of Performance (4/30/93) 8.88%
</TABLE>
[Graphic representation "A6" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum
contingent deferred sales charge is 1.00% on any redemption less than one year
from the purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The LBSBRI and the LHCYFA have been adjusted to
reflect reinvestment of dividends on securities in the index and average.
2 The LBSBRI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission (the "SEC") requires to be reflected
in the Fund's performance. This index is unmanaged. The LHCYFA represents the
average of the total returns reported by all of the mutual funds designated by
Lipper Analytical Services, Inc. as falling in the category indicated, and is
not adjusted to reflect any sales charges. However, these total returns are
reported net of expenses or other fees that the SEC requires to be reflected in
a fund's performance.
3 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Portfolio of Investments
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-93.2%
AEROSPACE & DEFENSE-0.0%
$ 1,000,000 Aviation Sales Co., Sr.
Sub. Note, 8.125%,
2/15/2008 $ 1,000,000
AUTOMOBILE-1.9%
6,850,000 Accuride Corp., Sr. Sub.
Note, 9.25%, 2/1/2008 6,952,750
4,425,000 Aftermarket Technology
Co., Sr. Sub. Note,
Series B, 12.00%,
8/1/2004 4,568,812
1,875,000 Aftermarket Technology
Co., Sr. Sub. Note,
Series D, 12.00%,
8/1/2004 1,935,938
7,000,000 1, 2 American Axle &
Manufacturing, Inc., Sr.
Sub. Note, 9.75%,
3/1/2009 7,192,500
4,900,000 1, 2 HDA Parts System, Inc.,
Sr. Sub. Note, 12.00%,
8/1/2005 4,802,000
6,000,000 Lear Corp., Sub. Note,
9.50%, 7/15/2006 6,390,000
2,000,000 Lear Seating Corp., Sub.
Note, 8.25%, 2/1/2002 2,010,000
2,550,000 OshKosh Truck Corp., Sr.
Sub. Note, 8.75%,
3/1/2008 2,581,875
6,825,000 Oxford Automotive, Inc.,
Sr. Sub. Note, 10.125%,
6/15/2007 7,063,875
TOTAL 43,497,750
BANKING-0.6%
13,900,000 GS Escrow Corp., Sr.
Note, 7.125%, 8/1/2005 13,832,029
BEVERAGE & TOBACCO-0.6%
2,100,000 Canandaigua Brands,
Inc., Sr. Sub. Note,
8.50%, 3/1/2009 2,157,750
7,375,000 Dimon, Inc., Sr. Note,
8.875%, 6/1/2006 6,526,875
4,825,000 1, 2 National Wine & Spirits,
Inc., Sr. Note, 10.125%,
1/15/2009 4,993,875
TOTAL 13,678,500
BROADCAST RADIO & TV-
7.8%
12,125,000 3 ACME Television, LLC,
Sr. Disc. Note, Series B,
0/10.875%, 9/30/2004 10,306,250
1,875,000 3 Benedek Communications
Corp., Sr. Sub. Disc.
Note, 0/13.25%,
5/15/2006 1,425,000
12,975,000 3 Big City Radio, Inc., Sr.
Disc. Note, 0/11.25%,
3/15/2005 9,147,375
5,412,100 CBS Radio, Inc., Sub.
Deb., 11.375%, 1/15/2009 6,305,096
4,375,000 Capstar Broadcasting
Partners, Inc., Sr. Sub.
Note, 9.25%, 7/1/2007 4,626,563
5,200,000 Chancellor Media Corp.,
Company Guarantee,
Series B, 10.50%,
1/15/2007 5,785,000
2,500,000 Chancellor Media Corp.,
Company Guarantee,
9.00%, 10/1/2008 2,687,500
16,750,000 Chancellor Media Corp.,
Sr. Sub. Note, Series B,
8.125%, 12/15/2007 17,126,875
7,500,000 Chancellor Media Corp.,
Sr. Sub. Note, Series B,
8.75%, 6/15/2007 7,837,500
10,000,000 Chancellor Media Corp.,
Sr. Sub. Note, 9.375%,
10/1/2004 10,475,000
8,050,000 1, 2 Chancellor Media Corp.,
Sr. Note, 8.00%,
11/1/2008 8,412,250
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
BROADCAST RADIO & TV-
CONTINUED
$ 5,425,000 Cumulus Media, Inc., Sr.
Sub. Note, 10.375%,
7/1/2008 $ 5,859,000
22,625,000 3 Fox/Liberty Networks,
LLC, Sr. Disc. Note,
0/9.75%, 8/15/2007 16,799,063
5,900,000 Fox/Liberty Networks,
LLC, Sr. Note, 8.875%,
8/15/2007 6,136,000
3,000,000 Lamar Advertising Co.,
Sr. Sub. Note, 8.625%,
9/15/2007 3,195,000
3,900,000 Lamar Advertising Co.,
Sr. Sub. Note, 9.625%,
12/1/2006 4,260,750
3,200,000 NWCG Holding Corp., Sr.
Secured Disc. Note,
13.50% accrual,
6/15/1999 3,176,224
9,500,000 Outdoor Systems, Inc.,
Sr. Sub. Note, 8.875%,
6/15/2007 10,212,500
5,950,000 Outdoor Systems, Inc.,
Sr. Sub. Note, 9.375%,
10/15/2006 6,485,500
5,037,000 SFX Broadcasting, Inc.,
Sr. Sub. Note, Series B,
10.75%, 5/15/2006 5,364,405
4,975,000 Sinclair Broadcast
Group, Inc., Sr. Sub.
Note, 10.00%, 9/30/2005 5,261,063
12,125,000 Sinclair Broadcast
Group, Inc., Sr. Sub.
Note, 8.75%, 12/15/2007 12,306,875
6,700,000 Sinclair Broadcast
Group, Inc., Sr. Sub.
Note, 9.00%, 7/15/2007 6,867,500
5,500,000 Young Broadcasting,
Inc., Sr. Sub. Note,
Series B, 10.125%,
2/15/2005 5,885,000
2,000,000 Young Broadcasting,
Inc., Sr. Sub. Note,
11.75%, 11/15/2004 2,155,000
1,000,000 Young Broadcasting,
Inc., Sr. Sub. Note,
Series B, 9.00%,
1/15/2006 1,030,000
TOTAL 179,128,289
BUILDING & DEVELOPMENT-
0.9%
2,950,000 American Architectural
Products Corp., Sr.
Note, 11.75%, 12/1/2007 2,522,250
5,850,000 American Builders &
Contractors Supply Co.,
Inc., Sr. Sub. Note,
Series B, 10.625%,
5/15/2007 5,294,250
5,350,000 Building Materials Corp.
of America, Sr. Note,
Series B, 8.625%,
12/15/2006 5,430,250
6,775,000 1, 2 Formica Corp., Sr. Sub.
Note, 10.875%, 3/1/2009 6,741,125
TOTAL 19,987,875
BUSINESS EQUIPMENT &
SERVICES-2.2%
10,525,000 Dialog Corp., Sr. Sub.
Note, Series A, 11.00%,
11/15/2007 10,182,937
4,850,000 3 Electronic Retailing
Systems International,
Inc., Sr. Disc. Note,
0/13.25%, 2/1/2004 1,624,750
8,325,000 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%,
2/1/2008 8,449,875
10,950,000 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%,
2/1/2008 11,114,250
13,800,000 U.S. Office Products
Co., Sr. Sub. Note,
9.75%, 6/15/2008 9,177,000
5,166,000 United Stationers Supply
Co., Sr. Sub. Note,
12.75%, 5/1/2005 5,747,175
3,300,000 United Stationers Supply
Co., Sr. Sub. Note,
8.375%, 4/15/2008 3,308,250
TOTAL 49,604,237
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
CABLE TELEVISION-11.2%
$ 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 3,174,030
3,850,000 CSC Holdings, Inc., Sr.
Sub. Deb., 9.875%,
2/15/2013 4,312,000
11,500,000 CSC Holdings, Inc., Sr.
Sub. Note, 9.25%,
11/1/2005 12,391,250
4,175,000 CSC Holdings, Inc., Sr.
Sub. Note, 9.875%,
5/15/2006 4,561,187
17,975,000 1, 2, 3 Charter Communications
Holdings Capital Corp.,
Sr. Disc. Note, 0/9.92%,
4/1/2011 11,661,281
4,725,000 Comcast Corp., Sr. Sub.
Deb., 9.375%, 5/15/2005 5,073,469
3,250,000 3 Comcast UK Cable, Sr.
Disc. Deb., 0/11.20%,
11/15/2007 2,892,500
13,275,000 3 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/10.75%,
2/15/2007 10,354,500
7,675,000 3 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/11.75%,
12/15/2005 6,830,750
3,750,000 3 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/13.25%,
9/30/2004 3,853,125
5,500,000 3 Diva Systems Corp.,
Unit, 0/12.625%,
3/1/2008 1,842,500
26,800,000 1, 2 Echostar DBS Corp., Sr.
Note, 9.375%, 2/1/2009 27,939,000
14,525,000 3 International Cabletel,
Inc., Sr. Defd. Cpn.
Note, Series B,
0/11.50%, 2/1/2006 12,782,000
9,200,000 3 International Cabletel,
Inc., Sr. Disc. Note,
Series A, 0/12.75%,
4/15/2005 8,694,000
5,300,000 Lenfest Communications,
Inc., Sr. Secured Note,
8.375%, 11/1/2005 5,671,000
2,475,000 Lenfest Communications,
Inc., Sr. Sub. Note,
10.50%, 6/15/2006 2,908,125
5,600,000 Lenfest Communications,
Inc., Sr. Sub. Note,
8.25%, 2/15/2008 5,866,000
14,775,000 1, 2, 3 NTL, Inc., Sr. Defd. Cpn.
Note, 0/12.375%,
10/1/2008 10,213,219
30,600,000 1, 2, 3 NTL, Inc., Sr. Defd. Cpn.
Note, 0/9.75%, 4/1/2008 21,152,250
2,000,000 1, 2 NTL, Inc., Sr. Note,
11.50%, 10/1/2008 2,270,000
5,500,000 Pegasus Communications
Corp., Sr. Note, Series
B, 9.625%, 10/15/2005 5,706,250
4,000,000 1, 2 Pegasus Communications
Corp., Sr. Note, 9.75%,
12/1/2006 4,180,000
4,500,000 Pegasus Media, Sr. Sub.
Note, Series B, 12.50%,
7/1/2005 4,972,500
3,000,000 3 RCN Corp., Sr. Disc.
Note, Series B,
0/11.125%, 10/15/2007 2,032,500
400,000 3 RCN Corp., Sr. Disc.
Note, 0/11.00%, 7/1/2008 246,000
2,375,000 3 RCN Corp., Sr. Disc.
Note, 0/9.80%, 2/15/2008 1,460,625
4,225,000 Rogers Cablesystems
Ltd., Sr. Secd. 2nd
Priority Deb., 10.00%,
12/1/2007 4,774,250
7,225,000 Rogers Cablesystems
Ltd., Sr. Secd. 2nd
Priority Note, Series B,
10.00%, 3/15/2005 8,182,312
6,500,000 Rogers Cablesystems
Ltd., Sr. Sub. Gtd. Deb.,
11.00%, 12/1/2015 7,653,750
1,650,000 Rogers Communications,
Inc., Sr. Note, 8.875%,
7/15/2007 1,720,125
34,225,000 3 TeleWest PLC, Sr. Disc.
Deb., 0/11.00%,
10/1/2007 30,289,125
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
CABLE TELEVISION-
CONTINUED
$ 1,825,000 1, 2 TeleWest PLC, Sr. Note,
11.25%, 11/1/2008 $ 2,126,125
14,150,000 3 UIH Australia/Pacific,
Sr. Disc. Note, Series B,
0/14.00%, 5/15/2006 8,985,250
15,875,000 3 United International
Holdings, Inc., Sr.
Secd. Disc. Note,
0/10.75%, 2/15/2008 10,715,625
TOTAL 257,541,038
CHEMICALS & PLASTICS-3.2%
1,350,000 Buckeye Cellulose Corp.,
Sr. Sub. Note, 8.50%,
12/15/2005 1,390,500
6,025,000 Buckeye Cellulose Corp.,
Sr. Sub. Note, 9.25%,
9/15/2008 6,378,246
2,500,000 Foamex LP, Sr. Sub. Note,
13.50%, 8/15/2005 2,562,500
11,125,000 1, 2 Huntsman Corp., Sr. Sub.
Note, 9.50%, 7/1/2007 11,069,375
7,250,000 ISP Holding, Inc., Sr.
Note, Series B, 9.00%,
10/15/2003 7,431,250
3,270,000 ISP Holding, Inc., Sr.
Note, Series B, 9.75%,
2/15/2002 3,384,450
7,900,000 Polymer Group, Inc., Sr.
Sub. Note, Series B,
8.75%, 3/1/2008 8,038,250
18,125,000 Polymer Group, Inc., Sr.
Sub. Note, Series B,
9.00%, 7/1/2007 18,623,438
9,625,000 3 Sterling Chemicals
Holdings, Inc., Sr.
Secured Disc. Note,
0/13.50%, 8/15/2008 4,090,625
500,000 Sterling Chemicals,
Inc., Sr. Sub. Note,
11.25%, 4/1/2007 460,000
4,850,000 Sterling Chemicals,
Inc., Sr. Sub. Note,
11.75%, 8/15/2006 4,559,000
6,000,000 Texas Petrochemicals
Corp., Sr. Sub. Note,
11.125%, 7/1/2006 5,640,000
TOTAL 73,627,634
CLOTHING & TEXTILES-2.3%
4,575,000 Collins & Aikman
Floorcoverings, Inc.,
Sr. Sub. Note, 10.00%,
1/15/2007 4,769,437
17,975,000 Collins & Aikman
Products Co., Sr. Sub.
Note, 11.50%, 4/15/2006 19,323,125
6,025,000 Dyersburg Corp., Sr.
Sub. Note, 9.75%,
9/1/2007 4,488,625
4,900,000 GFSI, Inc., Sr. Sub.
Note, Series B, 9.625%,
3/1/2007 4,532,500
7,075,000 Glenoit Corp., Sr. Sub.
Note, 11.00%, 4/15/2007 6,579,750
6,750,000 Pillowtex Corp., Sr.
Sub. Note, 10.00%,
11/15/2006 7,121,250
5,700,000 Pillowtex Corp., Sr.
Sub. Note, Series B,
9.00%, 12/15/2007 5,785,500
TOTAL 52,600,187
CONGLOMERATE-0.4%
10,700,000 Eagle Picher Industries,
Inc., Sr. Sub. Note,
9.375%, 3/1/2008 10,379,000
CONSUMER PRODUCTS-4.5%
13,500,000 Albecca, Inc., Company
Guarantee, 10.75%,
8/15/2008 11,542,500
4,300,000 American Safety Razor
Co., Sr. Note, Series B,
9.875%, 8/1/2005 4,375,250
6,450,000 Amscan Holdings, Inc.,
Sr. Sub. Note, 9.875%,
12/15/2007 5,514,750
8,350,000 Chattem, Inc., Sr. Sub.
Note, 8.875%, 4/1/2008 8,454,375
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
CONSUMER PRODUCTS-
CONTINUED
$ 1,400,000 Diamond Brands Operating
Corp., Sr. Sub. Note,
10.125%, 4/15/2008 $ 1,183,000
2,375,000 3 Diamond Brands, Inc.,
Sr. Disc. Deb.,
0/12.875%, 4/15/2009 558,125
1,950,000 Hosiery Corp. of
America, Inc., Sr. Sub.
Note, 13.75%, 8/1/2002 2,096,250
6,900,000 3 ICON Fitness Corp., Sr.
Disc. Note, Series B,
0/14.00%, 11/15/2006 103,500
1,000,000 NBTY, Inc., Sr. Sub.
Note, Series B, 8.625%,
9/15/2007 940,000
10,175,000 Playtex Family Products
Corp., Sr. Sub. Note,
9.00%, 12/15/2003 10,505,688
1,475,000 Playtex Products, Inc.,
Sr. Note, 8.875%,
7/15/2004 1,530,312
3,500,000 Revlon Consumer Products
Corp., Sr. Note, 8.125%,
2/1/2006 3,412,500
25,625,000 Revlon Consumer Products
Corp., Sr. Sub. Note,
8.625%, 2/1/2008 23,575,000
4,125,000 1, 2 Scotts Co., Sr. Sub.
Note, 8.625%, 1/15/2009 4,279,688
5,050,000 3 Sealy Mattress Co.,
Company Guarantee, Sr.
Sub Disc. Note,
0/10.875%, 12/15/2007 3,257,250
2,400,000 Sealy Mattress Co., Sr.
Sub. Note, 9.875%,
12/15/2007 2,394,000
2,300,000 1, 2 Simmons Co., Sr. Sub.
Note, 10.25%, 3/15/2009 2,392,000
4,950,000 1, 2 The Boyds Collection,
Ltd., Sr. Sub. Note,
9.00%, 5/15/2008 5,253,187
4,225,000 1, 2 True Temper Sports,
Inc., Sr. Sub. Note,
10.875%, 12/1/2008 3,908,125
1,425,000 1, 2 United Industries Corp.,
Sr. Sub. Note, 9.875%,
4/1/2009 1,467,750
7,475,000 1, 2 Volume Services America,
Inc., Sr. Sub. Note,
11.25%, 3/1/2009 7,717,938
TOTAL 104,461,188
CONTAINER & GLASS
PRODUCTS-1.1%
2,150,000 Ball Corp., Company
Guarantee, Sr. Sub.
Note, 8.25%, 8/1/2008 2,230,625
1,900,000 1, 2 Consumers Packaging,
Inc., Sr. Note, 9.75%,
2/1/2007 1,957,000
4,350,000 Plastic Containers,
Inc., Sr. Secd. Note,
10.00%, 12/15/2006 4,654,500
4,600,000 1, 2 Russell Stanley
Holdings, Inc., Sr. Sub.
Note, 10.875%, 2/15/2009 4,577,000
10,675,000 Tekni-Plex, Inc., Sr.
Sub. Note, 9.25%,
3/1/2008 10,941,875
TOTAL 24,361,000
ECOLOGICAL SERVICES &
EQUIPMENT-1.3%
31,000,000 Allied Waste North
America, Inc., Company
Guarantee, 7.875%,
1/1/2009 30,457,500
ELECTRONICS-1.0%
3,325,000 1, 2 Fairchild Semiconductor
Corp., Sr. Sub. Note,
10.375%, 10/1/2007 3,391,500
13,800,000 Telecommunications
Techniques Co., LLC, Sr.
Sub. Note, 9.75%,
5/15/2008 14,007,000
4,800,000 Viasystems, Inc., Sr.
Sub. Note, 9.75%,
6/1/2007 4,548,000
TOTAL 21,946,500
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
FOOD & DRUG RETAILERS-1.2%
$ 10,800,000 Carr-Gottstein Foods
Co., Sr. Sub. Note,
12.00%, 11/15/2005 $ 12,366,000
4,750,000 Community Distributors,
Inc., Sr. Note, 10.25%,
10/15/2004 4,358,125
9,525,000 Jitney-Jungle Stores of
America, Inc., Sr. Sub.
Note, 10.375%, 9/15/2007 9,786,938
150,000 Meyer (Fred), Inc.,
Company Guarantee,
7.45%, 3/1/2008 158,737
TOTAL 26,669,800
FOOD PRODUCTS-2.2%
11,275,000 1, 2 Agrilink Foods, Inc.,
Sr. Sub. Note, 11.875%,
11/1/2008 12,120,625
4,550,000 Aurora Foods, Inc., Sr.
Sub. Note, 9.875%,
Series B, 2/15/2007 4,936,750
4,225,000 Aurora Foods, Inc., Sr.
Sub. Note, 9.875%,
Series B, 2/15/2007 4,584,125
700,000 Aurora Foods, Inc., Sr.
Sub. Note, Series E,
8.75%, 7/1/2008 733,250
6,875,000 Eagle Family Foods,
Inc., Sr. Sub. Note,
8.75%, 1/15/2008 6,496,875
10,950,000 International Home
Foods, Inc., Sr. Sub.
Note, 10.375%, 11/1/2006 11,908,125
2,000,000 1, 2 New World Pasta Co., Sr.
Sub. Note, 9.25%,
2/15/2009 2,030,000
8,250,000 1, 2 Triarc Consumer Products
Group, LLC, Sr. Sub.
Note, 10.25%, 2/15/2009 8,250,000
TOTAL 51,059,750
FOOD SERVICES-1.4%
2,000,000 Advantica Restaurant
Group, Sr. Note, 11.25%,
1/15/2008 2,050,000
19,050,000 AmeriServe Food
Distribution, Inc., Sr.
Sub. Note, 10.125%,
7/15/2007 13,716,000
6,100,000 1, 2 Carrols Corp., Sr. Sub.
Note, 9.50%, 12/1/2008 6,206,750
7,725,000 1, 2 Domino's, Inc., Sr. Sub.
Note, 10.375%, 1/15/2009 7,956,750
4,965,000 3 Nebco Evans Holding Co.,
Sr. Disc. Note,
0/12.375%, 7/15/2007 1,911,525
TOTAL 31,841,025
FOREST PRODUCTS-1.2%
4,250,000 Container Corp. of
America, Sr. Note,
11.25%, 5/1/2004 4,505,000
3,350,000 1, 2 Packaging Corp. of
America, Sr. Sub. Note,
9.625%, 4/1/2009 3,350,000
5,775,000 S. D. Warren Co., Sr.
Sub. Note, 12.00%,
12/15/2004 6,273,094
9,150,000 Stone Container Corp.,
Sr. Note, 11.50%,
10/1/2004 9,699,000
2,675,000 Stone Container Corp.,
Sr. Note, 12.58%,
8/1/2016 2,701,750
1,000,000 Stone Container Corp.,
Unit, 12.75%, 4/1/2002 1,010,000
TOTAL 27,538,844
HEALTHCARE-3.6%
6,000,000 Alliance Imaging, Inc.,
Sr. Sub. Note, 9.625%,
12/15/2005 5,940,000
9,550,000 CONMED Corp., Sr. Sub.
Note, 9.00%, 3/15/2008 9,693,250
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
HEALTHCARE-CONTINUED
$ 9,350,000 Dade International,
Inc., Sr. Sub. Note,
11.125%, 5/1/2006 $ 10,378,500
6,175,000 Everest Healthcare
Services Corp., Sr. Sub.
Note, 9.75%, 5/1/2008 6,175,000
2,750,000 Genesis Health Ventures,
Inc., Sr. Sub. Note,
9.25%, 10/1/2006 2,296,250
1,300,000 Genesis Health Ventures,
Inc., Sr. Sub. Note,
9.75%, 6/15/2005 1,111,500
4,350,000 1, 2 Genesis Health Ventures,
Inc., Sr. Sub. Note,
9.875%, 1/15/2009 3,806,250
3,275,000 Hudson Respiratory Care,
Inc., Sr. Sub. Note,
9.125%, 4/15/2008 2,849,250
1,250,000 Kinetic Concepts, Inc.,
Company Guarantee,
9.625%, 11/1/2007 1,212,500
2,000,000 1, 2 Tenet Healthcare Corp.,
Sr. Note, 7.625%,
6/1/2008 1,950,000
12,250,000 Tenet Healthcare Corp.,
Sr. Note, 8.00%,
1/15/2005 12,188,750
13,300,000 Tenet Healthcare Corp.,
Sr. Sub. Note, 8.625%,
1/15/2007 13,300,000
11,950,000 1, 2 Tenet Healthcare Corp.,
Sr. Sub., 8.125%,
12/1/2008 11,830,500
TOTAL 82,731,750
HOME PRODUCTS &
FURNISHINGS-0.3%
9,625,000 3 Falcon Building
Products, Inc., Sr. Sub.
Disc. Note, 0/10.50%,
6/15/2007 6,015,625
2,000,000 Falcon Building
Products, Inc., Sr. Sub.
Note, 9.50%, 6/15/2007 1,850,000
TOTAL 7,865,625
HOTELS, MOTELS, INNS &
CASINOS-1.5%
4,550,000 Courtyard by Marriott II
LP, Sr. Note, 10.75%,
2/1/2008 4,743,375
1,000,000 HMH Properties, Inc.,
Sr. Note, 7.875%,
8/1/2005 996,250
19,625,000 HMH Properties, Inc.,
Sr. Note, Series B,
7.875%, 8/1/2008 18,962,656
9,750,000 HMH Properties, Inc.,
Sr. Note, Series C,
8.45%, 12/1/2008 9,725,625
TOTAL 34,427,906
INDUSTRIAL PRODUCTS &
EQUIPMENT-4.6%
8,075,000 Amphenol Corp., Sr. Sub.
Note, 9.875%, 5/15/2007 8,377,812
6,650,000 Cabot Safety Acquisition
Corp., Sr. Sub. Note,
12.50%, 7/15/2005 7,215,250
6,895,000 Continental Global
Group, Inc., Sr. Note,
11.00%, 4/1/2007 5,826,275
6,850,000 Euramax International
PLC, Sr. Sub. Note,
11.25%, 10/1/2006 7,089,750
5,000,000 Fairfield Manufacturing
Co., Inc., Sr. Sub. Note,
11.375%, 7/1/2001 5,187,500
1,335,000 Hawk Corp., Sr. Note,
10.25%, 12/1/2003 1,395,075
6,525,000 1, 2 Hexcel Corporation, Sr.
Sub. Note, 9.75%,
1/15/2009 6,622,875
6,325,000 ISG Resources, Inc., Sr.
Sub. Note, 10.00%,
4/15/2008 6,419,875
3,350,000 International Utility
Structures, Inc., Sr.
Sub. Note, 10.75%,
2/1/2008 3,417,000
4,000,000 Johnstown America
Industries, Inc., Sr.
Sub. Note, 11.75%,
8/15/2005 4,360,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
INDUSTRIAL PRODUCTS &
EQUIPMENT-CONTINUED
$ 4,125,000 Johnstown America
Industries, Inc., Sr.
Sub. Note, 11.75%,
8/15/2005 $ 4,496,250
8,350,000 MMI Products, Inc., Sr.
Sub. Note, 11.25%,
4/15/2007 8,913,625
2,975,000 1, 2 MMI Products, Inc., Sr.
Sub. Note, 11.25%,
4/15/2007 3,175,813
7,650,000 Neenah Corp., Sr. Sub.
Note, 11.125%, 5/1/2007 8,089,875
1,000,000 1, 2 Neenah Corp., Sr. Sub.
Note, 11.125%, 5/1/2007 1,057,500
5,000,000 Unifrax Investment
Corp., Sr. Note, 10.50%,
11/1/2003 5,125,000
14,075,000 WESCO Distribution,
Inc., Sr. Sub. Note,
9.125%, 6/1/2008 14,638,000
6,750,000 3 WESCO International,
Inc., Sr. Disc. Note,
0/11.125%, 6/1/2008 4,657,500
TOTAL 106,064,975
LEISURE & ENTERTAINMENT-
3.1%
10,502,000 3 AMF Group, Inc., Sr. Sub.
Disc. Note, 0/12.25%,
3/15/2006 6,091,160
2,450,000 AMF Group, Inc., Sr. Sub.
Note, 10.875%, 3/15/2006 1,960,000
4,700,000 Loews Cineplex
Entertainment Corp., Sr.
Sub. Note, 8.875%,
8/1/2008 4,711,750
15,325,000 3 Premier Parks, Inc., Sr.
Disc. Note, 0/10.00%,
4/1/2008 10,804,125
4,000,000 Premier Parks, Inc., Sr.
Note, 12.00%, 8/15/2003 4,310,000
2,650,000 Premier Parks, Inc., Sr.
Note, 9.25%, 4/1/2006 2,772,562
500,000 Premier Parks, Inc., Sr.
Note, 9.75%, 1/15/2007 540,000
20,200,000 Regal Cinemas, Inc., Sr.
Sub. Note, 9.50%,
6/1/2008 20,604,000
17,450,000 Six Flags Theme Parks,
Sr. Sub. Disc. Note,
7.70%, 6/15/2005 19,369,500
TOTAL 71,163,097
MACHINERY & EQUIPMENT-2.9%
4,886,000 Alvey Systems, Inc., Sr.
Sub. Note, 11.375%,
1/31/2003 4,959,290
8,375,000 Clark Material Handling
Corp., Sr. Note, 10.75%,
11/15/2006 8,437,813
5,150,000 Columbus McKinnon Corp.,
Sr. Sub. Note, 8.50%,
4/1/2008 5,098,500
6,300,000 1, 2 National Equipment
Services, Inc., Sr. Sub.
Note, 10.00%, 11/30/2004 6,457,500
9,850,000 National Equipment
Services, Inc., Sr. Sub.
Note, Series C, 10.00%,
11/30/2004 10,096,250
10,700,000 NationsRent, Inc.,
Company Guarantee,
10.375%, 12/15/2008 11,235,000
7,350,000 1, 2 United Rentals, Inc.,
Sr. Sub. Note, 9.00%,
4/1/2009 7,377,562
13,200,000 1, 2 United Rentals, Inc.,
Sr. Sub. Note, 9.25%,
1/15/2009 13,398,000
TOTAL 67,059,915
METALS & MINING-0.9%
9,625,000 1, 2 AEI Holding Co., Inc.,
Sr. Note, 10.50%,
12/15/2005 9,793,438
10,475,000 1, 2 AEI Resources, Inc., Sr.
Sub. Note, 11.50%,
12/15/2006 10,475,000
TOTAL 20,268,438
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-continued
OIL & GAS-2.6%
$ 5,925,000 Chiles Offshore, LLC,
Sr. Note, 10.00%,
5/1/2008 $ 4,325,250
10,250,000 Continental Resources,
Inc., Sr. Sub. Note,
10.25%, 8/1/2008 7,943,750
3,275,000 DI Industries, Inc., Sr.
Note, 8.875%, 7/1/2007 2,603,625
12,225,000 Dailey Petroleum
Services Corp., Company
Guarantee, 9.50%,
2/15/2008 4,584,375
9,400,000 4 Forcenergy, Inc., Sr.
Sub. Note, 8.50%,
2/15/2007 3,619,000
2,875,000 4 Forcenergy, Inc., Sr.
Sub. Note, 9.50%,
11/1/2006 1,336,875
3,975,000 KCS Energy, Inc., Sr.
Sub. Note, 8.875%,
1/15/2008 1,013,625
3,125,000 Nuevo Energy Co., Sr.
Sub. Note, 8.875%,
6/1/2008 3,078,125
1,200,000 Ocean Rig Norway AS,
Company Guarantee,
10.25%, 6/1/2008 846,000
2,575,000 Pacalta Resources Ltd.,
Sr. Note, 10.75%,
6/15/2004 2,587,875
5,825,000 1, 2 Pogo Producing Co., Sr.
Sub. Note, 10.375%,
2/15/2009 5,883,250
4,700,000 Pride Petroleum
Services, Inc., Sr.
Note, 9.375%, 5/1/2007 4,512,000
3,775,000 1, 2 R&B Falcon Corp., Sr.
Note, 12.25%, 3/15/2006 3,982,625
1,000,000 1, 2 R&B Falcon Corp., Sr.
Note, 9.50%, 12/15/2008 905,000
2,225,000 1, 2 RBF Finance Co., Sr.
Secured Note, 11.375%,
3/15/2009 2,380,750
3,200,000 The Houston Exploration
Co., Sr. Sub. Note,
8.625%, 1/1/2008 3,152,000
3,025,000 1, 2, 3 Universal Compression
Holdings, Inc., Sr.
Disc. Note, 0/11.375%,
2/15/2009 1,731,812
10,100,000 1, 2, 3 Universal Compression
Holdings, Inc., Sr.
Disc. Note, 0/9.875%,
2/15/2008 5,959,000
TOTAL 60,444,937
PRINTING & PUBLISHING-1.9%
11,850,000 3 Affiliated Newspaper
Investments, Inc., Sr.
Disc. Deb., 0/13.25%,
7/1/2006 12,501,750
3,750,000 Garden State Newspapers,
Inc., Sr. Sub. Note,
12.00%, 7/1/2004 4,101,563
6,225,000 Garden State Newspapers,
Inc., Sr. Sub. Note,
8.75%, 10/1/2009 6,318,375
5,050,000 Hollinger International
Publishing, Inc., Sr.
Sub. Note, 9.25%,
2/1/2006 5,302,500
4,875,000 Hollinger International
Publishing, Inc., Sr.
Sub. Note, 9.25%,
3/15/2007 5,155,313
750,000 K-III Communications
Corp., Company
Guarantee, Sr. Note,
8.50%, 2/1/2006 774,375
4,800,000 Primedia, Inc., Sr.
Note, 7.625%, 4/1/2008 4,824,000
4,275,000 Ziff-Davis, Inc., Sr.
Sub. Note, 8.50%,
5/1/2008 4,296,375
TOTAL 43,274,251
REAL ESTATE-0.2%
4,814,000 Trizec Finance Ltd., Sr.
Note, 10.875%,
10/15/2005 5,223,190
RETAILERS-0.2%
3,750,000 Leslie's Poolmart, Inc.,
Sr. Note, 10.375%,
7/15/2004 3,909,375
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-continued
SERVICES-0.6%
$ 9,208,000 Coinmach Corp., Sr.
Note, 11.75%, 11/15/2005 $ 10,220,880
4,700,000 SITEL Corp., Sr. Sub.
Note, 9.25%, 3/15/2006 4,488,500
TOTAL 14,709,380
STEEL-0.6%
1,125,000 AK Steel Corp., Sr. Note,
9.125%, 12/15/2006 1,195,312
1,200,000 1, 2 California Steel
Industries, Inc., Sr.
Note, 8.50%, 4/1/2009 1,218,000
5,425,000 Metals USA, Inc., Sr.
Note, 8.625%, 2/15/2008 5,180,875
5,400,000 1, 2 National Steel Corp.,
1st Mtg. Bond, Series A,
9.875%, 3/1/2009 5,575,500
1,000,000 Ryerson Tull, Inc.,
Note, 9.125%, 7/15/2006 1,081,270
TOTAL 14,250,957
SURFACE TRANSPORTATION-
2.2%
5,800,000 Allied Holdings, Inc.,
Sr. Note, Series B,
8.625%, 10/1/2007 5,814,500
6,975,000 4 AmeriTruck Distribution
Corp., Sr. Sub. Note,
12.25%, 11/15/2005 313,875
7,750,000 Gearbulk Holding Ltd.,
Sr. Note, 11.25%,
12/1/2004 7,963,125
9,250,000 Statia Terminals
International N.V., 1st
Mtg. Note, 11.75%,
11/15/2003 9,758,750
12,700,000 Stena AB, Sr. Note,
10.50%, 12/15/2005 12,763,500
6,450,000 Stena AB, Sr. Note,
8.75%, 6/15/2007 5,998,500
6,000,000 Stena Line AB, Sr. Note,
10.625%, 6/1/2008 4,590,000
4,400,000 1, 2 The Holt Group, Inc., Sr.
Note, 9.75%, 1/15/2006 2,882,000
TOTAL 50,084,250
TELECOMMUNICATIONS &
CELLULAR-22.2%
11,425,000 1, 2 American Cellular Corp.,
Sr. Note, 10.50%,
5/15/2008 11,996,250
2,200,000 Arch Communications,
Inc., Sr. Note, Series B,
12.75%, 7/1/2007 2,068,000
20,125,000 3 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/8.94%, 8/15/2008 13,332,813
11,875,000 3 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/9.27%, 8/15/2007 8,668,750
8,850,000 1, 2 Centennial Cellular
Corp., Sr. Sub. Note,
10.75%, 12/15/2008 9,513,750
2,225,000 Comcast Cellular
Holdings, Inc., Sr.
Note, Series B, 9.50%,
5/1/2007 2,528,156
4,975,000 3 E.Spire Communications,
Inc., Sr. Disc. Note,
0/12.75%, 4/1/2006 3,308,375
4,350,000 3 E.Spire Communications,
Inc., Sr. Disc. Note,
0/13.00%, 11/1/2005 3,023,250
7,425,000 1, 2 Hermes Europe Railtel
B.V., Sr. Note, 10.375%,
1/15/2009 7,907,625
13,750,000 Hermes Europe Railtel
B.V., Sr. Note, 11.50%,
8/15/2007 15,193,750
4,800,000 3 ICG Holdings, Inc., Sr.
Disc. Note, 0/11.625%,
3/15/2007 3,537,360
10,350,000 3 ICG Holdings, Inc., Sr.
Disc. Note, 0/12.50%,
5/1/2006 8,505,216
<CAPTION>
PRINCIPAL
AMOUNT
OR UNITS VALUE
<S> <C> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 5,475,000 3 ICG Services, Inc., Sr.
Exchange Disc. Note,
0/9.875%, 5/1/2008 $ 3,269,889
11,175,000 IXC Communications,
Inc., Sr. Sub. Note,
9.00%, 4/15/2008 11,677,875
9,650,000 3 Intermedia
Communications, Inc.,
Sr. Disc. Note, Series B,
0/11.25%, 7/15/2007 7,406,375
18,300,000 3 Intermedia
Communications, Inc.,
Sr. Disc. Note,
0/12.50%, 5/15/2006 15,921,000
7,300,000 Intermedia
Communications, Inc.,
Sr. Note, 8.60%,
6/1/2008 7,336,500
4,500,000 Intermedia
Communications, Inc.,
Sr. Note, Series B,
8.875%, 11/1/2007 4,601,250
12,650,000 3 Intermedia
Communications, Inc.,
Sr. Sub. Disc. Note,
0/12.25%, 3/1/2009 8,032,750
35,725,000 1, 2, 3 Level 3 Communications,
Inc., Sr. Disc. Note,
0/10.50%, 12/1/2008 22,551,406
33,575,000 Level 3 Communications,
Inc., Sr. Note, 9.125%,
5/1/2008 33,910,750
16,025,000 3 McLeod, Inc., Sr. Disc.
Note, 0/10.50%, 3/1/2007 12,900,125
4,775,000 1, 2 McLeod, Inc., Sr. Note,
8.125%, 2/15/2009 4,810,812
3,000,000 McLeod, Inc., Sr. Note,
8.375%, 3/15/2008 3,045,000
4,725,000 McLeod, Inc., Sr. Note,
9.25%, 7/15/2007 4,984,875
5,200,000 McLeod, Inc., Sr. Note,
9.50%, 11/1/2008 5,629,000
7,650,000 3 MetroNet Communications
Corp., Sr. Disc. Note,
0/10.75%, 11/1/2007 6,253,875
6,650,000 MetroNet Communications
Corp., Sr. Note, 12.00%,
8/15/2007 7,963,375
19,500,000 3 MetroNet Communications
Corp., Sr. Disc. Note,
0/9.95%, 6/15/2008 15,161,250
5,100,000 1, 2 MetroNet Communications
Corp., Sr. Note,
10.625%, 11/1/2008 5,967,000
6,650,000 1, 2 Metromedia Fiber
Network, Inc., Sr. Note,
10.00%, 11/15/2008 7,165,375
15,250,000 3 Millicom International
Cellular S.A., Sr. Sub.
Disc. Note, 0/13.50%,
6/1/2006 11,361,250
14,425,000 3 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/10.65%, 9/15/2007 10,674,500
38,175,000 3 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/9.95%, 2/15/2008 27,104,250
4,775,000 3 NEXTLINK Communications,
Inc., Sr. Disc. Note,
0/9.45%, 4/15/2008 3,079,875
8,650,000 NEXTLINK Communications,
Inc., Sr. Note, 9.00%,
3/15/2008 8,606,750
3,500,000 NEXTLINK Communications,
Inc., Sr. Note, 9.625%,
10/1/2007 3,570,000
6,750,000 3 Nextel International,
Inc., Sr. Disc. Note,
0/12.125%, 4/15/2008 3,198,285
6,700,000 1, 2, 3 Nextel Partners, Inc.,
Sr. Disc. Note,
0/14.00%, 2/1/2009 3,969,750
9,700,000 Orange PLC, Sr. Note,
8.00%, 8/1/2008 10,015,250
11,450,000 Paging Network, Inc.,
Sr. Sub. Note, 10.00%,
10/15/2008 9,618,000
5,225,000 Paging Network, Inc.,
Sr. Note, 10.125%,
8/1/2007 4,441,250
8,400,000 Pathnet, Inc., Unit,
12.25%, 4/15/2008 4,158,000
11,575,000 PsiNet, Inc., Sr. Note,
10.00%, 2/15/2005 12,443,125
6,200,000 PsiNet, Inc., Sr. Note,
11.50%, 11/1/2008 7,068,000
<CAPTION>
PRINCIPAL
AMOUNT,
UNITS OR
SHARES VALUE
<S> <C> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 7,525,000 3 Qwest Communications
International, Inc., Sr.
Disc. Note, Series B,
0/8.29%, 2/1/2008 $ 5,907,125
8,600,000 3 Qwest Communications
International, Inc., Sr.
Disc. Note, Series B,
0/9.47%, 10/15/2007 6,858,500
6,890,000 Qwest Communications
International, Inc., Sr.
Note Series B, 10.875%,
4/1/2007 7,992,400
7,600,000 1, 2 Qwest Communications
International, Inc., Sr.
Note, 7.50%, 11/1/2008 7,904,000
11,050,000 Rogers Cantel Mobile,
Inc., Sr. Sub. Note,
8.80%, 10/1/2007 11,574,875
7,625,000 3 Telesystem International
Wireless, Inc., Sr.
Disc. Note, Series B,
0/10.50%, 11/1/2007 3,717,188
13,050,000 3 Telesystem International
Wireless, Inc., Sr.
Disc. Note, Series C,
0/13.25%, 6/30/2007 7,242,750
13,400,000 3 Teligent, Inc., Sr.
Disc. Note, 0/11.50%,
3/1/2008 7,035,000
10,325,000 Teligent, Inc., Sr.
Note, 11.50%, 12/1/2007 9,834,562
18,450,000 3 Triton PCS, Inc., Sr.
Sub. Disc. Note,
0/11.00%, 5/1/2008 10,977,750
5,050,000 US Xchange, LLC, Sr.
Note, 15.00%, 7/1/2008 5,403,500
7,750,000 USA Mobile
Communications, Inc.,
Sr. Note, 9.50%,
2/1/2004 6,471,250
4,600,000 1, 2 Verio, Inc., Sr. Note,
11.25%, 12/1/2008 5,209,500
3,450,000 1, 2 Viatel, Inc., Sr. Note,
11.50%, 3/15/2009 3,596,625
8,575,000 3 Viatel, Inc., Unit, Sr.
Disc. Note, 0/12.50%,
4/15/2008 5,380,813
7,775,000 Viatel, Inc., Unit, Sr.
Note, 11.25%, 4/15/2008 8,008,250
TOTAL 510,594,150
UTILITIES-0.8%
3,500,000 CMS Energy Corp., Sr.
Note, 7.50%, 1/15/2009 3,517,885
1,800,000 CalEnergy Co., Inc., Sr.
Note, 9.50%, 9/15/2006 2,016,000
7,975,000 El Paso Electric Co., 1st
Mtg. Note, Series E,
9.40%, 5/1/2011 8,993,328
4,000,000 3 Niagara Mohawk Power
Corp., Sr. Disc. Note,
0/8.50%, 7/1/2010 3,098,200
TOTAL 17,625,413
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$2,178,242,953) 2,142,909,755
COMMON STOCKS-0.1%
7,500 4 Affiliated Newspaper
Investments, Inc. 1,125,000
3,184 Australis Holdings
Property Ltd., Warrants 0
2,400 1, 2, 4 Bar Technologies, Inc.,
Warrants 132,000
136 1, 2, 4 CS Wireless Systems,
Inc. 0
16,500 Diva Systems Corp.,
Warrants 222,750
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-continued
$ 4,850 1, 2 Electronic Retailing
Systems International,
Inc., Warrants $ 24,250
2,550 4 Hosiery Corp. of
America, Inc. 18,487
3,750 1, 2, 4 IHF Capital, Inc.,
Warrants 1,875
353 1, 4 MAFCO Acquisition,
Warrants 0
6,650 1, 2 MetroNet Communications
Corp., Warrants 497,420
1,750 4 Motels of America, Inc. 11,812
4,500 4 NEXTEL Communications,
Inc., Warrants 0
8,400 4 Pathnet, Inc., Warrants 85,050
9,025 4 Pegasus Communications
Corp. 252,700
5,775 4 Pegasus Communications
Corp., Warrants 190,575
237,797 4 Royal Oak Mines, Inc. 22,068
315,000 1, 2, 4 Specialty Foods
Acquisition Corp. 6,300
6,325 4 Sterling Chemicals
Holdings, Inc., Warrants 126,500
46 1, 2, 4 Sullivan Graphics, Inc. 0
14,150 4 UIH Australia/Pacific,
Warrants 15,919
14,400 4 Wireless One, Inc.,
Warrants 0
TOTAL COMMON STOCKS
(IDENTIFIED COST
$12,484,376) 2,732,706
PREFERRED STOCKS-3.6%
BANKING-0.1%
120,000 California Federal
Preferred Capital Corp.,
REIT Perpetual Pfd.
Stock,
Series A, $2.28 3,180,000
BROADCAST RADIO & TV-1.3%
5,350 Benedek Communications
Corp., Sr. Exchangeable
PIK 4,306,750
14,388 Capstar Broadcasting
Corp., Cumulative
Exchangeable Pfd. Stock,
Series E 1,733,794
45,158 Capstar Broadcasting
Partners, Inc., Sr.
Pfd., $12.00 5,339,976
5,561 Cumulus Media, Inc.,
Cumulative Sr. Red. Pfd.
Stk., Series A, $3.44 6,270,027
114,150 Sinclair Broadcast
Group, Inc., Cumulative
Pfd., $11.63 12,727,725
TOTAL 30,378,272
CABLE TELEVISION-0.5%
9,251 Pegasus Communications
Corp., Cumulative PIK
Pfd., Series A, 12.75% 10,453,296
FOOD SERVICES-0.1%
50,312 Nebco Evans Holding Co.,
Exchangeable Pfd. Stock 1,786,076
FOREST PRODUCTS-0.1%
18,250 1, 2 Packaging Corp. of
America, Sr.
Exchangeable PIK 1,825,000
<CAPTION>
PRINCIPAL
AMOUNT,
UNITS, OR
SHARES VALUE
<S> <C> <C>
PREFERRED STOCKS-
continued
HEALTHCARE-0.0%
18,232 River Holding Corp., Sr.
Exchangeable PIK $ 1,134,942
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.2%
3,575 Fairfield Manufacturing
Co., Inc., Cumulative
Exchangeable Pfd. Stock 3,414,125
61 1, 2 International Utility
Structures, Inc., Unit,
13.00% 56,882
475 1, 2 International Utility
Structures, Inc., Unit,
13.00% 456,000
TOTAL 3,927,007
PRINTING & PUBLISHING-
0.8%
128,025 Primedia, Inc.,
Exchangeable Pfd. Stock,
Series G, $2.16 12,162,375
72,500 Primedia, Inc., Pfd.,
$9.20 7,358,750
TOTAL 19,521,125
TELECOMMUNICATIONS &
CELLULAR-0.5%
2,399 IXC Communications,
Inc., Cumulative Jr.
Exchangeable Pfd. Stock 2,620,907
3,957 NEXTEL Communications,
Inc., Cumulative PIK
Pfd., Series D, 13.00% 4,460,999
3,545 NEXTEL Communications,
Inc., Exchangeable Pfd.
Stock, Series E, 11.125% 3,633,625
5,637 Viatel, Inc., Conv. PIK
Pfd., Series A, 10.00% 1,045,590
TOTAL 11,761,121
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$71,960,230) 83,966,839
REPURCHASE AGREEMENT -
1.4% 5
$ 32,870,000 ABN AMRO, Inc., 5.05%,
dated 3/31/1999, due
4/1/1999 (at amortized
cost) $ 32,870,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$2,295,557,559) 6 $ 2,262,479,300
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At March 31, 1999, these securities amounted to
$397,665,808 which represents 17.3% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $397,665,808.
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 $2,299,189,931.
The net unrealized depreciation of investments on a federal tax basis amounts to
$36,710,631 which is comprised of $78,219,861 appreciation and $114,930,492
depreciation at March 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($2,300,503,979) at March 31, 1999.
The following acronyms are used throughout this portfolio:
PIK -Payment in Kind
REIT -Real Estate Investment Trust
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MARCH 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified cost
$2,295,557,559 and tax
cost $2,299,189,931) $ 2,262,479,300
Cash 358,937
Income receivable 45,109,598
Receivable for
investments sold 7,219
Receivable for shares
sold 10,716,372
Prepaid expenses 89,659
TOTAL ASSETS 2,318,761,085
LIABILITIES:
Payable for investments
purchased $ 11,234,770
Payable for shares
redeemed 5,746,988
Income distribution
payable 2,924
Payable for taxes
withheld 81
Accrued expenses 1,272,343
TOTAL LIABILITIES 18,257,106
Net assets for
203,651,565 shares
outstanding $ 2,300,503,979
NET ASSETS CONSIST OF:
Paid in capital $ 2,352,837,123
Net unrealized
depreciation of
investments (33,078,259)
Accumulated net realized
loss on investments (21,294,933)
Undistributed net
investment income 2,040,048
TOTAL NET ASSETS $ 2,300,503,979
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE
CLASS A SHARES:
Net Asset Value Per Share
($829,981,667 /
73,450,072 shares
outstanding) $11.30
Offering Price Per Share
(100/95.50 of $11.30) 1 $11.83
Redemption Proceeds Per
Share $11.30
CLASS B SHARES:
Net Asset Value Per Share
($1,239,882,017 /
109,784,965 shares
outstanding) $11.29
Offering Price Per Share $11.29
Redemption Proceeds Per
Share (94.50/100 of
$11.29) 1 $10.67
CLASS C SHARES:
Net Asset Value Per Share
($230,640,295 /
20,416,528 shares
outstanding) $11.30
Offering Price Per Share $11.30
Redemption Proceeds Per
Share (99.00/100 of
$11.30) 1 $11.19
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 9,247,902
Interest (net of foreign
taxes withheld of $81) 194,088,096
TOTAL INCOME 203,335,998
EXPENSES:
Investment advisory fee $ 15,261,251
Administrative personnel
and services fee 1,534,265
Custodian fees 129,637
Transfer and dividend
disbursing agent fees
and expenses 1,308,079
Directors'/Trustees'
fees 19,157
Auditing fees 21,067
Legal fees 138,842
Portfolio accounting
fees 221,161
Distribution services
fee-Class B Shares 8,054,085
Distribution services
fee-Class C Shares 1,515,488
Shareholder services
fee-Class A Shares 1,897,226
Shareholder services
fee-Class B Shares 2,684,695
Shareholder services
fee-Class C Shares 505,163
Share registration costs 174,671
Printing and postage 257,082
Insurance premiums 6,290
Taxes 139,209
Miscellaneous 5,043
TOTAL EXPENSES 33,872,411
Net investment income 169,463,587
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (3,007,024)
Net change in unrealized
appreciation of
investments (126,848,907)
Net realized and
unrealized loss on
investments (129,855,931)
Change in net assets
resulting from
operations $ 39,607,656
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 169,463,587 $ 125,828,694
Net realized gain (loss)
on investments
($3,084,749 and $7,052,046,
respectively, as
computed for federal tax
purposes) (3,007,024) 3,952,748
Net change in unrealized
appreciation
(depreciation) of
investments (126,848,907) 95,882,031
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS 39,607,656 225,663,473
NET EQUALIZATION CREDITS
(DEBITS) - 541,802
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (66,152,957) (57,323,230)
Class B Shares (85,852,247) (57,006,059)
Class C Shares (16,122,978) (11,174,312)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (168,128,182) (125,503,601)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 976,452,940 806,888,506
Net asset value of shares
issued to shareholders
in payment of
distributions declared 86,755,128 63,870,285
Cost of shares redeemed (553,081,850) (270,557,852)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 510,126,218 600,200,939
Change in net assets 381,605,692 700,902,613
NET ASSETS:
Beginning of period 1,918,898,287 1,217,995,674
End of period (including
undistributed net
investment income of
$2,040,048 and $961,701,
respectively) $ 2,300,503,979 $ 1,918,898,287
</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>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.10 $11.31 $11.08 $10.54 $10.99
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 1.01 1.00 1.04 1.00 1.01
Net realized and
unrealized gain (loss)
on investments (0.81) 0.79 0.22 0.55 (0.43)
TOTAL FROM INVESTMENT
OPERATIONS 0.20 1.79 1.26 1.55 0.58
LESS DISTRIBUTIONS
Distributions from net
investment income (1.00) (1.00) (1.03) (1.00) (1.03)
Distributions in excess
of net investment income
1 - - - (0.01) -
TOTAL DISTRIBUTIONS (1.00) (1.00) (1.03) (1.01) (1.03)
NET ASSET VALUE, END OF
PERIOD $11.30 $12.10 $11.31 $11.08 $10.54
TOTAL RETURN 2 1.94% 16.48% 11.88% 15.24% 5.74%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.19% 1.21% 1.21% 1.22% 1.21%
Net investment income 8.79% 8.46% 9.19% 9.07% 9.64%
Expense
waiver/reimbursement 3 - 0.01% 0.03% 0.06% 0.05%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $829,982 $748,294 $599,736 $530,203 $448,040
Portfolio turnover 28% 58% 55% 53% 52%
</TABLE>
1 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.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 1
<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 0.92 0.91 0.96 0.95 0.51
Net realized and
unrealized gain (loss)
on investments (0.80) 0.78 0.21 0.51 (0.07)
TOTAL FROM INVESTMENT
OPERATIONS 0.12 1.69 1.17 1.46 0.44
LESS DISTRIBUTIONS
Distributions from net
investment income (0.92) (0.91) (0.94) (0.91) (0.47)
Distributions in excess
of net investment income
2 - - - (0.01) -
TOTAL DISTRIBUTIONS (0.92) (0.91) (0.94) (0.92) (0.47)
NET ASSET VALUE, END OF
PERIOD $11.29 $12.09 $11.31 $11.08 $10.54
TOTAL RETURN 3 1.18% 15.52% 10.99% 14.31% 4.47%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.94% 1.97% 1.99% 2.03% 2.02% 4
Net investment income 8.05% 7.76% 8.39% 8.29% 9.47% 4
Expense
waiver/reimbursement 5 - - - 0.01% 0.05% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $1,239,882 $980,125 $513,169 $238,055 $33,295
Portfolio turnover 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 principles. These distributions do
not represent a return of capital for federal sales income tax purposes.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 Computed on an annualized basis.
5 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
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.09 $11.31 $11.08 $10.54 $10.99
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.92 0.91 0.95 0.92 0.94
Net realized and
unrealized gain (loss)
on investments (0.79) 0.78 0.22 0.54 (0.44)
TOTAL FROM INVESTMENT
OPERATIONS 0.13 1.69 1.17 1.46 0.50
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.92) (0.91) (0.94) (0.91) (0.95)
Distributions in excess
of net investment income
1 - - - (0.01) -
TOTAL DISTRIBUTIONS (0.92) (0.91) (0.94) (0.92) (0.95)
NET ASSET VALUE, END OF
PERIOD $11.30 $12.09 $11.31 $11.08 $10.54
TOTAL RETURN 2 1.26% 15.51% 11.00% 14.35% 4.91%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.94% 1.97% 1.99% 2.00% 1.98%
Net investment income 8.05% 7.74% 8.38% 8.30% 8.90%
Expense
waiver/reimbursement 3 - - - 0.03% 0.05%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $230,640 $190,480 $105,095 $57,422 $32,376
Portfolio turnover 28% 58% 55% 53% 52%
</TABLE>
1 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 sales income tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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
Notes to Financial Statements
MARCH 31, 1999
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 permitted by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Securities which are in default are placed on non-accrual
status, with the reversal of all uncollected accrued income.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of market discount.
The following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED UNDISTRIBUTED
PAID-IN NET REALIZED LOSS NET INVESTMENT
CAPITAL ON INVESTMENTS INCOME
<S> <C> <C>
$2,002 $255,056 $(257,058)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At March 31, 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.
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 affect 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 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 March 31,
1999 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE 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 March 31, 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>
YEAR ENDED MARCH 31 1999 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 29,051,474 $ 329,949,439 17,322,252 $ 204,316,349
Shares issued to
shareholders in payment
of distributions
declared 3,159,810 35,962,978 2,605,774 30,621,664
Shares redeemed (20,610,388) (235,722,033) (11,104,769) (131,161,460)
NET CHANGE RESULTING
FROM CLASS A SHARE
TRANSACTIONS 11,600,896 $ 130,190,384 8,823,257 $ 103,776,553
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 47,477,727 $ 540,422,390 42,537,839 $ 501,512,752
Shares issued to
shareholders in payment
of distributions
declared 3,615,144 41,080,058 2,239,670 26,393,364
Shares redeemed (22,356,479) (254,626,564) (9,110,993) (107,775,700)
NET CHANGE RESULTING
FROM CLASS B SHARE
TRANSACTIONS 28,736,392 $ 326,875,884 35,666,516 $ 420,130,416
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 9,326,161 $ 106,081,111 8,559,493 $ 101,059,405
Shares issued to
shareholders in payment
of distributions
declared 853,417 9,712,092 577,521 6,855,257
Shares redeemed (5,511,870) (62,733,253) (2,683,277) (31,620,692)
NET CHANGE RESULTING
FROM CLASS C SHARE
TRANSACTIONS 4,667,708 $ 53,059,950 6,453,737 $ 76,293,970
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS 45,004,996 $ 510,126,218 50,943,510 $ 600,200,939
</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 Fund are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $982,748,983
Sales $543,084,596
</TABLE>
YEAR 2000 (UNAUDITED)
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.
Report of Independent Public Accountants
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
FEDERATED HIGH INCOME BOND FUND, INC.:
We have audited the accompanying statement of assets and liabilities of
Federated High Income Bond Fund, Inc. (a Maryland Corporation), including the
portfolio of investments, as of March 31, 1999, the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1999, by correspondence with the custodian and brokers. As to securities
purchased but not yet received, we requested confirmation from brokers and, when
replies were not received, we carried out alternative auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated High Income Bond Fund, Inc. as of March 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
May 20, 1999
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. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD C. THOMAS
Treasurer
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 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.
ANNUAL REPORT AS OF MARCH 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated High Income Bond Fund, Inc.
Established 1977
22ND ANNUAL REPORT
[Graphic]
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
8042507 (5/99)
[Graphic]
A1. The graphic representation 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 3/31/99.
The "y" axis is measured in increments of $50,000 ranging from $0 to $200,000
and indicates that the ending value of hypothetical initial investment of
$22,000 in the fund's Class A Shares, assuming the reinvestment of capital gains
and dividends, would have grown to $185,105 on 3/31/99.
A2. 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 3/31/99.
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 $87,712 on 3/31/99.
A3. 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
beneath it. The "x" axis reflects computation periods from 3/31/89 to 3/31/99.
The "y" axis is measured in increments of $4,000 ranging from $0 to $16,000 and
indicates that the ending value of a hypothetical initial investment of $5,000
over 10 years in the fund's Class A Shares would have grown to $14,204 on
3/31/99.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated High Income Bond Fund, Inc., (the "Fund") based on a 4.50%
sales charge are represented by a solid line. The Lehman Brothers Single B Rated
Index (the "LBSBRI") is represented by a dotted line. The Lipper High Current
Yield Funds Average (the "LHCYFA") is represented by a dashed line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the Fund, the LBSBRI and the
LHCYFA. The "x" axis reflects computation periods from 3/31/89 to 3/31/99. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares, based
on a 4.50% sales charge, as compared to the LBSBRI and the LHCYFA. The ending
values were $28,414, $27,325, and $24,957, respectively.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated High Income Bond Fund, Inc., (the "Fund") based on a 2.00%
contingent deferred sales charge are represented by a solid line. The Lehman
Brothers Single B Rated Index (the "LBSBRI") is represented by a dotted line.
The Lipper High Current Yield Funds Average (the "LHCYFA") is represented by a
dashed line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class B Shares of the Fund,
the LBSBRI and the LHCYFA. The "x" axis reflects computation periods from
9/27/94 to 3/31/99. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the Fund's
Class B Shares, based on a 2.00% contingent deferred sales charge, as compared
to the LBSBRI and the LHCYFA. The ending values were $15,292, $15,435, and
$15,164, respectively.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated High Income Bond Fund, Inc., (the "Fund") based on a 1.00%
contingent deferred sales charge are represented by a solid line. The Lehman
Brothers Single B Rated Index (the "LBSBRI") is represented by a dotted line.
The Lipper High Current Yield Funds Average (the "LHCYFA") is represented by a
dashed line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class C Shares of the Fund,
the LBSBRI and the LHCYFA. The "x" axis reflects computation periods from
4/30/93 to 3/31/99. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the Fund's
Class C Shares, based on a 1.00% contingent deferred sales charge, as compared
to the LBSBRI and the LHCFA. The ending values were $16,546, $16,916, and
$16,331, respectively.
