FEDERATED EQUITY INCOME FUND INC, N-30D, 1999-05-25

FEDERATED EQUITY INCOME FUND INC
N-30D, 1999-05-25

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ANNUAL REPORT

[Graphic]

RICHARD B. FISHER

President

Federated Equity Income Fund, Inc.

[Graphic]
Federated

World-Class Investment Manager

President's Message

Dear Fellow Shareholder:

Federated Equity Income Fund, Inc. was created in 1986, and I am pleased to
present its 13th Annual Report. The fund invests in large, well-known
corporations with histories of steadily rising dividends and steadily rising
values. Over the 12-month reporting period, fund assets continued to grow and
reached over $2.5 billion by March 31, 1999. This extraordinary asset growth
reflected an increase in the value of fund shares, as well as the confidence
expressed by our long-time and new shareholders as they purchased shares for
their investment accounts.

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,
Linda A. Duessel, Vice President of Federated Investment Management Company.
Following her 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 common and preferred stocks and
convertible securities, and third is the publication of the fund's financial
statements.

The fund's fiscal year saw an extremely volatile stock market in which the Dow
Jones Industrial Average ("DJIA") 1 surpassed 10,000 and the Standard & Poor's
("S&P") 500 Index2 continued to produce highly positive gains. The fund did not
match the S&P 500 Index's 18.48% total return-which was driven by a narrow band
of large-cap growth stocks. This equity income fund portfolio focuses on a
defensive, "sector-neutral" portfolio with ownership of good, dividend-paying
securities. The fund's holdings included such well-known names as America
Online, BankAmerica, Bristol-Myers Squibb, Disney, Ford, General Electric, H. J.
Heinz, and IBM.

1 The DJIA represents share prices of selected blue-chip industrial corporations
as well as public utility and transportation companies.

2 The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
Investments may not be made in an index.

In this highly valued and volatile stock market, the fund's defensive management
approach was crucial to shareholders. As Linda discusses, it is expected that
the market should reward stocks that exhibit consistent earnings and revenue
growth. This is exactly the type of stock that Federated Equity Income Fund,
Inc. holds. In fact, 30% of the fund's holdings are in common stocks that have
raised their dividends in each of the last 10 years. The fund's portfolio of
quality, dividend-paying stocks and higher yielding convertible securities
should leave shareholders well-positioned for the environment ahead.

Individual share class total performance for the 12-month reporting period,
including income distributions and realized gains, follows. 3

INCOME

TOTAL RETURN DISTRIBUTIONS CAPITAL GAINS NET ASSET VALUE INCREASE
<S> <C> <C> <C> <C>
Class A Shares 10.18% $0.30 $1.20 $19.14 to $19.49 = 1.83%
Class B Shares 9.32% $0.17 $1.20 $19.15 to $19.49 = 1.78%
Class C Shares 9.37% $0.16 $1.20 $19.15 to $19.50 = 1.83%
Class F Shares 9.90% $0.26 $1.20 $19.15 to $19.50 = 1.83%

</TABLE>

We trust you were pleased with the continued positive performance of your equity
income investment. Remember, reinvesting your Federated Equity Income Fund, Inc.
earnings is a convenient way to build the value of your account- and help the
number of shares increase each month. Reinvesting brings into play the benefit
of monthly compounding of shares.

Sincerely,

[Graphic]

Richard B. Fisher
President
May 15, 1999

3 Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the reporting period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, C and F
Shares were 4.14%, 3.82%, 8.37% and 7.83%, respectively.

[Graphic]

LINDA A. DUESSEL

Vice President

Federated Investment Management Company

Investment Review

THE PERIOD OF APRIL 1, 1998 THROUGH MARCH 31, 1999 WAS AN EXTRAORDINARY AND
VOLATILE PERIOD FOR COMMON STOCKS. A VERY DIFFICULT FIRST HALF OF THE YEAR WAS
FOLLOWED BY A STRONG RECOVERY IN THE SECOND HALF THAT SAW THE DJIA SURPASS
10,000 WITH UNPRECEDENTED DAY-TO-DAY VOLATILITY. WHAT ARE YOUR COMMENTS?

After completing one of the strongest first quarters in 50 years, the market
traded down in a choppy pattern for much of the second quarter of 1998. The
third quarter of 1998 was among the most unsettling in recent times, as the
market peaked in mid-July. In the period between April 1, 1998 and September 30,
1998, New York Stock Exchange issues declined in value on average 30%-40%. That
was a market correction, and that was bad news.

The good news was that the stock market is made up of individual stocks with
good and bad earnings outlooks, and prices really just reflect investors' views
of future corporate earnings. Our domestic market, indeed, showed the extent to
which the financial crises around the world affected U.S. companies.

In the fourth quarter of 1998, the S&P 500 Index rallied to end the year with
its fourth consecutive year of 20% gains. After falling nearly 20% from its July
17, 1998 market peak, the S&P 500 Index began a dramatic recovery in early
October, to finish the year with a total return of 28.58%. While this is an
extremely impressive showing, it was accompanied by a high level of volatility,
and of course, concentration of investors' interest in large-cap stocks. In
fact, the market's advance was heavily concentrated in a handful of companies -
specifically, 20 large-cap growth stocks accounted for 59% of the market's rise,
while 100 stocks accounted for 85% of its gain. It is interesting to note the
median gain for a stock in the S&P 500 Index was only 2%, with over 70% of the
stocks lagging the Index's return.

During the first quarter of 1999, the U.S. stock market continued its impressive
recovery. The DJIA surpassed the 10,000 mark, while the S&P 500 Index returned
an impressive 4.98%. This advance was again concentrated in a small number of
large-cap growth companies, while the average stock, as measured by the
equal-weighted S&P 500 Index, returned only 1.19% during the period. Ned Davis
Research reports that large-cap stocks outperformed small- cap stocks by 9.50%
in the first quarter of 1999, while large-cap growth stocks outperformed
large-cap value stocks by 5.00%.

HOW DID FEDERATED EQUITY INCOME FUND, INC. PERFORM FOR ITS SHAREHOLDERS FOR
THE 12-MONTH REPORTING PERIOD?

For the 12-month period ended March 31, 1999, the fund's Class A, B, C and F
Shares produced competitive total returns of 10.18%, 9.32%, 9.37% and 9.90%,
respectively, based on net asset value. 1 These returns were significantly
greater than the 0.65% average return of 232 equity income funds tracked by
Lipper Analytical Services, Inc.2 By comparison, the total return of the S&P 500
Index was 18.48%. Again, the average equity income fund was unable to match the
return of the S&P 500 Index because the Index's performance was heavily
influenced by the performance of its largest stocks.

1 Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the reporting period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, C and F
Shares were 4.14%, 3.82%, 8.37% and 7.83%, respectively.

2 This figure represents the average of the total returns reported by all mutual
funds designated by Lipper Analytical Services, Inc. as falling into the
category indicated. Lipper figures do not take sales charges into account.

COULD YOU CITE A FEW EXAMPLES OF WHAT YOU HAVE BEEN BUYING AND SELLING RECENTLY
IN THE FUND?

In the Consumer Staples sector, we bought PEPSICO based on our expectation of
double-digit earnings growth and the spin-off of its bottling division. We
bought WALT DISNEY, arguably the leading worldwide entertainment company, whose
stock recently has underperformed. We sold Diageo PLC American Depositary
Receipts after the stock reached our price target and with concerns relating to
its Asian and Latin American exposure. We sold UST, having profited from a
timely purchase of the stock but wishing to reduce the portfolio's tobacco
exposure. We bought ALBERTSONS, a major supermarket concern. Albertsons appeared
inexpensive after a recent acquisition; additionally, the company raised its
dividend at a compounded annual growth rate of 17% for the last 20 years.

In the Consumer Cyclicals sector, we purchased WHIRLPOOL, a leading appliance
manufacturer, which appeared inexpensive, as we are expecting positive
restructuring results and new product introductions. We sold Wendy's
International common stock and convertible preferred stock after strong
performance. We also sold Hollinger International Publishing to purchase the
stronger, though still quite inexpensive, stock of THE NEW YORK TIMES.

In the Finance sector, we purchased CITIGROUP, a dominant global financial
services company, at a depressed price. We also purchased CHUBB CORP., a
high-quality personal property and casualty insurance company. We also sold a
number of small positions in Real Estate Investment Trusts whose market
capitalizations had become too small for the size of the fund, and purchased
ALLSTATE, a leader in the property and casualty insurance industry that we
consider very undervalued. We eliminated our position in SunAmerica, Inc. PERCS,
3 which had appreciated dramatically upon a takeout offer by American
International Group, Inc.

In the Health Care sector, we eliminated Bergen Brunswig Corp., a drug
distributor, and replaced it with JOHNSON & JOHNSON, a leading pharmaceutical
and health care products manufacturer.

In the Technology sector, we purchased the convertible bonds of APPLE COMPUTER,
INC. and AMERICA ONLINE, INC. as yield-oriented and somewhat defensive
securities of these leading computer/online services companies. We also
purchased STORAGE TECHNOLOGY CORP., a designer and manufacturer of mainframe
information storage systems and network products, at a very attractive price. We
purchased convertible bonds of LSI LOGIC, a leading semiconductor manufacturer
enjoying accelerating growth in the robust communications and consumer
electronics markets. We purchased the convertible bonds of CITRIX SYSTEMS, a
software company that has developed a unique, low-cost solution to expensive
computer systems, counting among its customers Microsoft and numerous large
financial institutions. (These convertible bonds provide good participation in
the upward moves of the underlying common stocks, but also provide better
protection against a downturn in stock prices.) We eliminated Microsoft
Convertible Preferreds, which had appreciated dramatically and have little
remaining return potential through maturity.

3 PERCS-Preferred Equity Redemption Cumulative Stock

In the Capital Goods sector, we eliminated our position in General Dynamics and
purchased PITNEY BOWES, the innovative leader in the mailing equipment industry,
which has provided stable earnings and has increased its dividend every year for
the last 16 years.

WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF MARCH 31, 1999, AND WHAT WERE THE
FUND'S SECTOR WEIGHTINGS?

PERCENTAGE OF

NAME NET ASSETS
<S> <C>
Sprint Corp. 2.31%
GTE Corp. 2.18%
Bristol-Myers Squibb Co. 2.12%
Home Depot, Inc. Conv. Sub. Note, 3.25%, 10/1/2001 2.08%
American Home Products Corp. 2.02%
Baxter International, Inc. 1.89%
Merck & Co., Inc. 1.89%
Electronic Data Systems Corp. 1.83%
International Business Machines Corp. 1.82%
MCI Worldcom, Inc. 1.78%
TOTAL 19.92%
</TABLE>

PERCENTAGE
PERCENTAGE OF OF S&P 500

SECTOR NET ASSETS INDEX
<S> <C> <C>
Technology 19.9% 20.6%
Financials 16.2% 16.1%
Consumer Staples 12.6% 13.6%
Health Care 11.6% 12.0%
Communication Services 9.0% 8.5%
Capital Goods 8.8% 7.9%
Consumer Cyclicals 8.2% 9.2%
Energy 5.4% 5.6%
Utilities 3.1% 2.6%
Basic Materials 2.9% 3.0%
Transportation 1.0% 0.9%
Cash/

Miscellaneous 1.6% 0.0%
</TABLE>

HOW DO YOU SEE THE MARKET FARING THROUGHOUT 1999?

The stock market outlook for the balance of 1999 appears favorable, although
volatility will likely persist. Positive signs for the market are numerous. The
U.S. economy is strong, particularly in the home building, auto and retail
sectors. Inflation has not been a problem - despite tight labor markets - as
there are no signs of wage pressures. Consumer confidence is high, as household
balance sheets are in excellent shape. J.P. Morgan notes that household debt as
a percentage of net worth was 17% in 1998, the lowest level in the 1990s.
Further, despite healthy economic statistics, the Federal Reserve Board has not
raised short-term interest rates since November of 1998. Finally, the U.S.
market is considered the strongest, as economic weakness persists in Europe, the
Far East and Latin America. Thus, money is flowing into our domestic market.

Concerns for the market center around historically expensive valuations and the
continued deterioration in market breadth (number of companies participating in
the rally) even as the stock market averages reach new all-time highs. The
persistent inability of companies to raise prices means their earnings growth
must come from unit sales increases, or cost savings from restructuring or
merger-related layoffs.

Two Ways You May Seek to Invest for Success:

INITIAL INVESTMENT

IF YOU HAD MADE AN INITIAL INVESTMENT OF $13,000 IN THE CLASS A SHARES OF
FEDERATED EQUITY INCOME FUND, INC. ON 12/30/86, REINVESTED DIVIDENDS AND CAPITAL
GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $62,330
ON 3/31/99. YOU WOULD HAVE EARNED A 13.80% 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, the Class A Shares' average annual 1-year, 5-year and 10-year
total returns were 4.14%, 18.16% and 13.94%, respectively. Class B Shares'
average annual 1-year and since inception (9/27/94) total returns were 3.82% and
19.76%, respectively. Class C Shares' average annual 1-year, 5-year and since
inception (5/3/93) total returns were 8.37%, 18.62% and 16.62%, respectively.
Class F Shares' average annual 1-year, 5-year and since inception (11/12/93)
total returns were 7.83%, 18.97% and 16.53%, respectively. 2

[Graphic]
See Appendix A

1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.50% 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, 5.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge;
Class F Shares, 1.00% sales charge and 1.00% contingent deferred sales charge.

ONE STEP AT A TIME

$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 12
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $37,151.

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 did not redeem any shares, you would have invested only $13,000, but
your account would have reached a total value of $37,1511 by 3/31/99. You would
have earned an average annual total return of 15.62%.

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. 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]
See Appendix B

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 a College Education

David and Joan Rice are a fictional couple who, like many shareholders, are
searching for a way to make their money grow over time.

David and Joan are planning for the college education of their child. On March
31, 1989, they invested $5,000 in the Class A Shares of Federated Equity Income
Fund, Inc. Since then, David and Joan have made additional investments of $250
every month.

As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to $88,522.
This represents a 15.62% average annual total return. For the Rices, a dedicated
program of monthly investments really paid off.

[Graphic]
See Appendix C

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.- Class A Shares

GROWTH OF $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in
Federated Equity Income Fund, Inc. (Class A Shares) (the "Fund") from March 31,
1989 to March 31, 1999, compared to the Standard & Poor's 500 Index (S&P 500)
and the Lipper Equity Income Fund Index (LEIFI).2

AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999
<S> <C>
1 Year 4.14%
5 Years 18.16%
10 Years 13.94%
Start of Performance (12/30/86) 13.80%
</TABLE>

[Graphic]

See Appendix D

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) that was in effect prior to October 1, 1994. As of October 1, 1994, the
maximum sales charge was 5.50%. The Fund's performance assumes the reinvestment
of all dividends and distributions. The S&P 500 and the LEIFI have been adjusted
to reflect reinvestment of dividends on securities in the indices.

2 The S&P 500 and the LEIFI are not adjusted to reflect sales charges, expenses
or other fees that the Securities and Exchange Commission ("SEC") requires to be
reflected in the Fund's performance. The indices are unmanaged.

3 Total return quoted reflects all applicable sales charges.

Federated Equity Income Fund, Inc.- Class B Shares

GROWTH OF $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in
Federated Equity Income Fund, Inc. (Class B Shares) (the "Fund") from September
27, 1994 (start of performance) to March 31, 1999, compared to the Standard &
Poor's 500 Index (S&P 500) and the Lipper Equity Income Fund Index (LEIFI).2

AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999
<S> <C>
1 Year 3.82%
Start of Performance (9/27/94) 19.76%
</TABLE>

[Graphic]

See Appendix E

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 S&P 500 and the LEIFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.

3 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

Federated Equity Income Fund, Inc.- Class C Shares

GROWTH OF $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in
Federated Equity Income Fund, Inc. (Class C Shares) (the "Fund") from May 3,
1993 (start of performance) to March 31, 1999, compared to the Standard & Poor's
500 Index (S&P 500) and the Lipper Equity Income Fund Index (LEIFI).2

AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999
<S> <C>
1 Year 8.37%
5 Years 18.62%
Start of Performance (5/3/93) 16.62%
</TABLE>

[Graphic]

See Appendix F

1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less than
one year from the purchase date. The Fund's performance assumes the reinvestment
of all dividends and distributions. The S&P 500 and the LEIFI have been adjusted
to reflect reinvestment of dividends on securities in the indices.

3 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

Federated Equity Income Fund, Inc.- Class F Shares

GROWTH OF $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in
Federated Equity Income Fund, Inc. (Class F Shares) (the "Fund") from November
12, 1993 (start of performance) to March 31, 1999, compared to the Standard &
Poor's 500 Index (S&P 500) and the Lipper Equity Income Fund Index (LEIFI).2

AVERAGE ANNUAL TOTAL RETURN 3 AS OF MARCH 31, 1999
<S> <C>
1 Year 7.83%
5 Years 18.97%
Start of Performance (11/12/93) 16.53%
</TABLE>

[Graphic]

See Appendix G

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 1.00% ($10,000 investment minus $100 sales charge =
$9,900). A 1.00% contingent deferred sales charge would be applied on any
redemption less than four years from the purchase date.The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and the
LEIFI have been adjusted to reflect reinvestment of dividends on securities in
the indices.

2 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

3 The S&P 500 and the LEIFI are not adjusted to reflect sales charges, expenses
or other fees that the Securities and Exchange Commission ("SEC") requires to be
reflected in the Fund's performance. The indices are unmanaged.

Portfolio of Investments

MARCH 31, 1999

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-80.2%
BASIC MATERIALS-2.9%

981,000 Barrick Gold Corp. $ 16,738,313
470,800 Du Pont (E.I.) de Nemours
& Co. 27,335,825
2,089,100 USEC, Inc. 28,463,988
TOTAL 72,538,126
CAPITAL GOODS-6.2%

422,000 Emerson Electric Co. 22,339,625
381,400 General Electric Co. 42,192,375
813,000 Lockheed Martin Corp. 30,639,938
491,200 Pitney Bowes, Inc. 31,314,000
386,600 Textron, Inc. 29,913,175
TOTAL 156,399,113
COMMUNICATION SERVICES-

9.0%

246,400 AT&T Corp. 19,665,800
570,900 Ameritech Corp. 33,040,838
908,700 GTE Corp. 54,976,350
507,511 1 MCI Worldcom, Inc. 44,946,443
593,200 Sprint Corp. 58,207,750
339,650 1 Sprint Corp. (PCS Group) 15,050,741
TOTAL 225,887,922
CONSUMER CYCLICALS-6.1%

741,000 Block (H&R), Inc. 35,104,875
1,067,700 Cooper Tire & Rubber Co. 19,618,988
531,000 Ford Motor Co. 30,134,250
862,000 New York Times Co., Class
A 24,567,000
618,700 Penney (J.C.) Co., Inc. 25,057,350
347,000 Whirlpool Corp. 18,868,125
TOTAL 153,350,588
CONSUMER STAPLES-9.8%

160,500 Albertsons, Inc. 8,717,157
1,132,000 Disney (Walt) Co. 35,233,500
1,120,300 Food Lion, Inc., Class A 10,310,261
759,900 Food Lion, Inc., Class B 6,839,100
503,000 General Mills, Inc. 38,007,938
<CAPTION>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued
CONSUMER STAPLES-

CONTINUED

720,350 Heinz (H.J.) Co. $ 34,126,582
556,100 Kimberly-Clark Corp. 26,658,044
979,400 PepsiCo, Inc. 38,380,238
679,300 Philip Morris Cos., Inc. 23,902,869
586,200 RJR Nabisco Holdings
Corp. 14,655,000
463,000 The Pepsi Bottling
Group, Inc. 10,041,313
TOTAL 246,872,002

ENERGY-5.4%

280,000 BP Amoco PLC, ADR 28,262,500
326,600 Burlington Resources,
Inc. 13,043,588
423,800 Exxon Corp. 29,904,388
695,500 Halliburton Co. 26,776,750
429,800 Mobil Corp. 37,822,400
TOTAL 135,809,626
FINANCIALS-13.1%

683,500 Allstate Corp. 25,332,219
789,070 Bank One Corp. 43,448,167
409,962 BankAmerica Corp. 28,953,567
381,300 Chase Manhattan Corp. 31,004,457
185,000 Chubb Corp. 10,834,063
659,400 Citigroup, Inc. 42,119,175
619,700 First Union Corp. 33,115,219
141,400 Lincoln National Corp. 13,980,925
355,500 Marsh & McLennan Cos.,

Inc. 26,373,657
416,700 Mellon Bank Corp. 29,325,263
347,800 Morgan Stanley, Dean
Witter & Co. 34,758,263
333,200 Post Properties, Inc. 11,995,200
TOTAL 331,240,175
HEALTH CARE-11.6%

935,400 Abbott Laboratories 43,788,413
779,200 American Home Products
Corp. 50,842,800
723,000 Baxter International,
Inc. 47,718,000
831,000 Bristol-Myers Squibb Co. 53,443,688
291,000 Johnson & Johnson 27,263,063
<CAPTION>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued

HEALTH CARE-CONTINUED

592,890 Merck & Co., Inc. $ 47,542,367
341,100 Warner-Lambert Co. 22,576,557
TOTAL 293,174,888
TECHNOLOGY-13.5%

125,900 1 Cisco Systems, Inc. 13,793,919
948,300 Electronic Data Systems
Corp. 46,170,357
242,200 Hewlett-Packard Co. 16,424,188
100,700 Intel Corp. 11,995,888
258,000 International Business
Machines Corp. 45,730,500
283,400 1 Lexmark Intl. Group,
Class A 31,669,950
450,500 Motorola, Inc. 32,999,125
1,278,000 1 Storage Technology Corp. 35,624,250
263,800 1 Sun Microsystems, Inc. 32,958,513
303,900 1 Tellabs, Inc. 29,706,225
1,710,400 1 Western Digital Corp. 13,576,300
528,200 Xerox Corp. 28,192,675
TOTAL 338,841,890
TRANSPORTATION-1.0%

657,500 CNF Transportation, Inc. 24,861,719
UTILITIES-1.6%

629,012 Enron Corp. 40,414,021
TOTAL COMMON STOCKS
(IDENTIFIED COST

$1,614,521,959) 2,019,390,070
CONVERTIBLE PREFERRED

STOCKS-10.0%
CAPITAL GOODS-2.6%

1,242,800 Crown Cork & Seal Co.,

Inc., Conv. Pfd., $1.89 33,866,300
1,233,600 Ingersoll-Rand Co.,
Cumulative PRIDES,

Series 6.75% 31,148,400
TOTAL 65,014,700
CONSUMER STAPLES-2.8%
348,300 McKesson Corp., Conv.

Pfd., $2.50 31,799,790
20,200 2 McKesson Corp., Conv.
Pfd., $2.50 1,844,260
473,200 Ralston Purina Co.,
SAILS, $1.08, Series

Interstate Bakeries 21,294,000
440,000 2 Suiza Foods Corp., Conv.
Pfd., $2.75 15,491,080
TOTAL 70,429,130
<CAPTION>

SHARES OR

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CONVERTIBLE PREFERRED

STOCKS-continued

FINANCIALS-3.1%
973,700 Conseco, Inc.,

Cumulative PRIDES,

Series F, $3.50 $ 38,522,007
169,500 Jefferson-Pilot Corp.,
Conv. Pfd., $5.26 19,831,500
705,300 Lincoln National Corp.,
Cumulative PRIDES, $1.94 18,690,450
TOTAL 77,043,957
UTILITIES-1.5%
733,200 Texas Utilities Co.,

Cumulative PRIDES, $4.63 39,088,725
TOTAL CONVERTIBLE
PREFERRED STOCKS
(IDENTIFIED COST

$270,444,350) 251,576,512
CONVERTIBLE CORPORATE

BONDS-8.5%
CONSUMER CYCLICALS-2.1%

$ 19,260,000 Home Depot, Inc., Conv.
Sub. Note, 3.25%,

10/1/2001 52,276,840

TECHNOLOGY-6.4%
3,455,000 America Online, Inc.,

Conv. Bond, 4.00%,

11/15/2002 38,851,130
30,335,000 Apple Computer, Inc.,
Conv. Bond, 6.00%,

6/1/2001 39,148,531
54,000,000 2 Citrix Systems, Inc.,
Conv. Bond, 3/22/2019 18,328,140
3,675,000 EMC Corp. Mass, Conv.
Bond, 3.25%, 3/15/2002 20,818,581
4,520,000 2 EMC Corp. Mass, Conv.
Sub. Note, 3.25%,

3/15/2002 25,605,438
11,595,000 2 LSI Logic Corp., Conv.
Bond, 4.25%, 3/15/2004 13,232,794
29,000,000 2 Western Digital Corp.,
Conv. Sub. Deb.,

2/18/2018 6,395,660
TOTAL 162,380,274

TOTAL CONVERTIBLE
CORPORATE BONDS
(IDENTIFIED COST

$133,035,852) 214,657,114
REPURCHASE AGREEMENT-

1.6% 3
41,030,000 ABN AMRO, Inc., 5.05%,

dated 3/31/1999, due
4/1/1999 (at amortized

cost) 41,030,000

TOTAL INVESTMENTS
(IDENTIFIED COST

$2,059,032,161) 4 $ 2,526,653,696

</TABLE>

1 Non-income producing security.

2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's board of directors. At March 31, 1999, these
securities amounted to $80,897,372 which represents 3.2% of net assets.

3 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.

4 The cost of investments for federal tax purposes amounts to $2,060,229,469.
The net unrealized appreciation of investments on a federal tax basis amounts to
$466,424,227 which is comprised of $551,839,914 appreciation and $85,415,687
depreciation at March 31, 1999.

Note: The categories of investments are shown as a percentage of net assets
($2,519,060,923) at March 31, 1999.

The following acronyms are used throughout this portfolio:

ADR -American Depositary Receipt
PRIDES -Preferred Redeemable Increased Dividend
Equity Securities
SAILS -Stock Appreciation Income Linked Security

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

MARCH 31, 1999

<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified cost
$2,059,032,161 and
tax cost $2,060,229,469) $ 2,526,653,696
Income receivable 4,752,100
Receivable for
investments sold 27,266,960
Receivable for shares 5,809,865
TOTAL ASSETS 2,564,482,621
LIABILITIES:

Payable for investments
purchased $ 35,473,532
Payable for shares
redeemed 7,617,258
Income distribution
payable 468,780
Payable to Bank 25,938
Payable for taxes
withheld 18,676
Accrued expenses 1,817,514
TOTAL LIABILITIES 45,421,698

Net assets for
129,231,920 shares

outstanding $ 2,519,060,923
NET ASSETS CONSIST OF:
Paid in capital $ 2,054,940,221
Net unrealized
appreciation of
investments 467,621,535
Accumulated net realized
loss on investments (4,225,363)
Undistributed net
investment income 724,530
TOTAL NET ASSETS $ 2,519,060,923
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER

SHARE
CLASS A SHARES:

Net Asset Value Per Share

($932,543,852 /

47,850,508 shares

outstanding) $19.49
Offering Price Per Share
(100/94.50 of $19.49) 1 $20.62
Redemption Proceeds Per
Share $19.49
CLASS B SHARES:

Net Asset Value Per Share

($1,262,257,662 /

64,751,598 shares

outstanding) $19.49
Offering Price Per Share $19.49
Redemption Proceeds Per
Share (94.50/100 of
$19.49) 1 $18.42
CLASS C SHARES:

Net Asset Value Per Share

($196,583,331 /

10,082,248 shares

outstanding) $19.50
Offering Price Per Share $19.50
Redemption Proceeds Per
Share (99.00/100 of
$19.50) 1 $19.31
CLASS F SHARES:

Net Asset Value Per Share

($127,676,078 /

6,547,566 shares

outstanding) $19.50
Offering Price Per Share
(100/99.00 of $19.50) 1 $19.70
Redemption Proceeds Per
Share (99.00/100 of
$19.50) 1 $19.31
</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

<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of
foreign taxes withheld
of $99,241) $ 56,931,245
Interest 6,720,439
TOTAL INCOME 63,651,684
EXPENSES:

Investment advisory fee $ 13,782,647
Administrative personnel
and services fee 1,732,019
Custodian fees 138,743
Transfer and dividend
disbursing agent fees
and expenses 3,163,129
Directors'/Trustees'

fees 27,244
Auditing fees 17,877
Legal fees 11,475
Portfolio accounting
fees 244,548
Distribution services
fee-Class B Shares 8,453,807
Distribution services
fee-Class C Shares 1,369,380
Distribution services
fee-Class F Shares 308,337
Shareholder services
fee-Class A Shares 2,160,036
Shareholder services
fee-Class B Shares 2,817,935
Shareholder services
fee-Class C Shares 456,460
Shareholder services
fee-Class F Shares 308,338
Share registration costs 66,538
Printing and postage 374,061
Insurance premiums 6,907
Taxes 155,484
Miscellaneous 6,255
TOTAL EXPENSES 35,601,220
Net investment income 28,050,464

REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on

investments 108,542,891
Net change in unrealized
appreciation of
investments 87,508,735
Net realized and
unrealized gain on
investments 196,051,626
Change in net assets
resulting from
operations $ 224,102,090

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED MARCH 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS

OPERATIONS:

Net investment income $ 28,050,464 $ 28,927,322
Net realized gain on

investments
($111,806,575 and
$74,636,492,
respectively, as

computed for federal tax

purposes) 108,542,891 74,063,229
Net change in unrealized
appreciation on
investments 87,508,735 298,409,164
CHANGE IN NET ASSETS
RESULTING FROM

OPERATIONS 224,102,090 401,399,715
NET EQUALIZATION CREDITS - 139,007
DISTRIBUTIONS TO

SHAREHOLDERS:

Distributions from net
investment income

Class A Shares (14,024,460) (13,769,552)
Class B Shares (10,000,327) (10,269,214)
Class C Shares (1,601,048) (1,956,444)
Class F Shares (1,687,126) (2,122,295)
Distributions from net
realized gains
Class A Shares (55,192,484) (29,798,530)
Class B Shares (71,665,319) (33,144,518)
Class C Shares (11,574,448) (6,381,098)
Class F Shares (7,744,637) (5,258,251)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TO SHAREHOLDERS (173,489,849) (102,699,902)
SHARE TRANSACTIONS
(EXCLUSIVE OF AMOUNTS
ALLOCATED TO
NET INVESTMENT INCOME):
Proceeds from sale of

shares 787,808,257 981,235,447
Net asset value of shares
issued to shareholders
in payment of
distributions declared 150,407,994 86,200,577
Cost of shares redeemed (593,698,284) (282,342,329)
CHANGE IN NET ASSETS
RESULTING FROM SHARE

TRANSACTIONS 344,517,967 785,093,695
Change in net assets 395,130,208 1,083,932,515
NET ASSETS:

Beginning of period 2,123,930,715 1,039,998,200
End of period (including
undistributed net
investment income of
$724,530 for March 31,

1999) $ 2,519,060,923 $ 2,123,930,715

</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>

YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,

BEGINNING OF PERIOD $19.14 $15.59 $14.26 $11.50 $11.06
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.31 0.41 0.42 0.46 0.49
Net realized and
unrealized gain on
investments 1.54 4.41 2.16 2.96 0.40
TOTAL FROM INVESTMENT

OPERATIONS 1.85 4.82 2.58 3.42 0.89
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.30) (0.40) (0.41) (0.41) (0.45)
Distributions from net
realized gain
on investments (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (1.50) (1.27) (1.25) (0.66) (0.45)
NET ASSET VALUE, END OF

PERIOD $19.49 $19.14 $15.59 $14.26 $11.50
TOTAL RETURN 1 10.18% 31.80% 18.82% 30.37% 8.31%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 1.11% 1.09% 1.08% 1.03% 1.00%
Net investment income 1.66% 2.25% 2.68% 3.19% 4.01%
Expense
waiver/reimbursement 2 - - 0.04% 0.20% 0.36%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $932,544 $809,103 $431,281 $220,268 $108,683
Portfolio turnover 69% 69% 75% 96% 91%

</TABLE>

1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

2 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>

YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,

BEGINNING OF PERIOD $19.15 $15.59 $14.26 $11.50 $11.24
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.17 0.27 0.34 0.32 2 0.19
Net realized and
unrealized gain
on investments 1.54 4.42 2.13 3.01 0.26
TOTAL FROM INVESTMENT

OPERATIONS 1.71 4.69 2.47 3.33 0.45
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.17) (0.26) (0.30) (0.32) (0.19)
Distributions from net
realized gain
on investments (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (1.37) (1.13) (1.14) (0.57) (0.19)
NET ASSET VALUE, END OF

PERIOD $19.49 $19.15 $15.59 $14.26 $11.50
TOTAL RETURN 3 9.32% 30.90% 17.92% 29.40% 4.14%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 1.86% 1.84% 1.87% 1.83% 1.80% 4
Net investment income 0.91% 1.50% 1.85% 2.31% 3.42% 4
Expense
waiver/reimbursement 5 - - - 0.16% 0.47% 4
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $1,262,258 $1,015,339 $418,675 $71,019 $6,072
Portfolio turnover 69% 69% 75% 96% 91%

</TABLE>

1 Reflects operations for the period from September 27, 1994 (date of initial
public offering) to March 31, 1995.

2 Calculated using average outstanding shares.

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>

YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,

BEGINNING OF PERIOD $19.15 $15.59 $14.26 $11.50 $11.06
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.17 0.27 0.30 0.32 0.37
Net realized and
unrealized gain on
investments 1.54 4.42 2.16 3.00 0.44
TOTAL FROM INVESTMENT

OPERATIONS 1.71 4.69 2.46 3.32 0.81
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.16) (0.26) (0.29) (0.31) (0.37)
Distributions from net
realized gain on
investments (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (1.36) (1.13) (1.13) (0.56) (0.37)
NET ASSET VALUE, END OF

PERIOD $19.50 $19.15 $15.59 $14.26 $11.50
TOTAL RETURN 1 9.37% 30.90% 17.90% 29.39% 7.52%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 1.86% 1.84% 1.87% 1.80% 1.76%
Net investment income 0.91% 1.50% 1.89% 2.43% 3.25%
Expense
waiver/reimbursement 2 - - - 0.18% 0.36%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $196,583 $173,900 $101,588 $48,161 $30,189
Portfolio turnover 69% 69% 75% 96% 91%

</TABLE>

1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

2 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 F Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>

NET ASSET VALUE,

BEGINNING OF PERIOD $19.15 $15.59 $14.26 $11.51 $11.06
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.27 0.36 0.38 0.39 0.42
Net realized and
unrealized gain on
investments 1.54 4.42 2.16 2.99 0.46
TOTAL FROM INVESTMENT

OPERATIONS 1.81 4.78 2.54 3.38 0.88
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (0.35) (0.37) (0.38) (0.43)
Distributions from net
realized gain on
investments (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (1.46) (1.22) (1.21) (0.63) (0.43)
NET ASSET VALUE, END OF

PERIOD $19.50 $19.15 $15.59 $14.26 $11.51
TOTAL RETURN 1 9.90% 31.54% 18.50% 30.06% 8.05%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 1.36% 1.34% 1.36% 1.30% 1.24%
Net investment income 1.41% 2.00% 2.41% 2.95% 3.79%
Expense
waiver/reimbursement 2 - - 0.01% 0.18% 0.36%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $127,676 $125,588 $88,454 $51,707 $34,886
Portfolio turnover 69% 69% 75% 96% 91%

</TABLE>

1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

2 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 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.

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

U.S. government securities and listed corporate bonds are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Listed equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of 60 days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value.

REPURCHASE AGREEMENTS

It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.

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 foreign currency
transactions. The following reclassifications have been made to the financial
statements.

INCREASE (DECREASE)

ACCUMULATED

NET REALIZED UNDISTRIBUTED NET
PAID-IN CAPITAL GAIN (LOSS) INVESTMENT INCOME
<S> <C> <C>

$15 $3,251 $(3,266)
</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.

Additionally, net capital losses of $3,028,055 and $393 attributable to security
and currency transactions, respectively, incurred after October 31, 1998, are
treated as arising on April 1, 1999, the first day of the Fund's next taxable
year.

EQUALIZATION

Effective April 1, 1998, the Fund discontinued its use of equalization.
Equalization is an accounting practice whereby a portion of the proceeds of
sales and costs of redemptions of Fund shares is credited or charged to
undistributed net investment income on a per share basis, as determined on the
date of the transaction. This change in accounting policy does not effect the
Fund's net assets, net asset value per share, or net investment income.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

FUTURES CONTRACTS

The Fund purchases stock index futures contracts to manage cashflows, enhance
yield, and to potentially reduce transaction costs. Upon entering into a stock
index futures contract with a broker, the Fund is required to deposit in a
segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities. For the year ended March 31, 1999, the Fund had realized
gains on future contracts of $455,817. As of March 31, 1999, the Fund had no
outstanding futures contracts.

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.

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:

NUMBER OF
PAR VALUE
CAPITAL STOCK

CLASS NAME AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Class F Shares 500,000,000
TOTAL 2,000,000,000

</TABLE>

Transactions in capital stock were as follows:

<TABLE>

YEAR ENDED MARCH 31 1999 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 21,767,155 $ 406,101,071 21,665,520 $ 384,363,042
Shares issued to
shareholders in payment
of distributions
declared 2,936,873 54,973,689 1,835,156 32,252,065
Shares redeemed (19,130,595) (357,132,484) (8,880,080) (158,399,975)
NET CHANGE RESULTING
FROM CLASS A SHARE

TRANSACTIONS 5,573,433 $ 103,942,276 14,620,596 $ 258,215,132

YEAR ENDED MARCH 31 1999 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 17,509,578 $ 328,972,142 28,472,174 $ 506,949,254
Shares issued to
shareholders in payment
of distributions
declared 4,012,970 75,159,253 2,276,373 39,954,264
Shares redeemed (9,797,991) (182,568,198) (4,569,309) (81,531,106)
NET CHANGE RESULTING
FROM CLASS B SHARE

TRANSACTIONS 11,724,557 $ 221,563,197 26,179,238 $ 465,372,412

YEAR ENDED MARCH 31 1999 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,286,433 $ 42,946,716 3,775,445 $ 67,504,456
Shares issued to
shareholders in payment
of distributions
declared 631,896 11,835,287 421,985 7,403,711
Shares redeemed (1,918,480) (35,676,015) (1,629,464) (29,184,516)
NET CHANGE RESULTING
FROM CLASS C SHARE

TRANSACTIONS 999,849 $ 19,105,988 2,567,966 $ 45,723,651

YEAR ENDED MARCH 31 1999 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 518,698 $ 9,788,328 1,262,627 $ 22,418,695
Shares issued to
shareholders in payment
of distributions
declared 450,360 8,439,765 375,370 6,590,537
Shares redeemed (980,051) (18,321,587) (751,681) (13,226,732)
NET CHANGE RESULTING
FROM CLASS F SHARE

TRANSACTIONS (10,993) $ (93,494) 886,316 $ 15,782,500
NET CHANGE RESULTING

FROM SHARE TRANSACTIONS 18,286,846 $ 344,517,967 44,254,116 $ 785,093,695
</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Investment Management Company (formerly, 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, 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 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.

PERCENTAGE OF
AVERAGE DAILY

SHARE CLASS 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>

For the year ended March 31, 1999, Class A Shares did not incur a distribution
services fee.

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 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
year ended March 31, 1999, were as follows:

<S> <C>
Purchases $ 1,749,179,644
Sales $ 1,549,214,160

</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 Ernst & Young LLP, Independent Auditors

TO THE DIRECTORS AND SHAREHOLDERS
OF FEDERATED EQUITY INCOME FUND, INC.:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Equity Income Fund, Inc., 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 the periods presented therein. 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 or other appropriate
auditing procedures where replies from brokers were not received. 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 Equity Income Fund, Inc. at March 31, 1999, and 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 therein, in conformity with generally accepted accounting
principles.

[Graphic]
Ernst & Young LLP

Boston, Massachusetts
May 20, 1999

Directors

JOHN F. DONAHUE

THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
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 J. THOMAS

Treasurer

MATTHEW S. HARDIN

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 prospectuses which contain 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 Equity Income Fund, Inc.

Established 1986

13TH ANNUAL REPORT

[Graphic]
Federated

Federated Equity Income Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407
8042506 (5/99)

[Graphic]

APPENDIX

A. The graphic representation here displayed entitled "Initial Investment,"
consists of a boxed legend in the upper left quadrant indicating the components
of the corresponding mountain chart. The lighter-shaded portion represents the
value of Reinvested Income for the Class A Shares of Federated Equity Income
Fund, Inc. (the "Fund"). The darker-shaded portion reflects the Principal Value
of a $13,000/1,220 Shares investment in the Fund. The color-coded mountain chart
is a visual representation of the narrative text above it, which shows that an
initial investment of $13,000 in the Fund on 12/30/86, would have a reinvested
total worth of $62,330/3,198 on 3/31/99. The "x" axis reflects computation
periods from 12/30/86 to 3/31/99. The right margin of the chart reflects the
ending values of a hypothetical investment of $13,000 in the Fund measured in
increments of $10,000 ranging from $0 to $70,000.

B. The graphic representation here displayed, entitled "One Step at a Time,"
consists of a boxed legend in the upper left quadrant indicating the components
of the corresponding mountain chart. The lighter-shaded portion represents the
value of Reinvested Income for the Class A Shares of Federated Equity Income
Fund, Inc. (the "Fund"). The darker-shaded portion reflects the Principal Value
of Annual $1,000 investments in the Fund (totaling $13,000 by 3/31/99). The
color-coded mountain chart is a visual representation of the narrative text
above it, which shows that $1,000 annual investments in the Class A Shares of
the Fund beginning on 12/30/86 would have a reinvested total value of
$37,151/1,906 shares on 3/31/99. The "x" axis reflects computation periods from
12/30/86 to 3/31/99. The right margin of the chart reflects the ending values of
a hypothetical annual investment of $1,000 in the Fund measured in increments of
$5,000 ranging from $0 to $40,000.

C. The graphic representation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
lighter-shaded portion represents the value of Reinvested Income for the Class A
Shares of Federated Equity Income Fund, Inc. (the "Fund") the darker-shaded
portion represents the Principal Value of original and subsequent investments.
The color-coded mountain is a visual representation of the narrative text above
it, which shows that an original $5,000/436 Shares investment in the Fund and
additional investments of $250 every month for 10 years totaling $35,000 by
3/31/99 would have grown to a reinvested total value of $88,522/4,542 Shares on
3/31/99. The "x" axis reflects computation periods from 3/31/89 to 3/31/99. The
right margin of the chart reflects the ending values of a hypothetical original
investment of $5,000 and subsequent monthly investments of $250 in the Fund
measured in increments of $20,000 ranging from $0 to $100,000.

D. The graphic representation here displayed consists of a legend in the upper
left indicating the components of the corresponding line graph. Federated Equity
Income Fund, Inc. (Class A Shares) (the "Fund") is represented by a solid black
line. Standard & Poor's 500 Index (S&P 500) is represented by a dotted line.
Lipper Equity Income Fund Index (LEIFI) is represented by a broken line. The
line graph is a visual representation of a comparison of a change in value of a
hypothetical $10,000 investment in the Fund, the S&P 500, and the LEIFI. The "x"
axis reflects computation periods from 3/31/89 to 3/31/99. The "y" axis reflects
the cost of investment in $10,000 increments ranging from $0 to $60,000. The
right margin reflects the ending value of the hypothetical investment in the
Fund as compared to the S&P 500 and the LEIFI; the ending values are $37,259,
$56,707, and $37,879, respectively. Above the legend are the Average Annual
Total Returns for the one-year, five-year, ten-year, and Start of Performance
(12/30/86) for the period ended March 31, 1999; the Average Annual Total Returns
are 4.14%, 18.16%, 13.94%, and 13.80%, respectively.

E. The graphic representation here displayed consists of a boxed legend in the
upper left indicating the components of the corresponding line graph. Federated
Equity Income Fund, Inc. (Class B Shares) (the "Fund") is represented by a solid
black line. Standard & Poor's 500 Index (S&P 500) is represented by a dotted
line. Lipper Equity Income Fund Index (LEIFI) is represented by a broken line.
The line graph is a visual representation of a comparison of a change in value
of a hypothetical $10,000 investment in the Fund, the S&P 500, and the LEIFI.
The "x" axis reflects computation periods from 9/27/94 to 3/31/99. The "y" axis
reflects the cost of investment in $10,000 increments ranging from $10,000to
$35,000. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the S&P 500 and the LEIFI; the ending
values were $22,540, $32,071 and $22,399, respectively. Above the legend are
Average Annual Total Returns for the one-year and Start of Performance (9/27/94)
for the period ended March 31, 1998; the Average Annual Total Returns are 3.82%
and 19.76%, respectively.

F. The graphic representation here displayed consists of a boxed legend in the
upper left indicating the components of the corresponding line graph. Federated
Equity Income Fund, Inc. (Class C Shares) (the "Fund") is represented by a solid
black line. Standard & Poor's 500 Index (S&P 500) is represented by a dotted
line. Lipper Equity Income Fund Index (LEIFI) is represented by a broken line.
The line graph is a visual representation of a comparison of a change in value
of a hypothetical $10,000 investment in the Fund, the S&P 500, and the LEIFI.
The "x" axis reflects computation periods from 5/3/93 to 3/31/99. The "y" axis
reflects the cost of investment in $10,000 increments ranging from $10,000 to
$35,000. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the S&P 500 and the LEIFI; the ending
values are $24,811, $32,529, and $23,241, respectively. Above the legend are

Average Annual Total Returns for the one-year, five-year and Start of
Performance (5/3/93)for the period ended March 31, 1998; the Average Annual
Total Returns are 8.37%, 18.62%,and 16.62%, respectively.

G. The graphic representation here displayed consists of a boxed legend in the
upper left indicating the components of the corresponding line graph. Federated
Equity Income Fund, Inc. (Class F Shares) (the "Fund") is represented by a solid
black line. Standard & Poor's 500 Index (S&P 500) is represented by a dotted
line. Lipper Equity Income Fund Index (LEIFI) is represented by a broken line.
The line graph is a visual representation of a comparison of a change in value
of a hypothetical $10,000 investment in the Fund, the S&P 500, and the LEIFI.
The "x" axis reflects computation periods from 11/12/93 to 3/31/99. The "y" axis
reflects the cost of investment in $5,000 increments ranging from $5,000 to
$35,000. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the S&P 500 and the LEIFI; the ending
values are $22,777, $32,529, and $23,241, respectively. Below the legend are
Average Annual Total Returns for the one-year, five-year and Start of
Performance (11/12/93) for the period ended March 31, 1998; the Average Annual
Total Returns are 7.83% and 18.97%, and 16.53%respectively.