Federated Equity Income Fund, Inc.
(formerly, Liberty Equity Income Fund, Inc.)
10TH SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
ESTABLISHED 1986
GROWTH & INCOME
PRESIDENT'S MESSAGE
[Graphic]
Dear Fellow Shareholder:
The Federated Equity Income Fund, Inc. was established in 1986, and I am
pleased to present the 10th Semi-Annual Report for the fund.
This report covers the six-month period from April 1, 1996 to September 30,
1996. It begins with an investment discussion by portfolio manager
Christopher H. Wiles, Senior Vice President, Federated Advisers. Following
this discussion are graphs depicting the fund's long-term investment
performance, a complete list of the fund's highly diversified stock and bond
holdings, and the financial statements.
The fund's holdings responded to a continued favorable stock market
environment during the six-month report period. The fund's six-month total
return performance of more than 7% for each share class reflects income
dividends, realized gain, and capital appreciation. The performance of the
fund's share classes is listed below.*
<TABLE>
<CAPTION>
NET ASSET CAPITAL TOTAL
VALUE INCREASE INCOME GAINS RETURN
<S> <C> <C> <C> <C>
Class A Shares $14.26 to $14.63 = 3% $0.21 $0.52 7.88%
Class B Shares $14.26 to $14.63 = 3% $0.15 $0.52 7.48%
Class C Shares $14.26 to $14.63 = 3% $0.15 $0.52 7.47%
Class F Shares $14.26 to $14.63 = 3% $0.19 $0.52 7.74%
</TABLE>
During the six-month report period, fund assets increased more than 64% --
from $391 million on April 1, 1996, to $643 million on September 30, 1996.
This robust growth reflects the increase in share value as well as the
confidence of present and new shareholders who purchased shares of this
attractive equity-income fund.
On September 30, 1996, the fund held more than 50 stocks and 9 convertible
securities across 12 major industry sectors. Holdings include such
well-known names as: Avon, AT&T, Bristol-Myers Squibb, DuPont, Ford, General
Electric, GTE, Heinz, and J.C. Penney.
* Performance quoted is based on net asset value and reflects past
performance. Performance is not indicative of future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Total returns
for the period (based on offering price) for Class A Shares, Class B Shares,
Class C Shares, and Class F Shares were 1.95%, 1.75%, 6.44%, and 5.67%,
respectively.
We trust you were pleased with the positive performance of your
equity-income investment. Remember, reinvesting your Federated Equity Income
Fund, Inc. earnings can be a convenient way to build the value of your
account -- and see the number of shares increase each month. Reinvesting
brings into play the benefit of monthly compounding of shares.
Very sincerely yours,
[Graphic]
Richard B. Fisher
President
November 15, 1996
Investment Review
[Graphic]
Christopher H. Wiles, CFA
Senior Vice President
Federated Advisers
[Graphic]
CAN YOU OPEN WITH A COMMENT ON THE STOCK MARKET'S CONTINUED CLIMB DURING THE
REPORTING PERIOD?
The longest bull market in history continued to surge higher with the
Standard & Poor's 500 Index* ("S&P 500") reaching a new all-time high of
687.33 on September 30, 1996. The advance was not straight up, however, as
the market suffered its first noticeable decline in two years -- from July
1, 1996, to July 24, 1996, the S&P 500 fell 7.19%. Even with this stumble in
July, the S&P 500 boasts an impressive 13.50% total return so far in 1996.
[Graphic]
HOW DID FEDERATED EQUITY INCOME FUND, INC. PERFORM FOR ITS SHAREHOLDERS IN
THIS ENVIRONMENT?
For the six-month report period, the fund's Class A, B, C, and F Shares
produced total returns of 7.88%, 7.48%, 7.47%, and 7.74%, respectively,
based on net asset value.** By comparison, the S&P 500 total return was
7.72%.
From January 1, 1996 through September 30, 1996, the fund's Class A Shares
total return of 13.53%** based on net asset value outpaced the S&P 500 total
return of 13.50%. Year-to-date total returns of Class B, C, and F Shares of
12.98%, 12.88%, and 13.31%, were also competitive with the S&P 500.**
It's important to note that Federated Equity Income Fund, Inc. outperformed
the S&P 500 in all seven market corrections of at least 2% this year, while
always maintaining a dividend yield at least 50% greater than the S&P 500.
[Graphic]
CAN YOU RECAP THE FUND'S INVESTMENT STRATEGY?
Our investment strategy rarely changes from quarter to quarter. First, we
strive to continue to avoid the folly of market timing by staying fully
invested. Second, we seek to maintain our "sector- neutral" portfolio
weightings. In other words, we do not try to emphasize one industry sector
over another, as the portfolio holdings show. Third, we focus on buying
high-quality companies with above-average yield and dividend growth
potential.
* The S&P 500 is a composite index of common stocks in industry,
transportation, and financial and public utility companies that can be used
to compare to the total returns of funds whose portfolios are invested
primarily in common stocks. This index is unmanaged, and actual investments
may not be made in an index.
** Performance quoted reflects past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for
Class A Shares, Class B Shares, Class C Shares, and Class F Shares were
1.95%, 1.75%, 6.44%, and 5.67%, respectively. Year-to-date (1/1/96 through
9/30/96) total returns based on offering price for Class A Shares, Class B
Shares, Class C Shares, and Class F Shares were 7.32%, 7.19%, 11.80%, and
11.09%, respectively.
[Graphic]
SINCE YOUR MOST IMPORTANT FOCUS IS ON SECURITY SELECTION, WHAT INVESTMENT
FACTORS DO YOU LOOK FOR IN A STOCK CANDIDATE?
Our securities go through a four-step process that focuses on a company's
position within its industry, the track record of its management, the
sustainability of return on equity, and current valuation versus historical
valuation.
[Graphic]
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF SEPTEMBER 30, 1996, AND WHAT WERE
YOUR INDUSTRY WEIGHTINGS?
The top holdings and sector weightings were as follows:
TOP HOLDINGS
<TABLE>
<CAPTION>
NAME % OF PORTFOLIO
<S> <C>
Heinz (H.J.) Co. 2.94%
Atlantic Richfield Co. 2.53%
Tambrands, Inc. 2.34%
Sci Systems, Inc., Conv. Bond 2.30%
First USA, Inc., PRIDES 2.26%
MGIC/MML STRYPES 2.13%
Altera Corp. Conv. Bond 2.08%
Jefferson-Pilot Corp. 2.07%
First Union Corp. 2.06%
Campbell Soup Co. 2.04%
</TABLE>
SECTOR WEIGHTINGS
<TABLE>
<CAPTION>
SECTOR % OF PORTFOLIO S&P WEIGHTING
<S> <C> <C>
Finance 15.11% 14.11%
Technology 13.02% 13.66%
Consumer Non-Durables 11.98% 12.19%
Utilities 10.86% 11.00%
Energy Minerals 8.74% 8.67%
Miscellaneous/Cash 7.60% 0.00%
Producer Manufacturing 6.99% 7.51%
Basic Industry 6.72% 6.62%
Health Care 5.24% 10.71%
Consumer Durables 4.71% 3.84%
Retail Trade 3.94% 4.88%
Services 3.88% 5.32%
Transportation 1.21% 1.49%
</TABLE>
[Graphic]
AS WE APPROACH THE END OF 1996, WHAT IS YOUR OUTLOOK FOR THE MARKET?
Record highs usually bring with them numerous signs of extreme optimism. For
example:
* The dividend yield on the S&P 500 is at a record low of 2.10%.
* The price-to-sales ratio on the S&P 500 of 4.45 is the highest of this
century.
* The market has advanced for a record 6 years without a correction of 10%
or more.
* The value of stocks relative to Gross Domestic Product is the highest
ever.
* The value of stocks relative to the prices of homes is the highest ever.
* Trading volume on the New York Stock Exchange is the highest ever.
* The number of professionals registered to sell stocks and bonds is a
record 527,000, 30% higher than in 1987.
* There are a record 25,000 active investment clubs up from 1995's record of
18,000.
We strongly believe that it is impossible to forecast the future, although
it is possible to keep observing what the current environment portends. When
we look out our market window, we see overcast and threatening skies. It is
not raining or storming currently, and it may even blow over, but we would
not want to venture out without an umbrella. Maintaining a good dividend
yield and knowing our downside risk is the umbrella we carry today.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $10,000 IN THE CLASS A SHARES OF
FEDERATED EQUITY INCOME FUND, INC. ON 12/30/86, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$30,431 ON 9/30/96. YOU WOULD HAVE EARNED AN 11.91%* AVERAGE ANNUAL TOTAL
RETURN FOR THE TEN-YEAR 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 9/30/96, the Class A Shares' average annual one-year, five-year, and
since inception (12/30/86) total returns were 14.35%, 13.98%, and 12.10%,
respectively. Class B Shares' average annual one-year and since inception
(9/28/94) total returns were 14.22% and 18.40%, respectively. Class C
Shares' average annual one-year and since inception (5/4/93) total returns
were 19.05% and 14.36%, respectively. Class F Shares' average annual
one-year and since inception (11/13/93) total returns were 18.48% and
12.95%, respectively.**
"Graphic representation "A" omitted. See Appendix."
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.5%
sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The total return stated takes into account the 5.5% sales charge for
Class A Shares, the 5.5% contingent deferred sales charge on Class B Shares,
the 1% contingent deferred sales charge on Class C Shares and the 1% sales
charge and 1% contingent deferred sales charge for Class F Shares.
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR TEN YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $21,113.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated Equity Income Fund, Inc. on 12/30/86, reinvested your dividends
and capital gains, and didn't redeem any shares, you would have invested
only $10,000, but your account would have reached a total value of $21,113*
by 9/30/96. You would have earned an average annual total return of 11.91%.
A practical investment plan helps you pursue growth and income through
common stocks and convertible securities. Through systematic investing, you
buy shares on a regular basis and reinvest all earnings. This 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 "B" omitted. See Appendix."
* No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR GROWTH
Eliot and Helen Barnes are a fictitious couple who share with many other
investors the goal of growth from good dividend-paying stocks.
Eliot is an engineer working for a major corporation. Helen teaches school.
On December 30, 1986, the Barnes invested $15,000 from maturing CD's in
Federated Equity Income Fund, Inc.
As this chart shows, over 10 years, their original investment in the Class A
Shares has grown to $45,647. This represents an 11.91%, minus any applicable
sales charge and/or contingent deferred sales charge, average annual total
return.* For the Barnes, that means dependable performance from good
dividend-paying stocks in 12 industry sectors that helps their money grow.
"Graphic representation "C" 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 EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C>
COMMON STOCKS -- 59.0%
BASIC INDUSTRY -- 6.0%
430,000 (a)Allegheny Teledyne, Inc. $ 9,728,750
175,000 Consolidated Papers, Inc. 9,100,000
100,000 Du Pont (E.I.) de Nemours & Co. 8,825,000
185,000 Eastman Chemical Co. 10,799,375
Total 38,453,125
CONSUMER DURABLES -- 1.3%
270,000 Ford Motor Co. 8,437,500
CONSUMER NON-DURABLES -- 11.9%
185,000 Avon Products, Inc. 9,180,625
165,000 Campbell Soup Co. 12,870,000
285,000 Guinness, ADR 10,331,250
550,000 Heinz (H.J.) Co. 18,562,500
110,000 Philip Morris Cos., Inc. 9,872,500
350,000 Tambrands, Inc. 14,743,750
Total 75,560,625
ENERGY MINERALS -- 7.0%
125,000 Atlantic Richfield Co. 15,937,500
120,000 Exxon Corp. 9,990,000
110,000 Shell Transport & Trading Co., ADR 10,202,500
400,000 YPF Sociedad Anonima, ADR 9,150,000
Total 45,280,000
FINANCE -- 5.3%
195,000 First Union Corp. 13,016,250
250,000 Meditrust, REIT 8,656,250
210,000 Mellon Bank Corp. 12,442,500
Total 34,115,000
</TABLE>
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C>
COMMON STOCKS -- CONTINUED
HEALTH CARE -- 5.1%
165,000 American Home Products Corp. $ 10,518,750
110,000 Bristol-Myers Squibb Co. 10,601,250
170,000 Merck & Co., Inc. 11,963,750
Total 33,083,750
PRODUCER MANUFACTURING -- 5.2%
380,000 Dresser Industries, Inc. 11,305,000
130,000 General Electric Co. 11,830,000
120,000 Textron, Inc. 10,200,000
Total 33,335,000
RETAIL TRADE -- 1.9%
225,000 Penney (J.C.) Co., Inc. 12,178,125
SERVICES -- 1.2%
194 (a)Advanstar Corp., Warrants 0
320,000 Browning-Ferris Industries, Inc. 8,000,000
Total 8,000,000
TECHNOLOGY -- 4.8%
190,000 (a)Electronic Data Systems Corp. 11,661,250
160,000 General Dynamics Corp. 11,020,000
70,000 United Technologies Corp. 8,408,750
Total 31,090,000
UTILITIES -- 9.3%
130,000 AT&T Corp. 6,792,500
340,000 DPL, Inc. 7,947,500
28,000 Enron Corp. 1,141,000
220,000 GTE Corp. 8,470,000
200,000 NIPSCO Industries, Inc. 7,150,000
280,000 Pacific Telesis Group 9,415,000
</TABLE>
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C>
COMMON STOCKS -- CONTINUED
UTILITIES -- CONTINUED
134,400 Portland General Corp. $ 5,157,600
415,000 Southern Co. 9,389,375
85,000 Williams Companies, Inc. 4,335,000
Total 59,797,975
TOTAL COMMON STOCKS (IDENTIFIED COST $337,370,140) 379,331,100
CONVERTIBLE PREFERRED STOCKS -- 20.7%
BASIC INDUSTRY -- 0.6%
242,500 Coeur d'Alene Mines Corp., Conv. Pfd., $1.49 3,970,938
CONSUMER DURABLES -- 1.1%
1,118,700 Tyco Toys, Inc., Conv. Pfd., Series C, $0.41 6,991,875
ENERGY MINERALS -- 1.5%
411,000 Sun Co., Inc., Conv. Pfd., Series A, $1.80 9,864,000
FINANCE -- 9.5%
165,000 Aetna Services Inc., Conv. Pfd., $4.76 12,024,375
300,000 First USA, Inc., Cumulative PRIDES, $1.99 14,250,000
155,000 Jefferson-Pilot Corp., Conv. Pfd., $5.26 13,058,750
220,000 Merrill Lynch & Co., Inc., STRYPES, $3.12 13,420,000
100,000 SunAmerica, Inc., PERCS, Series E, $3.10 8,525,000
Total 61,278,125
PRODUCER MANUFACTURING -- 1.7%
250,000 (b)Greenfield Industries, Inc., Conv. Pfd., $3.00 10,738,500
SERVICES -- 3.8%
110,000 Alco Standard Corp., ACES, $5.04 10,010,000
622,900 Hollinger International Publishing, Inc., Conv. Pfd., $.95 6,929,762
130,000 (b)SFX Broadcasting, Inc., Conv. Pfd., $3.25 7,507,500
Total 24,447,262
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<S> <C>
CONVERTIBLE PREFERRED STOCKS -- CONTINUED
TRANSPORTATION -- 1.2%
210,000 (b)Trans World Airlines, Inc., Conv. Pfd., $4.00 $ 7,605,990
UTILITIES -- 1.3%
56,000 Airtouch Communications, Inc., DECS, Series B 4,200,000
55,000 Williams Cos., Inc. (The), Conv. Pfd., $3.50 4,482,500
Total 8,682,500
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST $129,769,897)
133,579,190
CONVERTIBLE BONDS -- 15.3%
CONSUMER DURABLES -- 1.5%
$ 8,800,000 Magna International, Inc. , Conv. Bond, 5.00%, 10/15/2002 9,442,312
HEALTH CARE -- 3.3%
9,000,000 (b)Sandoz Capital BVI Ltd., Conv. Bond, 2.00%, 10/6/2002 10,102,500
10,500,000 Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 11,182,710
Total 21,285,210
RETAIL TRADE -- 2.6%
8,000,000 Federated Department Stores, Inc., Conv. Bond, 5.00%, 10/1/2003 8,975,040
7,550,000 Saks Holdings, Inc., Conv. Bond, 5.50%, 9/15/2006 7,852,000
Total 16,827,040
TECHNOLOGY -- 7.9%
6,300,000 (b)3Com Corp., Conv. Bond, 10.25%, 11/1/2001 12,090,771
11,000,000 (b)Altera Corp., Conv. Bond, 5.75%, 6/15/2002 13,090,110
9,500,000 Analog Devices, Inc., Conv. Bond, 3.50%, 12/1/2000 11,376,345
11,000,000 (b)SCI Systems, Inc., Conv. Bond, 5.00%, 5/1/2006 14,513,510
Total 51,070,736
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST $87,125,610) 98,625,298
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<S> <C>
(C)REPURCHASE AGREEMENTS -- 3.0%
$ 19,310,000 BT Securities Corporation, 5.72%, dated 9/30/1996, due 10/1/1996
(AT AMORTIZED COST) 19,310,000
TOTAL INVESTMENTS (IDENTIFIED COST $573,575,647)(D) $ 630,845,588
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At September 30, 1996, these securities
amounted to $75,648,881 which represents 12% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to
$573,575,647. The net unrealized appreciation of investments on a federal
tax basis amounts to $57,269,941 which is comprised of $66,802,253
appreciation and $9,532,312 depreciation at September 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($642,583,928) at September 30, 1996.
The following acronyms are used throughout this portfolio:
ACES -- Adjustable Convertible Extendable Securities
ADR -- American Depository Receipt
DECS -- Dividend Enhanced Convertible Stock
PERCS -- Preferred Equity Redemption Cumulative Stock
PRIDES -- Preferred Redeemable Increased Dividend Equity Securities
REIT -- Real Estate Investment Trust
STRYPES -- Structured Yield Product Exchangeable for Stock
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $573,575,647) $ 630,845,588
Income receivable 2,703,848
Receivable for investments sold 4,976,228
Receivable for shares sold 5,494,536
Total assets 644,020,200
LIABILITIES:
Payable for investments purchased $ 485,302
Payable for shares redeemed 321,310
Income distribution payable 323,491
Payable to Bank 4,790
Payable for taxes withheld 27,700
Accrued expenses 273,679
Total liabilities 1,436,272
Net Assets for 43,931,224 shares outstanding $ 642,583,928
NET ASSETS CONSIST OF:
Paid in capital $ 570,103,000
Net unrealized appreciation of investments 57,269,941
Accumulated net realized gain on investments 31,428,283
Accumulated distributions in excess of net investment income (16,217,296)
Total Net Assets $ 642,583,928
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($300,320,834 / 20,530,680 shares outstanding) $14.63
Offering Price Per Share (100/94.50 of $14.63)* $15.48
Redemption Proceeds Per Share $14.63
CLASS B SHARES:
Net Asset Value Per Share ($200,466,801 / 13,706,350 shares outstanding) $14.63
Offering Price Per Share $14.63
Redemption Proceeds Per Share (94.50/100 of $14.63)** $13.83
CLASS C SHARES:
Net Asset Value Per Share ($72,100,032 / 4,929,634 shares outstanding) $14.63
Offering Price Per Share $14.63
Redemption Proceeds Per Share (99/100 of $14.63)** $14.48
CLASS F SHARES:
Net Asset Value Per Share ($69,696,261 / 4,764,560 shares outstanding) $14.63
Offering Price Per Share (100/99 of $14.63)* $14.78
Redemption Proceeds Per Share (99/100 of $14.63)** $14.48
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 8,052,490
Interest 2,058,678
Total income 10,111,168
EXPENSES:
Investment advisory fee $ 1,502,245
Administrative personnel and services fee 189,283
Custodian fees 39,650
Transfer and dividend disbursing agent fees and expenses 207,517
Directors'/Trustees' fees 7,335
Auditing fees 8,965
Legal fees 1,191
Portfolio accounting fees 70,596
Distribution services fee -- Class B Shares 463,436
Distribution services fee -- Class C Shares 219,772
Distribution services fee -- Class F Shares 74,500
Shareholder services fee -- Class A Shares 323,699
Shareholder services fee -- Class B Shares 154,479
Shareholder services fee -- Class C Shares 73,258
Shareholder services fee -- Class F Shares 74,500
Share registration costs 51,886
Printing and postage 46,646
Insurance premiums 4,209
Taxes 15,198
Miscellaneous 3,751
Total expenses 3,532,116
Waivers --
Waiver of shareholder services fee -- Class A Shares $(51,792)
Waiver of shareholder services fee -- Class F Shares (3,622)
Total waivers (55,414)
Net expenses 3,476,702
Net investment income 6,634,466
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 15,314,401
Net change in unrealized appreciation of investments 17,909,631
Net realized and unrealized gain on investments 33,224,032
Change in net assets resulting from operations $ 39,858,498
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1996 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 6,634,466 $ 7,752,425
Net realized gain (loss) on investments ($15,314,401 and $(1,981,170),
respectively, as computed for federal tax purposes) 15,314,401 28,594,767
Net change in unrealized appreciation (depreciation) 17,909,631 29,709,991
Change in net assets resulting from operations 39,858,498 66,057,183
NET EQUALIZATION CREDITS (DEBITS) -- 300,009 542,386
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (12,468,422) (5,006,103)
Class B Shares (5,018,392) (660,772)
Class C Shares (2,602,928) (903,387)
Class F Shares (2,849,649) (1,247,685)
Distributions from net realized gains
Class A Shares -- (3,301,588)
Class B Shares -- (624,304)
Class C Shares -- (748,630)
Class F Shares -- (845,316)
Change in net assets resulting from distributions to shareholders (22,939,391) (13,337,785)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME) --
Proceeds from sale of shares 250,986,810 191,379,119
Net asset value of shares issued to shareholders in payment of
distributions declared 18,250,108 9,252,011
Cost of shares redeemed (35,027,043) (42,568,011)
Change in net assets resulting from share transactions 234,209,875 158,063,119
Change in net assets 251,428,991 211,324,903
NET ASSETS:
Beginning of period 391,154,937 179,830,034
End of period $ 642,583,928 $ 391,154,937
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1996 1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.26 $11.50 $11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84 $ 9.22 $10.18
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.22 0.46 0.49 0.43 0.55 0.69 0.84 0.91 0.89 0.72
Net realized and
unrealized gain
(loss) on
investments 0.88 2.96 0.40 0.15 1.22 1.08 (0.16) (1.18) 1.59 (0.81)
Total from
investment
operations 1.10 3.42 0.89 0.58 1.77 1.77 0.68 (0.27) 2.48 (0.09)
LESS DISTRIBUTIONS
Distributions from
net
investment
income (0.21) (0.41) (0.45) (0.43) (0.53) (0.69) (0.86) (0.87) (0.86) (0.72)
Distributions in
excess of net
investment
income(b) -- -- -- -- -- -- -- (0.41) -- --
Distributions
from
net realized
gain
on investments (0.52) (0.25) -- -- -- -- -- (0.52) -- (0.15)
Total
distributions (0.73) (0.66) (0.45) (0.43) (0.53) (0.69) (0.86) (1.80) (0.86) (0.87)
NET ASSET VALUE,
END OF PERIOD $14.63 $14.26 $11.50 $11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84 $ 9.22
TOTAL RETURN(C) 7.88% 30.37% 8.31% 5.29% 18.98% 21.19% 8.95% (3.19%) 28.25% (0.54%)
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.07%* 1.03% 1.00% 1.00% 0.99% 1.04% 1.05% 0.97% 0.77% 1.16%*
Net investment
income 2.96%* 3.19% 4.01% 3.82% 5.45% 7.36% 10.25% 9.34% 9.02% 8.32%*
Expense waiver/
reimbursement(d) 0.04%* 0.20% 0.36% 0.89% 1.60% 1.46% 1.46% 1.43% 1.25% 0.86%*
SUPPLEMENTAL DATA
Net assets, end
of period (000
omitted) $330,321 $220,268 $108,683 $84,665 $30,616 $25,176 $22,589 $22,052 $11,306 $8,895
Average
commission
rate paid $0.06 -- -- -- -- -- -- -- -- --
Portfolio
turnover 42% 96% 91% 43% 79% 115% 31% 54% 49% 41%
</TABLE>
* Computed on an annualized basis.
(a) For the period from May 1, 1987 to March 31, 1988. (Effective November
1, 1987, the Fund changed its fiscal year-end from April 30 to March 31.)
(b) Distributions in excess of net investment was a result of certain books
and tax timing differences. This distribution did not represent a return of
capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31
1996 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.26 $11.50 $11.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.15 0.33 0.19
Net realized and unrealized gain (loss) on investments 0.89 3.00 0.26
Total from investment operations 1.04 3.33 0.45
LESS DISTRIBUTIONS
Distributions from net investment income (0.15) (0.32) (0.19)
Distributions from net realized gain on investments (0.52) (0.25) --
Total distributions (0.67) (0.57) (0.19)
NET ASSET VALUE, END OF PERIOD $14.63 $14.26 $11.50
TOTAL RETURN(B) 7.48% 29.40% 4.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.86%* 1.83% 1.80%*
Net investment income 2.22%* 2.31% 3.42%*
Expense waiver/reimbursement(c) --%* 0.16% 0.47%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $200,467 $71,048 $6,072
Average commission rate paid -- -- --
Portfolio turnover 42% 96% 91%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 27, 1994 (date of
initial public investment) to March 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1996 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.26 $11.50 $11.06 $10.76
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.15 0.32 0.37 0.34
Net realized and unrealized gain (loss) 0.89 3.00 0.44 0.28
Total from investment operations 1.04 3.32 0.81 0.62
LESS DISTRIBUTIONS
Distributions from net investment income (0.15) (0.31) (0.37) (0.32)
Distributions from net realized gain on investments (0.52) (0.25) -- --
Total distributions (0.67) (0.56) (0.37) --
NET ASSET VALUE, END OF PERIOD $14.63 $14.26 $11.50 $11.06
TOTAL RETURN(B) 7.47% 29.39% 7.52% 5.66%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.86%* 1.80% 1.76% 1.79%*
Net investment income 2.17%* 2.43% 3.25% 2.99%*
Expense waiver/reimbursement(c) 0.00%* 0.18% 0.36% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $72,100 $48,134 $30,189 $24,632
Average commission rate paid -- -- -- --
Portfolio turnover 42% 96% 91% 43%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 3, 1993 (date of initial
public offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS F SHARES
(FORMERLY, FORTRESS SHARES)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1996 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.26 $11.51 $11.06 $11.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.19 0.39 0.42 0.17
Net realized and unrealized gain (loss) on investments 0.89 2.99 0.46 (0.68)
Total from investment operations 1.08 3.38 0.88 (0.51)
LESS DISTRIBUTIONS
Distributions from net investment income (0.19) (0.38) (0.43) (0.17)
Distributions from net realized gain on investments (0.52) (0.25) -- --
Total distributions (0.71) (0.63) (0.43) (0.17)
NET ASSET VALUE, END OF PERIOD $14.63 $14.26 $11.51 $11.06
TOTAL RETURN(B) 7.74% 30.06% 8.05% (4.43%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.34%* 1.29% 1.24% 1.29%*
Net investment income 2.68%* 2.95% 3.79% 3.71%*
Expense waiver/reimbursement(c) 0.01%* 0.18% 0.36% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $69,696 $51,707 $34,886 $21,010
Average commission rate paid -- -- -- --
Portfolio turnover 42% 96% 91% 43%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 12, 1993 (date of
initial public investment) to March 31, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
1. ORGANIZATION
Federated Equity Income 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 four classes of
shares: Class A Shares, Class B Shares, Class C Shares, and Class F Shares.
The investment objective of the Fund is to provide above average income and
capital appreciation.
Effective March 31, 1996, the shareholders approved a change in the name of
the Fund from Liberty Equity Income Fund, Inc. to Federated Equity Income
Fund, Inc. The shareholders also approved a change in the name of Fortress
Shares to Class F Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Listed equity securities, and other fixed income
securities are valued at the last sale price reported on a national
securities exchange. Listed corporate bonds, unlisted securities, and
short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for accumulated equalization and have been reclassified
as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
PAID-IN DISTRIBUTIONS IN EXCESS OF
CAPITAL NET INVESTMENT INCOME
<C> <C>
$1,144,831 $1,144,831
</TABLE>
Net investment income, net realized gain/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.
EQUALIZATION -- The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at September 30,
1996 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <S> <C>
3 Com Corp. 5/19/1995-7/3/1996 8,539,225
Altera Corp. 3/27/1996-8/5/1996 13,131,421
Greenfield Industries Inc. 4/18/1996-9/4/1996 12,801,250
SFX Broadcasting 5/22/1996-5/30/1996 6,621,250
Sandoz Capital Ltd. 9/25/1995-8/23/1996 8,204,125
SCI Systems, Inc. 7/17/1996-8/22/1996 10,595,739
Trans World Airlines 3/18/1996-7/22/1996 8,408,750
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At September 30, 1996, par value shares ($ 0.01 per share) authorized were
as follows:
<TABLE>
<CAPTION>
# OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A 500,000,000
Class B 500,000,000
Class C 500,000,000
Class F 500,000,000
TOTAL 2,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,120,537 $ 86,736,802 7,673,265 $ 101,202,865
Shares issued to shareholders in
payment of distributions declared 619,809 8,842,620 417,516 5,532,040
Shares redeemed (1,660,534) (23,442,661) (2,086,538) (27,277,128)
Net change resulting from
Class A Share transactions 5,079,812 $ 72,136,761 6,004,243 $ 79,457,777
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,782,106 $ 124,558,174 4,577,763 $ 62,087,710
Shares issued to shareholders in
payment of distributions declared 321,290 4,595,265 82,607 1,119,010
Shares redeemed (378,108) (5,349,947) (207,101) (2,790,499)
Net change resulting from Class B
Share transactions 8,725,288 $ 123,803,492 4,453,269 $ 60,416,221
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,624,338 $ 23,035,726 1,204,046 $ 15,997,658
Shares issued to shareholders in
payment of distributions declared 160,396 2,295,848 78,365 1,044,627
Shares redeemed (233,390) (3,303,166) (528,182) (6,800,666)
Net change resulting from Class C
Share transactions 1,551,344 $ 22,028,408 754,229 $ 10,241,619
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,169,810 $ 16,656,108 917,406 $ 12,090,885
Shares issued to shareholders in
payment of distributions declared 175,772 2,516,375 117,150 1,556,335
Shares redeemed (208,001) (2,931,269) (439,804) (5,699,717)
Net change resulting from Class F
Share transactions 1,137,581 $ 16,241,214 594,752 $ 7,947,503
Net change resulting from share transactions 16,494,025 $ 234,209,875 11,806,494 $ 158,063,119
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.60% of the Fund's average daily net assets.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares, Class B Shares, Class C
Shares, and Class F 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 DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.50%
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.25%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
to 0.25% of average daily net assets of the Fund shares for the period. The
fee paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 423,353,587
SALES $ 204,163,982
</TABLE>
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer,
and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407
8110102 (11/96)
A. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text above it, which shows that an initial investment of
$10,000 in the Class A Shares of Federated Equity Income Fund, Inc. on
December 30, 1986, would have grown to $30,431 on September 30, 1996. The
`y'' axis reflects the cost of the investment. The ``x'' axis reflects
computation periods from December 30, 1986 to September 30, 1996. The chart
further indicates the ending market value attributable to principal, as
well as the ending market value attributable to capital gains and
reinvested dividends.
B. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text above it, which shows that yearly investments of
$1,000 in the Class A shares of Federated Equity Income Fund, Inc. on
December 30, 1986, would have grown to $21,113 on September 30, 1996. The
`y'' axis reflects the cost of the investment. The ``x'' axis reflects
computation periods from December 30, 1986 to September 30, 1996. The chart
further indicates the ending market value attributable to principal, as
well as the ending market value attributable to capital gains and
reinvested dividends.
C. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text above it, which shows that an investment of $15,000
in the Class A Shares of Federated Equity Income Fund, Inc. on December 30,
1986, would have grown to $45,647. The `y'' axis reflects the cost of the
investment. The `x'' axis reflects computation periods from December 30,
1986 to September 30, 1996. The chart further indicates the ending market
value attributable to principal, as well as the ending market value
attributable to capital gains and reinvested dividends.
