SEMI-ANNUAL REPORT
[Graphic]
RICHARD B. FISHER
President
Federated Equity Income Fund, Inc.
President's Message
Dear Fellow Shareholder:
Federated Equity Income Fund, Inc. was created in 1986, and I am pleased to
present its 13th Semi-Annual Report. This fund is ideal for investors who want
to own high-quality, historically high dividend-paying stocks. This is a simple
investment concept for our fund managers and shareholders. As of September 30,
1999, the fund's net assets of $2.5 billion were invested as follows: 77% in
high-quality, good dividend-paying common stocks, 20% in convertible securities,
and a 3% cash position. The fund's 244,000 shareholders own an interest in 64
common stocks and 19 convertible issues, selected for income and future growth
opportunities.
This report covers the first half of the fund's fiscal year which is the
six-month reporting period from April 1, 1999 through September 30, 1999. It
begins with a discussion 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
listing of the fund's portfolio holdings, and third is the publication of the
fund's financial statements.
On September 30, 1999, the fund's diversified holdings included 85 stocks and
convertible securities across 11 major industry sectors. They included such
well-known names as Apple Computer, AT&T, Chase Manhattan, DuPont, Exxon, Ford
Motors, General Electric, H.J. Heinz, Intel, and Walt Disney.
The U.S. stock market struggled during the six-month reporting period as
investors worried about the Federal Reserve Board's (the "Fed") inclination to
raise interest rates further, the prospect of inflation, and lower corporate
earnings. As a result, the Standard & Poor's ("S&P") 500 Index 1 produced a flat
return. During the reporting period, the fund's net asset value declined
slightly, tempered by the fund's strong dividend orientation. More than 30% of
the fund's assets were in common stocks that have raised their dividend every
year for at least the last ten years.
1 The S&P 500 Index is an unmanaged index of common stocks in industry,
transportation and financial and public utility companies. Investments
cannot be made in an index.
The fund holds good dividend-paying stocks for the long term. This investment
strategy has been positive; however, this is a market environment that reminds
us of risk as well as reward. In managing the fund's assets, the fund's managers
keep to simple disciplines and work considerably harder on the portfolio
selections. The fund's strategy of focusing on stocks with reliable, consistent
earnings and defensive investments, such as higher yielding convertible
securities, has been successful.
Individual share class total return performance for the six-month reporting
period, including income and realized gains distributions, follows. 2
<TABLE>
<CAPTION>
TOTAL RETURN INCOME CAPITAL GAINS NET ASSET VALUE CHANGE
<S> <C> <C> <C> <C>
Class A Shares 0.52% $0.15 $0.001 $19.49 to $19.45 = (0.02%)
Class B Shares 0.14% $0.07 $0.001 $19.49 to $19.45 = (0.02%)
Class C Shares 0.14% $0.07 $0.001 $19.50 to $19.46 = (0.02%)
Class F Shares 0.39% $0.12 $0.001 $19.50 to $19.46 = (0.02%)
</TABLE>
I recommend that you consider adding to your fund account on a regular basis.
Please take a few moments to review the fund's broad array of holdings, and I
believe you will be rewarded by ownership of these great corporations.
Remember, reinvesting your monthly Federated Equity Income Fund, Inc. dividend
is a convenient way to build the value of your account, as the number of your
shares will then increase each month. Reinvesting brings into play the benefit
of monthly compounding of shares.
Thank you for your continued support of Federated Equity Income Fund, Inc. and,
as always, we welcome your comments and suggestions.
Very sincerely yours,
[Graphic]
Richard B. Fisher
President
November 15, 1999
2 Performance quoted is based on net asset value, reflects past performance and
is no guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns for the period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, C, and F Shares were
(4.99%), (5.35%), (0.86%) and (1.61%), respectively.
[Graphic]
LINDA A. DUESSEL
Vice President
Federated Investment Management Company
Investment Review
WHAT ARE YOUR COMMENTS ON THE FIRST SIX MONTHS OF THE FUND'S FISCAL YEAR, WHICH
SAW TWO QUARTERS OF CONTRASTING PERFORMANCE FROM STOCKS?
The stock market in the second quarter of 1999 delivered a strong return as
indicated by the Standard & Poor's ("S&P") 500 Index's return of 7.05%. This
quarter was marked by dramatic reversals in leadership based on market
capitalization, investment style (i.e., "value" versus "growth"), and sector.
Through March 1999, the largest companies in the S&P 500 Index dominated. In the
second quarter of 1999, small capitalization stocks outperformed large
capitalization stocks by 8.5%, as reported by Ned Davis Research ("Ned Davis").
There was also a sudden reversal in investment style performance. Since the
fourth quarter of 1997, growth stocks had provided excess return relative to
value stocks. Ned Davis also reported that in the second quarter, large
capitalization value stocks outperformed large capitalization growth stocks by
7.50%. These shifts were accompanied by rapid sector rotation, as the
technology, financial and pharmaceutical groups lagged, while the beleaguered
basic materials and industrial cyclical sectors surged.
The broadening in what had been until recently a narrow market was due to the
increasing perception that overseas economies were improving, while the United
States' economy continued to be robust.
This strength caused concern in the bond market, where the 30-year Treasury bond
yield rose from its October 1998 low of 4.70% to over 6.00% by the end of June
1999, the largest percentage move upward in yields during the low- inflation
decade of the 1990s. Therefore, when the the Fed raised short-term interest
rates by 0.25% in late June 1999, the first increase since March 1997, the
markets were much more focused on the Fed's stated inclination not to raise
rates further, having well anticipated the June rate hike.
In the third quarter of 1999, the S&P 500 Index returned (6.24%) as the stock
market corrected after experiencing a mid-July peak (interestingly, on
approximately the same day as 1998's market peak). The third quarter also saw
dramatic reversals in leadership based on investment style and sector, as Ned
Davis reported that large capitalization growth stocks outperformed large
capitalization value stocks by 6.10%. Further, technology resumed its
leadership, and was the only sector in the S&P 500 Index to report a positive
return in the third quarter.
Once again, any advances in the S&P 500 Index have been fueled by a narrow group
of stocks. Sanford C. Bernstein & Co. notes that this year all of the returns in
the S&P 500 Index have come from ten stocks selling at very high multiples on
earnings. This masks the fact that the average stock in the S&P 500 Index is
actually down 22.45% from its 1999 peak price.
HOW DID FEDERATED EQUITY INCOME FUND, INC. PERFORM FOR ITS SHAREHOLDERS IN
THIS FLAT ENVIRONMENT?
The fund's returns for the six-month reporting period ended September 30, 1999
were consistent with the 0.37% total return of the market as represented by the
S&P 500 Index, and were slightly more positive than the average equity income
fund. For the six-month reporting period, the fund's Class A, B, C, and F Shares
produced total returns of 0.52%, 0.14%, 0.14%, and 0.39%, respectively, based on
net asset value. 1 These returns compared favorably against the 0.02% average
total return of the 234 equity income funds return tracked by Lipper Analytical
Services, Inc.2
On a relative basis, Federated Equity Income Fund, Inc. performed particularly
well. Based on total return, the fund ranked within the top quintile (top 20%)
of the equity income funds tracked by Lipper Analytical Services, Inc. As of
September 30, 1999, the fund ranked 33/234, 34/166, 10/109, and 4/42 for the
one-, three-, five- and ten-year periods, respectively. 3
1 Performance quoted is based on net asset value, reflects past performance and
is no guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns for the period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, C, and F Shares were
(4.99%), (5.35%), (0.86%) and (1.61%), 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. These figures do not take sales charges into account.
3 Lipper rankings are for Class A Shares and do not take sales charges into
account.
WHAT ISSUES WERE YOU BUYING AND SELLING DURING THE REPORTING PERIOD?
In the basic materials sector, we sold Barrick Gold Corp. after the stock
appreciated dramatically during the surge in most commodity stocks. We purchased
MONSANTO CONVERTIBLE PREFERREDS which yielded 6.20% and we believe that the
underlying common stock is undervalued.
In the consumer staples sector, we completed the fund's swap out of Food Lion
into ALBERTSONS. Both companies are undervalued supermarket concerns; however,
we believe that Albertsons is a higher quality company with a number of positive
catalysts. We also sold McKesson HBOC Convertible Preferreds after management
credibility issues arose, and the earnings outlook deteriorated materially. We
replaced it with PROCTER & GAMBLE, a leading global manufacturer of household
products, which has raised its dividend every year for the last 27 years at an
average rate of 9.6%. The stock appeared inexpensive, and a major restructuring
was recently announced which should boost earnings.
In the health care sector, we sold American Home Products Corp. as litigation
prospects concerning its diet medication worsened, and we purchased PHARMACIA &
UPJOHN, INC., an equally inexpensive pharmaceutical stock without litigation
worries and few patent expirations.
In the technology sector, we sold the common stock and convertible securities of
Western Digital Corp. and the common stock of Storage Technology Corp. The
competitive prospects for each of these companies have declined dramatically
since our initial investment. We applied the proceeds to a basket of convertible
securities of quality companies in growth areas of technology. These companies
included: AMDOCS LTD., billing systems for major telecommunications companies;
CITRIX SYSTEMS, INC., thin-client server applications; PSINET, INC., Internet
connectivity and Web hosting; VERIO, INC., Internet services for small- and
mid-sized companies; and VERITAS SOFTWARE CORP., enterprise storage management.
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF SEPTEMBER 30, 1999, AND WHAT WERE THE
FUND'S SECTOR WEIGHTINGS?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME NET ASSETS
<S> <C>
GTE Corp. 2.4%
EMC Corp. Mass, Conv. Bond
and Conv. Sub. Note, 3.25%,
3/15/2002 2.3%
Home Depot, Inc., Conv.
Sub. Note, 3.25%,
10/01/2001 2.3%
International Business
Machines Corp. 2.2%
Bristol-Myers Squibb Co. 2.1%
Sun Microsystems, Inc. 2.1%
Motorola, Inc. 1.8%
General Electric Co. 1.8%
Apple Computer, Inc. 1.7%
Baxter International, Inc. 1.7%
TOTAL 20.4%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
SECTOR NET ASSETS S&P 500 INDEX
<S> <C> <C>
Technology 22.8% 24.6%
Financials 13.7% 14.1%
Consumer Staples 12.0% 12.0%
Health Care 10.2% 10.2%
Communication Services 9.3% 8.4%
Capital Goods 8.6% 8.8%
Consumer Cyclicals 7.5% 8.8%
Energy 6.7% 6.3%
Utilities 3.1% 2.8%
Basic Materials 2.4% 3.2%
Transportation 1.0% 0.8%
Other 3.2% -
</TABLE>
AS WE APPROACH THE END OF 1999, WHAT ARE YOUR THOUGHTS ON THE DIRECTION OF THE
MARKET AND YOUR STRATEGY FOR THE FUND?
As we enter the last quarter of the millennium, several uncertainties exist for
the market. The most important concern is the level and direction of interest
rates. In its early October Federal Open Market Committee meeting, the Fed
announced that it would not increase short-term interest rates. Still, it stated
that concerns about continuing tight labor markets and the possibility of
inflation may cause it to raise rates in the near future. Other worries include
the above-mentioned narrow market, rising energy prices, dollar uncertainty and
Year 2000 effects on the global economy and financial markets. On the other
hand, the global economy is improving, the U.S. consumer is employed and
confident, and with few exceptions, inflation is not evident.
As we have mentioned in the past, intense global competition has made pricing
power virtually nonexistent. In such an environment, those companies that can
consistently deliver revenue growth should see their stock prices rewarded.
According to Donaldson, Lufkin & Jenrette, the top one-third of firms by market
capitalization are enjoying 13% average revenue gains on an unweighted
basis-compared with 8% for the middle capitalization stocks, and 3% for the
smallest capitalization stocks.
Federated Equity Income Fund, Inc. seeks to hold such market leaders. Further,
the fund holds a blend of growth and value stocks, which tempers the effect of
dramatic shifts in leadership between the growth and value investment style. We
hold convertible bonds and preferred stocks for their income component and
relatively defensive attributes. Also, more than 30% of the fund's assets are
invested in common stocks that have raised their dividend every year for at
least the last ten years.
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 YOUR DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$62,656 ON 9/30/99. YOU WOULD HAVE EARNED A 13.27% 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 9/30/99, the Class A Shares' average annual 1-year, 5-year and 10-year
total returns were 13.31%, 17.32% and 13.34%, respectively. Class B Shares'
average annual 1-year, 5-year and since inception (9/28/94) total returns were
13.49%, 17.58% and 17.75%, respectively. Class C Shares' average annual 1- year,
5-year and since inception (5/4/93) total returns were 18.05%, 17.80% and
15.25%, respectively. Class F Shares' average annual 1-year, 5-year and since
inception (11/13/93) total returns were 17.47%, 18.16% and 15.10%, respectively.
2
[Graphic]
See Appendix A1
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 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 $37,345.
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 $37,345 1 by 9/30/99. You would
have earned an average annual total return of 14.72%.
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 can work for
you when you invest only $1,000 annually. You can take it one step at a time.
Put time, money, and compounding to work.
[Graphic]
See Appendix A2
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 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
September 30, 1989, the Barnes invested $15,000 from maturing certificates of
deposit 1 in the Class A Shares of Federated Equity Income Fund, Inc.
As this chart shows, over 10 years, their original investment has grown to
$52,491. This represents a 13.99% 2 average annual total return. For the Barnes,
that meant good performance from dividend-paying stocks in 12 industry sectors
that helped their money grow.
[Graphic]
See Appendix A3
1 Certificates of deposit, unlike mutual funds, are Federal Deposit Insurance
Corporation insured and offer fixed rates of return.
2 This hypothetical scenario is provided for illustrative purposes only and does
not represent the result obtained by any particular shareholder. Past
performance is no guarantee of future results.
Portfolio of Investments
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-76.8%
BASIC MATERIALS-1.0%
434,452 Du Pont (E.I.) de Nemours &
Co. $ 26,447,267
CAPITAL GOODS-6.2%
422,000 Emerson Electric Co. 26,665,125
381,400 General Electric Co. 45,219,739
813,000 Lockheed Martin Corp. 26,574,939
491,200 Pitney Bowes, Inc. 29,932,500
386,600 Textron, Inc. 29,913,175
TOTAL 158,305,478
COMMUNICATION SERVICES-
8.7%
641,900 AT&T Corp. 27,922,650
570,900 Ameritech Corp. 38,357,344
785,400 GTE Corp. 60,377,625
507,511 1 MCI Worldcom, Inc. 36,477,353
741,700 Sprint Corp. 40,237,225
232,150 1 Sprint Corp. (PCS Group) 17,309,684
TOTAL 220,681,881
CONSUMER CYCLICALS-5.2%
238,400 Block (H&R), Inc. 10,355,500
1,067,700 Cooper Tire & Rubber Co. 18,818,214
531,000 Ford Motor Co. 26,649,564
862,000 New York Times Co., Class A 32,325,000
618,700 Penney (J.C.) Co., Inc. 21,267,814
347,000 Whirlpool Corp. 22,663,438
TOTAL 132,079,530
CONSUMER STAPLES-10.1%
508,300 Albertsons, Inc. 20,109,619
1,319,400 Disney (Walt) Co. 34,139,475
503,000 General Mills, Inc. 40,805,875
720,350 Heinz (H.J.) Co. 30,975,050
723,800 Kimberly-Clark Corp. 37,999,500
979,400 PepsiCo, Inc. 29,626,850
679,300 Philip Morris Cos., Inc. 23,223,569
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
CONSUMER STAPLES-CONTINUED
297,500 Procter & Gamble Co. $ 27,890,625
445,400 1 R.J. Reynolds Tobacco
Holdings, Inc. 12,025,800
TOTAL 256,796,363
ENERGY-6.7%
280,000 BP Amoco PLC, ADR 31,027,500
1,249,841 Conoco, Inc., Class B 34,214,397
423,800 Exxon Corp. 32,182,313
695,500 Halliburton Co. 28,515,500
429,800 Mobil Corp. 43,302,350
TOTAL 169,242,060
FINANCIALS-11.4%
683,500 Allstate Corp. 17,044,781
789,070 Bank One Corp. 27,469,499
409,962 BankAmerica Corp. 22,829,759
381,300 Chase Manhattan Corp. 28,740,488
185,000 Chubb Corp. 9,215,313
989,100 Citigroup, Inc. 43,520,400
619,700 First Union Corp. 22,038,081
282,800 Lincoln National Corp. 10,622,675
355,500 Marsh & McLennan Cos., Inc. 24,351,750
833,400 Mellon Bank Corp. 28,127,250
190,000 Merrill Lynch & Co., Inc. 12,765,625
347,800 Morgan Stanley, Dean
Witter & Co. 31,019,413
333,200 Post Properties, Inc. 13,098,925
TOTAL 290,843,959
HEALTH CARE-10.2%
935,400 Abbott Laboratories 34,375,950
723,000 Baxter International, Inc. 43,560,750
800,000 Bristol-Myers Squibb Co. 54,000,000
413,000 Johnson & Johnson 37,944,375
592,890 Merck & Co., Inc. 38,426,683
346,500 Pharmacia & Upjohn, Inc. 17,195,063
515,100 Warner-Lambert Co. 34,189,763
TOTAL 259,692,584
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
TECHNOLOGY-14.6%
701,092 1 Apple Computer, Inc. $ 44,387,887
251,800 1 Cisco Systems, Inc. 17,264,038
775,000 Electronic Data Systems
Corp. 41,026,563
352,500 Intel Corp. 26,195,156
456,000 International Business
Machines Corp. 55,347,000
336,500 1 Lexmark Intl. Group, Class
A 27,088,250
529,000 Motorola, Inc. 46,552,000
570,900 1 Sun Microsystems, Inc. 53,093,700
662,000 1 Tellabs, Inc. 37,692,625
528,200 Xerox Corp. 22,151,388
TOTAL 370,798,607
TRANSPORTATION-1.0%
657,500 CNF Transportation, Inc. 24,491,875
UTILITIES-1.7%
1,040,024 Enron Corp. 42,900,990
TOTAL COMMON STOCKS
(IDENTIFIED COST
$1,524,570,742) 1,952,280,594
CONVERTIBLE PREFERRED
STOCKS-11.2%
BASIC MATERIALS-1.4%
1,005,700 Monsanto Co., Conv. Pfd.,
$2.60 36,205,200
CAPITAL GOODS-2.4%
1,242,800 Crown Cork & Seal Co.,
Inc., Conv. Pfd., $1.89 27,729,975
1,233,600 Ingersoll-Rand Co.,
Cumulative PRIDES, Series
6.75% 32,382,000
TOTAL 60,111,975
COMMUNICATION SERVICES-
0.6%
260,000 Cox Communications, Inc.,
PRIDES, $0.88 15,015,000
CONSUMER STAPLES-1.9%
473,200 Ralston Purina Co., SAILS,
$1.08, Series Interstate
Bakeries 22,240,400
440,000 2 Suiza Foods Corp., Conv.
Pfd., $2.75 15,754,200
305,000 Suiza Foods Corp., Conv.
Pfd., $2.75 10,920,525
TOTAL 48,915,125
FINANCIALS-2.3%
973,700 Conseco, Inc., Cumulative
PRIDES, Series F, $3.50 26,959,319
169,500 Jefferson-Pilot Corp.,
Conv. Pfd., $5.26, Series
Bank America 15,509,250
705,300 Lincoln National Corp.,
Cumulative PRIDES, $1.94 14,767,219
TOTAL 57,235,788
<CAPTION>
SHARES,
CONTRACTS OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED
STOCKS-continued
TECHNOLOGY-1.2%
595,400 Amdocs Ltd., Conv. Pfd.,
$0.38 $ 12,875,525
241,500 PsiNet, Inc., Conv. Pfd.,
$0.84 9,720,375
193,000 Verio, Inc., Conv. Pfd.,
$0.84 8,323,125
TOTAL 30,919,025
UTILITIES-1.4%
733,200 Texas Utilities Co.,
Cumulative PRIDES, $4.63 36,155,925
TOTAL CONVERTIBLE
PREFERRED STOCKS
(IDENTIFIED COST
$332,899,986) 284,558,038
CONVERTIBLE CORPORATE
BONDS-9.3%
CONSUMER CYCLICALS-2.3%
$ 19,260,000 Home Depot, Inc., Conv.
Sub. Note, 3.25%,
10/1/2001 57,557,740
TECHNOLOGY-7.0%
4,250,000 America Online, Inc.,
Conv. Bond, 4.00%,
11/15/2002 33,947,386
54,000,000 2 Citrix Systems, Inc.,
Conv. Bond, 3/22/2019 25,422,120
27,800,000 Citrix Systems, Inc.,
Conv. Bond, Registered
Bond, 3/22/2019 13,478,552
5,615,000 EMC Corp. Mass, Conv. Bond,
Registered Bond, 3.25%,
3/15/2002 35,408,134
3,520,000 2 EMC Corp. Mass, Conv. Sub.
Note, 3.25%, 3/15/2002 22,183,885
11,595,000 2 LSI Logic Corp., Conv.
Bond, 4.25%, 3/15/2004 20,639,100
26,400,000 Veritas Software Corp.,
Conv. Bond, 1.86%,
8/13/2006 28,085,640
TOTAL 179,164,817
TOTAL CONVERTIBLE
CORPORATE BONDS
(IDENTIFIED COST
$126,722,095) 236,722,557
OPTION PURCHASED-0.0%
4,454 R.J. Reynold Expiration
Date 10/16/1999, Strike
Price $25.00
(identified cost $213,079) 111,350
3 REPURCHASE AGREEMENT-3.2%
$ 81,615,000 ABN AMRO, Inc., 5.45%,
dated 9/30/1999, due
10/1/1999 (at amortized
cost) 81,615,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$2,066,020,902) 4 $2,555,287,539
</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 September 30, 1999, these
securities amounted to $83,999,305 which represents 3.3% of net assets.
3 The repurchase agreement is are 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 $2,066,020,902.
The net unrealized appreciation of investments on a federal tax basis amounts to
$489,266,637 which is comprised of $630,345,261 appreciation and $141,078,624
depreciation at September 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($2,541,368,256) at September 30, 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
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$2,066,020,902) $ 2,555,287,539
Cash 4,401
Income receivable 4,054,173
Receivable for investments
sold 27,903,705
Receivable for shares sold 2,052,129
TOTAL ASSETS 2,589,301,947
LIABILITIES:
Payable for investments
purchased $ 44,218,875
Payable for shares
redeemed 1,404,976
Payable for investments
purchased-options 192,313
Income distribution
payable 376,342
Accrued expenses 1,741,185
TOTAL LIABILITIES 47,933,691
Net assets for 130,677,349
shares outstanding $ 2,541,368,256
NET ASSETS CONSIST OF:
Paid in capital $ 2,084,758,087
Net unrealized
appreciation of
investments 489,259,251
Accumulated net realized
loss on investments (31,730,269)
Accumulated distributions
in excess of net investment
income (918,813)
TOTAL NET ASSETS $ 2,541,368,256
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share
($942,905,544 / 48,488,461
shares outstanding) $19.45
Offering Price Per Share
(100/94.50 of $19.45) 1 $20.58
Redemption Proceeds Per
Share $19.45
CLASS B SHARES:
Net Asset Value Per Share
($1,276,391,874 /
65,639,116 shares
outstanding) $19.45
Offering Price Per Share $19.45
Redemption Proceeds Per
Share (94.50/100 of
$19.45) 1 $18.38
CLASS C SHARES:
Net Asset Value Per Share
($197,300,506 / 10,138,585
shares outstanding) $19.46
Offering Price Per Share $19.46
Redemption Proceeds Per
Share (99.00/100 of
$19.46) 1 $19.27
CLASS F SHARES:
Net Asset Value Per Share
($124,770,332 / 6,411,187
shares outstanding) $19.46
Offering Price Per Share
(100/99.00 of $19.46) 1 $19.66
Redemption Proceeds Per
Share (99.00/100 of
$19.46) 1 $19.27
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of $37,324) $ 28,147,757
Interest 3,552,858
TOTAL INCOME 31,700,615
EXPENSES:
Investment advisory fee $ 7,942,206
Administrative personnel
and services fee 998,071
Custodian fees 72,772
Transfer and dividend
disbursing agent fees and
expenses 1,442,284
Directors'/Trustees' fees 12,567
Auditing fees 8,596
Legal fees 5,949
Portfolio accounting fees 128,353
Distribution services fee-
Class B Shares 4,978,508
Distribution services fee-
Class C Shares 771,204
Distribution services fee-
Class F Shares 164,407
Shareholder services fee-
Class A Shares 1,228,276
Shareholder services fee-
Class B Shares 1,659,503
Shareholder services fee-
Class C Shares 257,068
Shareholder services fee-
Class F Shares 164,407
Share registration costs 132,149
Printing and postage 262,631
Insurance premiums 3,302
Taxes 99,278
Miscellaneous 9,920
TOTAL EXPENSES 20,341,451
Net investment income 11,359,164
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments and options (27,349,946)
Net change in unrealized
appreciation of
investments and options 21,637,716
Net realized and
unrealized loss on
investments and options (5,712,230)
Change in net assets
resulting from operations $ 5,646,934
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 11,359,164 $ 28,050,464
Net realized gain (loss) on
investments and options
($(27,349,946) and
$111,806,575,
respectively, as computed
for federal tax purposes) (27,349,946) 108,542,891
Net change in unrealized
appreciation of
investments and options 21,637,716 87,508,735
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 5,646,934 224,102,090
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (7,059,931) (14,024,460)
Class B Shares (4,474,651) (10,000,327)
Class C Shares (694,277) (1,601,048)
Class F Shares (773,648) (1,687,126)
Distributions from net
realized gains on
investments
Class A Shares (64,659) (55,192,484)
Class B Shares (72,048) (71,665,319)
Class C Shares (11,135) (11,574,448)
Class F Shares (7,118) (7,744,637)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (13,157,467) (173,489,849)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 291,455,861 787,808,257
Net asset value of shares
issued to shareholders in
payment of distributions
declared 10,736,037 150,407,994
Cost of shares redeemed (272,374,032) (593,698,284)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 29,817,866 344,517,967
Change in net assets 22,307,333 395,130,208
NET ASSETS:
Beginning of period 2,519,060,923 2,123,930,715
End of period (including
undistributed net
investment income of $0 and
$724,530, respectively) $ 2,541,368,256 $ 2,519,060,923
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $19.49 $19.14 $15.59 $14.26 $11.50 $11.06
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.13 0.31 0.41 0.42 0.46 0.49
Net realized and
unrealized gain (loss) on
investments and options (0.02) 1.54 4.41 2.16 2.96 0.40
TOTAL FROM
INVESTMENT OPERATIONS 0.11 1.85 4.82 2.58 3.42 0.89
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.15) (0.30) (0.40) (0.41) (0.41) (0.45)
Distributions from net
realized gain on
investments (0.00) 1 (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (0.15) (1.50) (1.27) (1.25) (0.66) (0.45)
NET ASSET VALUE, END OF
PERIOD $19.45 $19.49 $19.14 $15.59 $14.26 $11.50
TOTAL RETURN 2 0.52% 10.18% 31.80% 18.82% 30.37% 8.31%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 3 1.09% 4 1.11% 1.09% 1.12% 1.23% 1.36%
Net investment income 3 1.30% 4 1.66% 2.25% 2.64% 2.99% 3.65%
Expenses (after waivers) 1.09% 4 1.11% 1.09% 1.08% 1.03% 1.00%
Net investment income
(after waivers) 1.30% 4 1.66% 2.25% 2.68% 3.19% 4.01%
SUPPLEMENTAL DATA:
Net assets,
end of period
(000 omitted) $942,906 $932,544 $809,103 $431,281 $220,268 $108,683
Portfolio turnover 15% 69% 69% 75% 96% 91%
</TABLE>
1 Per share amount does not round to $(0.01).
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $19.49 $19.15 $15.59 $14.26 $11.50 $11.24
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.06 0.17 0.27 0.34 0.32 2 0.19
Net realized and
unrealized gain (loss) on
investments and options (0.03) 1.54 4.42 2.13 3.01 0.26
TOTAL FROM
INVESTMENT OPERATIONS 0.03 1.71 4.69 2.47 3.33 0.45
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.07) (0.17) (0.26) (0.30) (0.32) (0.19)
Distributions from net
realized gain on
investments (0.00) 3 (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (0.07) (1.37) (1.13) (1.14) (0.57) (0.19)
NET ASSET VALUE, END
OF PERIOD $19.45 $19.49 $19.15 $15.59 $14.26 $11.50
TOTAL RETURN 4 0.14% 9.32% 30.90% 17.92% 29.40% 4.14%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 5 1.84% 6 1.86% 1.84% 1.87% 1.99% 2.27% 6
Net investment income 5 0.55% 6 0.91% 1.50% 1.85% 2.15% 2.95% 6
Expenses (after waivers) 1.84% 6 1.86% 1.84% 1.87% 1.83% 1.80% 6
Net investment income
(after waivers) 0.55% 6 0.91% 1.50% 1.85% 2.31% 3.42% 6
SUPPLEMENTAL DATA:
Net assets,
end of period
(000 omitted) $1,276,392 $1,262,258 $1,015,339 $418,675 $71,019 $6,072
Portfolio turnover 15% 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 Per share amount does not round to $(0.01).
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $19.50 $19.15 $15.59 $14.26 $11.50 $11.06
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.06 0.17 0.27 0.30 0.32 0.37
Net realized and
unrealized gain (loss) on
investments and options (0.03) 1.54 4.42 2.16 3.00 0.44
TOTAL FROM
INVESTMENT OPERATIONS 0.03 1.71 4.69 2.46 3.32 0.81
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.07) (0.16) (0.26) (0.29) (0.31) (0.37)
Distributions from net
realized gain on
investments (0.00) 1 (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (0.07) (1.36) (1.13) (1.13) (0.56) (0.37)
NET ASSET VALUE, END
OF PERIOD $19.46 $19.50 $19.15 $15.59 $14.26 $11.50
TOTAL RETURN 2 0.14% 9.37% 30.90% 17.90% 29.39% 7.52%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 3 1.84% 4 1.86% 1.84% 1.87% 1.98% 2.12%
Net investment income 3 0.55% 4 0.91% 1.50% 1.89% 2.25% 2.89%
Expenses (after waivers) 1.84% 4 1.86% 1.84% 1.87% 1.80% 1.76%
Net investment income
(after waivers) 0.55% 4 0.91% 1.50% 1.89% 2.43% 3.25%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $197,301 $196,583 $173,900 $101,588 $48,161 $30,189
Portfolio turnover 15% 69% 69% 75% 96% 91%
</TABLE>
1 Per share amount does not round to $(0.01).
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $19.50 $19.15 $15.59 $14.26 $11.51 $11.06
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.11 0.27 0.36 0.38 0.39 0.42
Net realized and
unrealized gain (loss) on
investments and options (0.03) 1.54 4.42 2.16 2.99 0.46
TOTAL FROM
INVESTMENT OPERATIONS 0.08 1.81 4.78 2.54 3.38 0.88
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.12) (0.26) (0.35) (0.37) (0.38) (0.43)
Distributions from net
realized gain on
investments (0.00) 1 (1.20) (0.87) (0.84) (0.25) -
TOTAL DISTRIBUTIONS (0.12) (1.46) (1.22) (1.21) (0.63) (0.43)
NET ASSET VALUE, END OF
PERIOD $19.46 $19.50 $19.15 $15.59 $14.26 $11.51
TOTAL RETURN 2 0.39% 9.90% 31.54% 18.50% 30.06% 8.05%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.34% 4 1.36% 1.34% 1.37% 1.48% 1.60%
Net investment income 3 1.05% 4 1.41% 2.00% 2.40% 2.77% 3.43%
Expenses (after waivers) 1.34% 4 1.36% 1.34% 1.36% 1.30% 1.24%
Net investment income
(after waivers) 1.05% 4 1.41% 2.00% 2.41% 2.95% 3.79%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $124,770 $127,676 $125,588 $88,454 $51,707 $34,886
Portfolio turnover 15% 69% 69% 75% 96% 91%
</TABLE>
1 Per share amount does not round to $(0.01).
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
SEPTEMBER 30, 1999 (UNAUDITED)
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.
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 provision for federal tax is
necessary.
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. As of September 30, 1999, the Fund had no outstanding
futures contracts.
WRITTEN OPTIONS CONTRACTS
The Fund may write option contracts. A written option obligates the Fund to
deliver a call, or to receive a put, the contracted amount upon exercise by the
holder of the option. The value of the option contract is recorded as a
liability and unrealized gain or loss is measured by the difference between the
current value and the premium received. For the six-months ended September 30,
1999, the Fund had a realized gain of $104,865 on written options.
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at 4/1/1999 - $ -
Options written 6,454 342,916
Options expired (1,500) (157,989)
Options closed - -
Outstanding at 9/30/1999 4,954 $184,927
</TABLE>
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 September 30, 1999, par value shares ($0.01 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 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>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,269,365 $ 147,617,694 21,767,155 $ 406,101,071
Shares issued to
shareholders in payment of
distributions declared 268,069 5,417,880 2,936,873 54,973,689
Shares redeemed (6,899,481) (139,715,724) (19,130,595) (357,132,484)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 637,953 $ 13,319,850 5,573,433 $ 103,942,276
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,951,389 $ 121,022,574 17,509,578 $ 328,972,142
Shares issued to
shareholders in payment of
distributions declared 202,267 4,051,837 4,012,970 75,159,253
Shares redeemed (5,266,138) (106,974,380) (9,797,991) (182,568,198)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 887,518 $ 18,100,031 11,724,557 $ 221,563,197
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 914,571 $ 18,617,849 2,286,433 $ 42,946,716
Shares issued to
shareholders in payment of
distributions declared 30,361 610,159 631,896 11,835,287
Shares redeemed (888,595) (18,054,528) (1,918,480) (35,676,015)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 56,337 $ 1,173,480 999,849 $ 19,105,988
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 206,543 $ 4,197,744 518,698 $ 9,788,328
Shares issued to
shareholders in payment of
distributions declared 32,560 656,161 450,360 8,439,765
Shares redeemed (375,482) (7,629,400) (980,051) (18,321,587)
NET CHANGE RESULTING FROM
CLASS F
SHARE TRANSACTIONS (136,379) $ (2,775,495) (10,993) $ (93,494)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,445,429 $29,817,866 18,286,846 $ 344,517,967
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.60% 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.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS DAILY 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 six months ended September 30, 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.
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 six
months ended September 30, 1999, were as follows:
Purchases $ 393,268,332
Sales $ 403,701,308
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. THOMAS MADDEN
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
LINDA A. DUESSEL
Vice President
RICHARD J. THOMAS
Treasurer
C. GRANT ANDERSON
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
Federated Equity Income Fund, Inc.
Established 1986
13TH SEMI ANNUAL REPORT
SEMI-ANNUAL REPORT
AS OF SEPTEMBER 30, 1999
[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
8110102 (11/99)
[Graphic]
APPENDIX
A1. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 12/30/86 to 9/30/99.
The "y" axis is measured in increments of $10,000 ranging from $0 to $80,000 and
indicates that the ending value of hypothetical initial investment of $13,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $62,656 on 9/30/99.
A2. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 12/30/86 to 9/30/99.
The "y" axis is measured in increments of $5,000 ranging from $0 to $40,000 and
indicates that the ending value of hypothetical yearly investments of $1,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $37,345 on 9/30/99.
A3. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color-coded mountain chart is a visual representation of the narrative text
beneath it. The "x" axis reflects computation periods from 9/30/89 to 9/30/99.
The "y" axis is measured in increments of $10,000 ranging from $0 to $60,000 and
indicates that the ending value of hypothetical initial investment of $15,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $52,491 on 9/30/99.
