N-CSRS 1 feif.htm Federated Equity Income Fund, Inc. 

                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form N-CSR
   Certified Shareholder Report of Registered Management Investment Companies


                                    811-4743
                      (Investment Company Act File Number)


                       Federated Equity Income Fund, Inc.
         _______________________________________________________________

               (Exact Name of Registrant as Specified in Charter)



                            Federated Investors Funds
                              5800 Corporate Drive
                       Pittsburgh, Pennsylvania 15237-7000


                                 (412) 288-1900
                         (Registrant's Telephone Number)


                           John W. McGonigle, Esquire
                            Federated Investors Tower
                               1001 Liberty Avenue
                       Pittsburgh, Pennsylvania 15222-3779
                     (Name and Address of Agent for Service)
                (Notices should be sent to the Agent for Service)


                        Date of Fiscal Year End: 3/31/04


               Date of Reporting Period: Six months ended 9/30/03


Item 1. Reports to Stockholders

Federated Investors
World-Class Investment Manager

Federated Equity Income Fund, Inc.

Established 1986

 

 

17TH SEMI-ANNUAL SHAREHOLDER REPORT

September 30, 2003

Class A Shares
Class B Shares
Class C Shares
Class F Shares

FINANCIAL HIGHLIGHTS

FINANCIAL STATEMENTS

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended March 31,

   

  

9/30/2003

   

  

2003

   

  

2002

   

  

2001

   

  

2000

   

  

1999

   

Net Asset Value, Beginning of Period

   

$12.21

   

   

$16.66

   

   

$16.96

   

   

$23.69

   

   

$19.49

   

   

$19.14

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.17

   

   

0.27

   

   

0.25

   

   

0.34

   

   

0.27

   

   

0.31

   

Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions

   

1.94

   

   

(4.48

)

   

(0.26

)

   

(6.26

)

   

4.20

   

   

1.54

   

TOTAL FROM INVESTMENT OPERATIONS

   

2.11

   

   

(4.21

)

   

(0.01

)

   

(5.92

)

   

4.47

   

   

1.85

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   


(0.15

)

   

(0.24

)

   

(0.29

)

   

(0.34

)

   

(0.27

)

   

(0.30

)

Distributions from net realized gain on investments, futures contracts, options and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

(0.47

)

   

(0.00

)1

   

(1.20

)

TOTAL DISTRIBUTIONS

   

(0.15

)

   

(0.24

)

   

(0.29

)

   

(0.81

)

   

(0.27

)

   

(1.50

)

Net Asset Value, End of Period

   

$14.17

   

   

$12.21

   

   

$16.66

   

   

$16.96

   

   

$23.69

   

   

$19.49

   

Total Return2

   

17.27

%

   

(25.36

)%

   

(0.07

)%

   

(25.58

)%

   

23.14

%

   

10.18

%

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

1.18

%3,4

   

1.17

%4

   

1.10

%

   

1.07

%

   

1.10

%

   

1.11

%

Net investment income

   

2.42

%3

   

1.93

%

   

1.49

%

   

1.65

%

   

1.28

%

   

1.66

%

Expense waiver/reimbursement5

   

0.00

%3,6

   

0.00

%6

   

0.00

%6

   

0.00

%6

   

--

   

   

--

   

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$598,359

   

$549,359

   

$923,647

   

$1,077,582

   

$1,187,734

   

$932,544

   

Portfolio turnover

   

33

%

   

123

%

   

86

%

   

85

%

   

58

%

   

69

%

1 Represents less than $0.01.

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

3 Computed on an annualized basis.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the six months ended September 30, 2003 and the year ended March 31, 2003 are 1.16% and 1.15%, respectively, after taking into account these expense reductions.

5 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

6 Represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class B Shares

(For a Share Outstanding Throughout Each Period)

Six Months
Ended
(unaudited)

Year Ended March 31,

   

  

9/30/2003

   

  

2003

   

  

2002

   

  

2001

   

  

2000

   

  

1999

   

Net Asset Value, Beginning of Period

   

$12.21

   

   

$16.65

   

   

$16.96

   

   

$23.68

   

   

$19.49

   

   

$19.15

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.12

   

   

0.17

   

   

0.12

   

   

0.18

   

   

0.12

   

   

0.17

   

Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions

   


1.92

   

   

(4.47

)

   

(0.27

)

   

(6.25

)

   

4.19

   

   

1.54

   

TOTAL FROM INVESTMENT OPERATIONS

   

2.04

   

   

(4.30

)

   

(0.15

)

   

(6.07

)

   

4.31

   

   

1.71

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.09

)

   

(0.14

)

   

(0.16

)

   

(0.18

)

   

(0.12

)

   

(0.17

)

Distributions from net realized gain on investments, futures contracts, options and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

(0.47

)

   

(0.00

)1

   

(1.20

)

TOTAL DISTRIBUTIONS

   

(0.09

)

   

(0.14

)

   

(0.16

)

   

(0.65

)

   

(0.12

)

   

(1.37

)

Net Asset Value, End of Period

   

$14.16

   

   

$12.21

   

   

$16.65

   

   

$16.96

   

   

$23.68

   

   

$19.49

   

Total Return2

   

16.75

%

   

(25.89

)%

   

(0.88

)%

   

(26.11

)%

   

22.18

%

   

9.32

%

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

1.93

%3,4

   

1.92

%4

   

1.85

%

   

1.82

%

   

1.85

%

   

1.86

%

Net investment income

   

1.67

%3

   

1.16

%

   

0.74

%

   

0.89

%

   

0.53

%

   

0.91

%

Expense waiver/reimbursement5

   

0.00

%3,6

   

0.00

%6

   

0.00

%6

   

0.00

%6

   

--

   

   

--

   

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$588,848

   

$551,204

   

$1,021,453

   

$1,225,097

   

$1,537,957

   

$1,262,258

   

Portfolio turnover

   

33

%

   

123

%

   

86

%

   

85

%

   

58

%

   

69

%

1 Represents less than $0.01.

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

3 Computed on an annualized basis.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the six months ended September 30, 2003 and the year ended March 31, 2003 are 1.91% and 1.90%, respectively, after taking into account these expense reductions.

5 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

6 Represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class C Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended March 31,

  

9/30/2003

  

2003

  

2002

  

2001

  

2000

  

1999

Net Asset Value, Beginning of Period

   

$12.21

   

   

$16.66

   

   

$16.96

   

   

$23.69

   

   

$19.50

   

  

$19.15

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.12

   

   

0.17

   

   

0.12

   

   

0.18

   

   

0.12

   

   

0.17

   

Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions

   

1.93

   

   

(4.48

)

   

(0.26

)

   

(6.26

)

   

4.19

   

   

1.54

   

TOTAL FROM INVESTMENT OPERATIONS

   

2.05

   

   

(4.31

)

   

(0.14

)

   

(6.08

)

   

4.31

   

   

1.71

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.09

)

   

(0.14

)

   

(0.16

)

   

(0.18

)

   

(0.12

)

   

(0.16

)

Distributions from net realized gain on investments, futures contracts, options and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

(0.47

)

   

(0.00

)1

   

(1.20

)

TOTAL DISTRIBUTIONS

   

(0.09

)

   

(0.14

)

   

(0.16

)

   

(0.65

)

   

(0.12

)

   

(1.36

)

Net Asset Value, End of Period

   

$14.17

   

   

$12.21

   

   

$16.66

   

   

$16.96

   

   

$23.69

   

   

$19.50

   

Total Return2

   

16.84

%

   

(25.94

)%

   

(0.83

)%

   

(26.14

)%

   

22.17

%

   

9.37

%

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

1.93

%3,4

   

1.92

%4

   

1.85

%

   

1.82

%

   

1.85

%

   

1.86

%

Net investment income

   

1.67

%3

   

1.16

%

   

0.74

%

   

0.90

%

   

0.53

%

   

0.91

%

Expense waiver/reimbursement5

   

0.00

%3,6

   

0.00

%6

   

0.00

%6

   

0.00

%6

   

--

   

   

--

   

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$90,068

   

$85,242

   

$160,217

   

$213,472

   

$249,004

   

$196,583

   

Portfolio turnover

   

33

%

   

123

%

   

86

%

   

85

%

   

58

%

69

%

1 Represents less than $0.01.

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

3 Computed on an annualized basis.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the six months ended September 30, 2003 and the year ended March 31, 2003 are 1.91% and 1.90%, respectively, after taking into account these expense reductions.

5 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

6 Represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class F Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended March 31,

  

9/30/2003

   

  

2003

   

  

2002

   

  

2001

   

  

2000

   

  

1999

   

Net Asset Value, Beginning of Period

   

$12.22

   

   

$16.67

   

   

$16.97

   

   

$23.70

   

   

$19.50

   

   

$19.15

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.15

   

   

0.24

   

   

0.21

   

   

0.29

   

   

0.22

   

   

0.27

   

Net realized and unrealized gain (loss) on investments, futures contracts, options and foreign currency transactions

   

1.94

   

   

(4.48

)

   

(0.27

)

   

(6.27

)

   

4.20

   

   

1.54

   

TOTAL FROM INVESTMENT OPERATIONS

   

2.09

   

   

(4.24

)

   

(0.06

)

   

(5.98

)

   

4.42

   

   

1.81

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.13

)

   

(0.21

)

   

(0.24

)

   

(0.28

)

   

(0.22

)

   

(0.26

)

Distributions from net realized gain on investments, futures contracts, options and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

(0.47

)

   

(0.00

)1

   

(1.20

)

TOTAL DISTRIBUTIONS

   

(0.13

)

   

(0.21

)

   

(0.24

)

   

(0.75

)

   

(0.22

)

   

(1.46

)

Net Asset Value, End of Period

   

$14.18

   

   

$12.22

   

   

$16.67

   

   

$16.97

   

   

$23.70

   

   

$19.50

   

Total Return2

   

17.10

%

   

(25.54

)%

   

(0.32

)%

   

(25.76

)%

   

22.82

%

   

9.90

%

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

1.43

%3,4

   

1.42

%4

   

1.35

%

   

1.32

%

   

1.35

%

   

1.36

%

Net investment income

   

2.17

%3

   

1.66

%

   

1.24

%

   

1.39

%

   

1.03

%

   

1.41

%

Expense waiver/reimbursement5

   

0.00

%3,6

   

0.00

%6

   

0.00

%6

   

0.00

%6

   

--

   

   

--

   

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$47,776

   

$43,366

   

$81,067

   

$103,323

   

$147,313

   

$127,676

   

Portfolio turnover

   

33

%

   

123

%

   

86

%

   

85

%

   

58

%

   

69

%

1 Represents less than $0.01.

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

3 Computed on an annualized basis.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the six months ended September 30, 2003 and the year ended March 31, 2003 are 1.41% and 1.40%, respectively, after taking into account these expense reductions.

5 This expense decrease is reflected in both the expense and the net investment income ratios shown above.

6 Represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

September 30, 2003 (unaudited)

Shares

  

  

   

Value

   

   

COMMON STOCKS--81.2%

   

   

   

   

   

Consumer Discretionary--4.9%

   

   

   

385,000

   

Delphi Auto Systems Corp.

   

$

3,484,250

437,100

   

Eastman Kodak Co.

   

   

9,152,874

276,800

   

Leggett and Platt, Inc.

   

   

5,987,184

966,800

   

Limited, Inc.

   

   

14,579,344

137,100

   

May Department Stores Co.

   

   

3,376,773

261,400

   

Maytag Corp.

   

   

6,527,158

691,500

   

Pearson PLC, ADR

   

   

6,617,655

257,500

   

Sears, Roebuck & Co.

   

   

11,260,475

124,700

   

Stanley Works

   

   

3,681,144

   

   

TOTAL

   

   

64,666,857

   

   

Consumer Staples--7.4%

   

   

   

145,400

   

Albertson's, Inc.

   

   

2,990,878

251,700

   

Altria Group, Inc.

   

   

11,024,460

581,400

   

Archer-Daniels-Midland Co.

   

   

7,622,154

156,000

   

Cadbury Schweppes PLC, ADR

   

   

3,914,040

80,100

   

Clorox Co.

   

   

3,674,187

324,300

   

Coca-Cola Co.

   

   

13,931,928

305,000

   

ConAgra, Inc.

   

   

6,478,200

172,700

   

Dial Corp.

   

   

3,719,958

335,800

   

Kimberly-Clark Corp.

   

   

17,233,256

340,200

   

Kraft Foods, Inc., Class A

   

   

10,035,900

131,800

   

Nestle SA, ADR

   

   

7,597,334

353,200

   

Sara Lee Corp.

   

   

6,484,752

64,100

   

Unilever N.V., ADR

   

   

3,793,438

   

   

TOTAL

   

   

98,500,485

Shares

  

  

   

Value

   

   

COMMON STOCKS--continued

   

   

   

   

   

Energy--11.2%

   

   

   

110,400

   

Ashland, Inc.

   

$ 

3,626,640

635,200

   

BP PLC, ADR

   

   

26,741,920

490,900

   

ChevronTexaco Corp.

   

   

35,074,805

333,000

   

Diamond Offshore Drilling, Inc.

   

   

6,360,300

183,000

   

ENI SpA, ADR

   

   

14,004,990

1,206,700

   

Exxon Mobil Corp.

   

   

44,165,220

139,100

   

Halliburton Co.

   

   

3,373,175

153,500

   

Kerr-McGee Corp.

   

   

6,852,240

165,200

   

Marathon Oil Corp.

   

   

4,708,200

42,200

   

Total Fina SA, Class B, ADR

   

   

3,198,760

   

   

TOTAL

   

   

148,106,250

   

   

Financials--30.4%

   

   

   

410,643

   

Ace Ltd.

   

   

13,584,070

276,300

   

Allstate Corp.

   

   

10,093,239

130,500

   

American International Group, Inc.

   

   

7,529,850

644,000

   

Amvescap PLC, ADR

   

   

9,782,360

97,100

   

BB&T Corp.

   

   

3,486,861

226,600

   

Bank of America Corp.

   

   

17,683,864

559,300

   

Bank of New York Co., Inc.

   

   

16,281,223

225,800

   

Barclays Bank PLC, ADR

   

   

6,999,800

1,229,400

   

Citigroup, Inc.

   

   

55,949,994

371,000

   

Comerica, Inc.

   

   

17,288,600

175,700

   

Fifth Third Bancorp

   

   

9,746,079

860,300

   

FleetBoston Financial Corp.

   

   

25,938,045

863,600

   

J.P. Morgan Chase & Co.

   

   

29,647,388

167,200

   

Jefferson-Pilot Corp.

   

   

7,420,336

337,800

   

Lincoln National Corp.

   

   

11,951,364

121,500

   

Lloyds TSB Group PLC, ADR

   

   

3,359,475

586,900

   

MBNA Corp.

   

   

13,381,320

68,500

   

Marsh & McLennan Cos., Inc.

   

   

3,261,285

282,000

   

Morgan Stanley

   

   

14,229,720

204,600

   

National City Corp.

   

   

6,027,516

Shares

  

  

   

Value

   

   

COMMON STOCKS--continued

   

   

   

   

   

Financials--continued

   

   

   

259,300

   

National Commerce Financial Corp.

   

$ 

6,451,384

356,100

   

Nationwide Financial Services, Inc., Class A

   

   

11,160,174

210,000

   

Protective Life Corp.

   

   

6,268,500

153,100

   

Public Storage, Inc.

   

   

6,006,113

337,800

   

Sun Life Financial Services of Canada

   

   

7,313,370

112,200

   

SunTrust Banks, Inc.

   

   

6,773,514

219,400

   

Travelers Property Casualty Corp., Class B

   

   

3,484,072

1,361,000

   

U.S. Bancorp

   

   

32,650,390

84,000

   

Vornado Realty Trust

   

   

4,035,360

539,400

   

Wells Fargo & Co.

   

   

27,779,100

120,600

   

Willis Group Holdings Ltd.

   

   

3,708,450

74,300

   

Zions Bancorp

   

   

4,149,655

   

   

TOTAL

   

   

403,422,471

   

   

Healthcare--5.7%

   

   

   

234,900

   

Abbott Laboratories

   

   

9,994,995

255,000

   

Bristol-Myers Squibb Co.

   

   

6,543,300

159,500

   

CIGNA Corp.

   

   

7,121,675

72,700

   

GlaxoSmithKline PLC, ADR

   

   

3,082,480

142,800

   

Johnson & Johnson

   

   

7,071,456

440,600

   

Merck & Co., Inc.

   

   

22,303,172

636,700

   

Pfizer, Inc.

   

   

19,342,946

   

   

TOTAL

   

   

75,460,024

   

   

Industrials--5.6%

   

   

   

63,200

   

Avery Dennison Corp.

   

   

3,192,864

114,100

   

Boeing Co.

   

   

3,917,053

237,800

   

Burlington Northern Santa Fe

   

   

6,865,286

173,500

   

Donnelley (R.R.) & Sons Co.

   

   

4,314,945

129,700

   

Dover Corp.

   

   

4,587,489

63,300

   

Emerson Electric Co.

   

   

3,332,745

458,500

   

General Electric Co.

   

   

13,667,885

420,400

   

Honeywell International, Inc.

   

   

11,077,540

84,200

   

Pitney Bowes, Inc.

   

   

3,226,544

Shares

  

  

   

Value

   

   

COMMON STOCKS--continued

   

   

   

   

   

Industrials--continued

   

   

   

345,900

   

Quebecor World, Inc.

   

$ 

6,447,576

273,700

   

ServiceMaster Co.

   

   

2,808,162

359,800

   

TPG NV, ADR

   

   

6,886,572

86,100

   

Textron, Inc.

   

   

3,396,645

   

   

TOTAL

   

   

73,721,306

   

   

Information Technology--2.2%

   

   

   

976,000

   

Hewlett-Packard Co.

   

   

18,895,360

649,600

   

Nokia Oyj, Class A, ADR

   

   

10,133,760

   

   

TOTAL

   

   

29,029,120

   

   

Materials--3.4%

   

   

   

107,700

   

Akzo Nobel NV, ADR

   

   

3,376,395

145,300

   

Alcoa, Inc.

   

   

3,801,048

140,192

   

Cemex S.A. de C.V., ADR

   

   

3,497,790

406,900

   

Du Pont (E.I.) de Nemours & Co.

   

   

16,280,069

95,500

   

Eastman Chemical Co.

   

   

3,199,250

170,800

   

Monsanto Co.

   

   

4,088,952

76,300

   

Nucor Corp.

   

   

3,500,644

111,200

   

Peabody Energy Corp.

   

   

3,488,344

273,000

   

Stora Enso Oyj, ADR

   

   

3,341,520

   

   

TOTAL

   

   

44,574,012

   

   

Telecommunication Services--6.3%

   

   

   

159,600

   

AT&T Corp.

   

   

3,439,380

646,900

   

BellSouth Corp.

   

   

15,318,592

900

   

Portugal Telecom SGPS SA, ADR

   

   

7,083

1,033,200

   

SBC Communications, Inc.

   

   

22,988,700

507,600

   

Sprint Corp.

   

   

7,664,760

216,900

   

Telefonos de Mexico, Class L, ADR

   

   

6,626,295

249,100

   

Telstra Corp. Ltd., ADR

   

   

4,022,965

722,500

   

Verizon Communications, Inc.

   

   

23,437,900

   

   

TOTAL

   

   

83,505,675

Shares

  

  

   

Value

   

   

COMMON STOCKS--continued

   

   

   

   

   

Utilities--4.1%

   

   

   

67,100

   

E.On AG, ADR

   

$ 

3,274,480

169,400

   

Exelon Corp.

   

   

10,756,900

219,900

   

National Grid Group PLC, ADR

   

   

7,184,133

97,800

   

NICOR, Inc.

   

   

3,436,692

327,927

   

NiSource, Inc.

   

   

6,551,982

223,900

   

Northeast Utilities Co.

   

   

4,012,288

195,600

   

Pinnacle West Capital Corp.

   

   

6,943,800

239,700

   

RWE AG, ADR

   

   

6,364,466

404,800

   

Suez SA, ADR

   

   

6,436,320

   

   

TOTAL

   

   

54,961,061

   

   

TOTAL COMMON STOCKS (IDENTIFIED COST $1,002,539,283)

   

   

1,075,947,261

   

   

PREFERRED STOCKS--8.4%

   

   

   

   

   

Consumer Discretionary--0.9%

   

   

   

415,000

   

General Motors Corp., Conv. Pfd., (Series C), $1.68, Annual Dividend

   

   

11,184,250

   

   

Energy--0.2%

   

   

   

71,500

   

Kerr-McGee Corp., DECS, $1.83, Annual Dividend

   

   

3,091,660

   

   

Financials--1.2%

   

   

   

191,000

   

Chubb Corp., PRIDES, $1.01, Annual Dividend

   

   

5,300,250

65,700

   

Hartford Financial Services Group, Inc., PRIDES, (Series D), $3.23, Annual Dividend

   

   

3,674,601

133,200

   

Washington Mutual, Inc., Conv. Pfd., $2.69, Annual Dividend

   

   

7,259,400

   

   

TOTAL

   

   

16,234,251

   

   

Industrials--0.4%

   

   

   

109,700

   

Raytheon Co., DECS, $4.13, Annual Dividend

   

   

5,808,615

   

   

Information Technology--1.2%

   

   

   

608,700

   

Electronic Data Systems Corp., PRIDES, (Series I), $3.81, Annual Dividend

   

   

12,454,002

97,400

   

Motorola, Inc., Conv. Pfd., $3.50, Annual Dividend

   

   

3,693,408

   

   

TOTAL

   

   

16,147,410

Shares

  

  

   

Value

   

   

PREFERRED STOCKS--continued

   

   

   

   

   

Materials--1.7%

   

   

   

216,600

   

Boise Cascade Corp., Conv. Pfd., $3.75, Annual Dividend

   

$ 

9,803,316

125,200

   

International Paper Co., Cumulative Conv. Pfd., $2.63, Annual Dividend

   

   

6,157,086

131,000

   

Temple-Inland, Inc., DECS, $3.75, Annual Dividend

   

   

6,399,350

   

   

TOTAL

   

   

22,359,752

   

   

Telecommunication Services--0.5%

   

   

   

134,300

   

Alltel Corp., DECS, $3.88, Annual Dividend

   

   

6,565,927

   

   

Utilities--2.3%

   

   

   

214,000

   

American Electric Power Co., Inc., DECS, $4.63, Annual Dividend

   

   

9,533,700

197,700

   

CenterPoint Energy, Inc., Conv. Pfd., $1.17, Annual Dividend

   

   

5,660,151

542,000

   

Duke Energy Corp., PRIDES, (Series B), $2.00, Annual Dividend

   

   

7,772,280

121,800

   

Public Service Enterprises Group, Inc., PRIDES, $5.13, Annual Dividend

   

   

7,284,858

   

   

TOTAL

   

   

30,250,989

   

   

TOTAL PREFERRED STOCKS (IDENTIFIED COST $100,240,540)

   

   

111,642,854

   

   

MUTUAL FUND--10.4%

   

   

   

137,087,239

1

Prime Value Obligations Fund, IS Shares (at net asset value)

   

   

137,087,239

   

   

TOTAL INVESTMENTS--100.0%
(IDENTIFIED COST $1,239,867,062)2

   

   

1,324,677,354

   

   

OTHER ASSETS AND LIABILITIES - NET--0.0%

   

   

373,777

   

   

TOTAL NET ASSETS--100%

   

$

1,325,051,131

1 Affiliated company.

2 The cost of investments for federal tax purposes amounts to $1,239,867,062.

Note: The categories of investments are shown as a percentage of total net assets at September 30, 2003.

The following acronyms are used throughout this portfolio:

ADR

--American Depositary Receipt

DECS

--Dividend Enhanced Convertible Stock

PRIDES

--Preferred Redeemable Increased Dividend Equity Securities

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

September 30, 2003 (unaudited)

Assets:

  

   

   

   

  

   

   

   

Total investments in securities, at value including $137,087,239 of investments in affiliated issuer (identified cost $1,239,867,062)

   

   

   

   

   

$

1,324,677,354

   

Income receivable

   

   

   

   

   

   

2,688,212

   

Receivable for shares sold

   

   

   

   

   

   

1,120,244

   

TOTAL ASSETS

   

   

   

   

   

   

1,328,485,810

   

Liabilities:

   

   

   

   

   

   

   

   

Payable for shares redeemed

   

$

2,165,972

   

   

   

   

   

Income distribution payable

   

   

38

   

   

   

   

   

Payable to bank

   

   

106,660

   

   

   

   

   

Payable for transfer and disbursing agent fees and expenses (Note 5)

   

   

296,695

   

   

   

   

   

Payable for Directors'/Trustees' fees

   

   

2,851

   

   

   

   

   

Payable for portfolio accounting fees (Note 5)

   

   

16,823

   

   

   

   

   

Payable for distribution services fee (Note 5)

   

   

438,744

   

   

   

   

   

Payable for shareholder services fee (Note 5)

   

   

278,279

   

   

   

   

   

Accrued expenses

   

   

128,617

   

   

   

   

   

TOTAL LIABILITIES

   

   

   

   

   

   

3,434,679

   

Net assets for 93,542,230 shares outstanding

   

   

   

   

   

$

1,325,051,131

   

Net Assets Consist of:

   

   

   

   

   

   

   

   

Paid in capital

   

   

   

   

   

$

1,715,506,031

   

Net unrealized appreciation of investments, futures contracts, options and translation of assets and liabilities in foreign currency

   


   

   

   

   


84,811,510

   

Accumulated net realized loss on investments, futures contracts, options and foreign currency transactions

   

   

   

   

   

   

(479,867,063

)

Undistributed net investment income

   

   

   

   

   

   

4,600,653

   

TOTAL NET ASSETS

   

   

   

   

   

$

1,325,051,131

   

Net Asset Value, Offering Price and Redemption Proceeds Per Share

   

   

   

   

   

   

   

   

Class A Shares:

   

   

   

   

   

   

   

   

Net asset value per share ($598,359,102 ÷ 42,234,646 shares outstanding)

   

   

   

   

   

   

$14.17

   

Offering price per share (100/94.50 of $14.17)1

   

   

   

   

   

   

$14.99

   

Redemption proceeds per share

   

   

   

   

   

   

$14.17

   

Class B Shares:

   

   

   

   

   

   

   

   

Net asset value per share ($588,847,674 ÷ 41,582,051 shares outstanding)

   

   

   

   

   

   

$14.16

   

Offering price per share

   

   

   

   

   

   

$14.16

   

Redemption proceeds per share (94.50/100 of $14.16)1

   

   

   

   

   

   

$13.38

   

Class C Shares:

   

   

   

   

   

   

   

   

Net asset value per share ($90,068,259 ÷ 6,356,649 shares outstanding)

   

   

   

   

   

   

$14.17

   

Offering price per share (100/99.00 of $14.17)1

   

   

   

   

   

   

$14.31

   

Redemption proceeds per share (99.00/100 of $14.17)1

   

   

   

   

   

   

$14.03

   

Class F Shares:

   

   

   

   

   

   

   

   

Net asset value per share ($47,776,096 ÷ 3,368,884 shares outstanding)

   

   

   

   

   

   

$14.18

   

Offering price per share (100/99.00 of $14.18)1

   

   

   

   

   

   

$14.32

   

Redemption proceeds per share (99.00/100 of $14.18)1

   

   

   

   

   

   

$14.04

   

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, 2003 (unaudited)

Investment Income:

  

   

   

   

  

   

   

   

  

   

   

   

Dividends (including $699,682 received from affiliated issuer and net of foreign taxes withheld of $346,470)

   

   

   

   

   

   

   

   

   

$

23,985,994

   

Interest (including income on securities loaned of $50,122)

   

   

   

   

   

   

   

   

   

   

175,417

   

TOTAL INCOME

   

   

   

   

   

   

   

   

   

   

24,161,411

   

Expenses:

   

   

   

   

   

   

   

   

   

   

   

   

Investment adviser fee (Note 5)

   

   

   

   

   

$

4,043,764

   

   

   

   

   

Administrative personnel and services fee (Note 5)

   

   

   

   

   

   

506,819

   

   

   

   

   

Custodian fees

   

   

   

   

   

   

31,307

   

   

   

   

   

Transfer and dividend disbursing agent fees and expenses (Note 5)

   

   

   

   

   

   

1,368,501

   

   

   

   

   

Directors'/Trustees' fees

   

   

   

   

   

   

8,753

   

   

   

   

   

Auditing fees

   

   

   

   

   

   

8,848

   

   

   

   

   

Legal fees

   

   

   

   

   

   

3,657

   

   

   

   

   

Portfolio accounting fees (Note 5)

   

   

   

   

   

   

94,428

   

   

   

   

   

Distribution services fee--Class B Shares (Note 5)

   

   

   

   

   

   

2,258,652

   

   

   

   

   

Distribution services fee--Class C Shares (Note 5)

   

   

   

   

   

   

346,637

   

   

   

   

   

Distribution services fee--Class F Shares (Note 5)

   

   

   

   

   

   

60,182

   

   

   

   

   

Shareholder services fee--Class A Shares (Note 5)

   

   

   

   

   

   

756,290

   

   

   

   

   

Shareholder services fee--Class B Shares (Note 5)

   

   

   

   

   

   

752,884

   

   

   

   

   

Shareholder services fee--Class C Shares (Note 5)

   

   

   

   

   

   

115,546

   

   

   

   

   

Shareholder services fee--Class F Shares (Note 5)

   

   

   

   

   

   

60,182

   

   

   

   

   

Share registration costs

   

   

   

   

   

   

42,738

   

   

   

   

   

Printing and postage

   

   

   

   

   

   

128,749

   

   

   

   

   

Insurance premiums

   

   

   

   

   

   

1,527

   

   

   

   

   

Taxes

   

   

   

   

   

   

79,933

   

   

   

   

   

Miscellaneous

   

   

   

   

   

   

9,315

   

   

   

   

   

TOTAL EXPENSES

   

   

   

   

   

   

10,678,712

   

   

   

   

   

Reimbursements and Expense Reduction:

   

   

   

   

   

   

   

   

   

   

   

   

Reimbursement of investment adviser fee (Note 5)

   

$

(7,635

)

   

   

   

   

   

   

   

   

Fees paid indirectly from directed broker arrangements (Note 5)

   

   

(153,473

)

   

   

   

   

   

   

   

   

Reimbursement of other operating expenses

   

   

(16,617

)

   

   

   

   

   

   

   

   

TOTAL REIMBURSEMENTS AND EXPENSE REDUCTION

   

   

   

   

   

   

(177,725

)

   

   

   

   

Net expenses

   

   

   

   

   

   

   

   

   

   

10,500,987

   

Net investment income

   

   

   

   

   

   

   

   

   

   

13,660,424

   

Realized and Unrealized Gain on Investments, Futures Contracts, Options and Foreign Currency Transactions:

   

   

   

   

   

   

   

   

   

   

   

   

Net realized gain on investments and foreign currency transactions

   

   

   

   

   

   

   

   

   

   

55,552,280

   

Net change in unrealized depreciation of investments and translation of assets and liabilities in foreign currency

   

   

   

   

   

   

   

   

   

   


136,972,021

   

Net realized and unrealized gain on investments, futures contracts, options and foreign currency transactions

   

   

   

   

   

   

   

   

   

   

192,524,301

   

Change in net assets resulting from operations

   

   

   

   

   

   

   

   

   

$

206,184,725

   

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

 

   

  

   

Six Months
Ended
(unaudited)
9/30/2003

   

  

   


Year Ended
3/31/2003

   

Increase (Decrease) in Net Assets

   

   

   

   

   

   

   

   

Operations:

   

   

   

   

   

   

   

   

Net investment income

   

$

13,660,424

   

   

$

23,792,139

   

Net realized gain (loss) on investments, futures contracts, options and foreign currency transactions

   

   

55,552,280

   

   

   

(215,397,653

)

Net change in unrealized appreciation/depreciation of investments, futures contracts, options and translation of assets and liabilities in foreign currency

   

   

136,972,021

   

   

   

(330,025,697

)

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS

   

   

206,184,725

   

   

   

(521,631,211

)

Distributions to Shareholders:

   

   

   

   

   

   

   

   

Distributions from net investment income

   

   

   

   

   

   

   

   

Class A Shares

   

   

(6,294,011

)

   

   

(11,865,492

)

Class B Shares

   

   

(4,046,984

)

   

   

(7,003,156

)

Class C Shares

   

   

(620,806

)

   

   

(1,081,675

)

Class F Shares

   

   

(435,580

)

   

   

(849,938

)

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS

   

   

(11,397,381

)

   

   

(20,800,261

)

Share Transactions:

   

   

   

   

   

   

   

   

Proceeds from sale of shares

   

   

125,984,091

   

   

   

134,406,476

   

Net asset value of shares issued to shareholders in payment of distributions declared

   

   

9,908,438

   

   

   

17,806,777

   

Cost of shares redeemed

   

   

(234,799,188

)

   

   

(566,995,470

)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS

   

   

(98,906,659

)

   

   

(414,782,217

)

Change in net assets

   

   

95,880,685

   

   

   

(957,213,689

)

Net Assets:

   

   

   

   

   

   

   

   

Beginning of period

   

   

1,229,170,446

   

   

   

2,186,384,135

   

End of period (including undistributed net investment income of $4,600,653 and $2,337,610, respectively)

   

$

1,325,051,131

   

   

$

1,229,170,446

   

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

September 30, 2003 (unaudited)

1. ORGANIZATION

Federated Equity Income Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund offers four classes of shares: Class A, Class B, Class C and Class F Shares. The investment objective of the Fund is to provide above average income and capital appreciation.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles ("GAAP") in the United States of America.

Investment Valuation

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. Investments in other open-end registered investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Directors (the "Directors").

Investment Income, Expenses and Distributions

Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Fund offers multiple classes of shares, which differ in their respective distribution fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Premium and Discount Amortization

All premiums and discounts on fixed income securities are amortized/accreted for financial statement purposes.

Federal Taxes

It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary.

Withholding taxes on foreign interest and dividends have been provided for in accordance with the applicable country's tax rules and rates.

Other Taxes

As an open-end management investment company incorporated in the state of Maryland but domiciled in Pennsylvania, the Fund is subject to the Pennsylvania Franchise Tax. This franchise tax is assessed annually on the value of the Fund, as represented by average net assets for the tax year.

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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.

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 the changes in the value of the underlying securities. For the six months ended September 30, 2003, the Fund had no realized gain (loss) on futures contracts.

At September 30, 2003, 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 contract 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, 2003, the Fund had no realized gain (loss) on written options.

At September 30, 2003, the Fund had no outstanding written options.

Securities Lending

The Fund participates in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. Collateral for securities loaned is invested in an affiliated money market fund. Collateral is maintained at a minimum level of 102% of the market value on investments loaned, plus interest, if applicable. Earnings on collateral are allocated between the securities lending agent, as a fee for its services under the program, and the Fund, according to agreed-upon rates.

At September 30, 2003, the Fund had no outstanding securities on loan.

Foreign Currency Translation

The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies ("FC") are translated into U.S. dollars based on the rates of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of FCs, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 a trade date basis.

3. CAPITAL STOCK

At September 30, 2003, par value shares ($0.01 per share) authorized were as follows:

Share Class Name

  

Number of Par Value
Capital Stock Authorized

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

Transactions in capital stock were as follows:

Six Months Ended
9/30/2003

Year Ended
3/31/2003

Class A Shares:

  

Shares

  

Amount

  

Shares

  

Amount

Shares sold

   

7,213,577

   

   

$

96,295,096

   

   

6,575,081

   

   

$

88,716,880

   

Shares issued to shareholders in payment of distributions declared

   

402,421

   

   

   

5,623,869

   

   

776,109

   

   

   

10,385,760

   

Shares redeemed

   

(10,362,383

)

   

   

(140,161,619

)

   

(17,810,929

)

   

   

(240,358,727

)

NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS

   

(2,746,385

)

   

$

(38,242,654

)

   

(10,459,739

)

   

$

(141,256,087

)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Six Months Ended
9/30/2003

Year Ended
3/31/2003

Class B Shares:

Shares

Amount

Shares

Amount

Shares sold

   

1,073,247

   

   

$

15,053,752

   

   

1,849,297

   

   

$

25,427,464

   

Shares issued to shareholders in payment of distributions declared

   

250,010

   

   

   

3,489,729

   

   

453,160

   

   

   

6,002,374

   

Shares redeemed

   

(4,890,796

)

   

   

(68,035,891

)

   

(18,496,338

)

   

   

(250,845,974

)

NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS

   

(3,567,539

)

   

$

(49,492,410

)

   

(16,193,881

)

   

$

(219,416,136

)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Six Months Ended
9/30/2003

Year Ended
3/31/2003

Class C Shares:

Shares

Amount

Shares

Amount

Shares sold

   

424,026

   

   

$

5,740,001

   

   

684,713

   

   

$

9,165,731

   

Shares issued to shareholders in payment of distributions declared

   

32,994

   

   

   

460,860

   

   

58,377

   

   

   

773,942

   

Shares redeemed

   

(1,079,626

)

   

   

(14,843,451

)

   

(3,381,204

)

   

   

(46,212,067

)

NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS

   

(622,606

)

   

$

(8,642,590

)

   

(2,638,114

)

   

$

(36,272,394

)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Six Months Ended
9/30/2003

Year Ended
3/31/2003

Class F Shares:

Shares

Amount

Shares

Amount

Shares sold

   

634,719

   

   

$

8,895,242

   

   

842,981

   

   

$

11,096,401

   

Shares issued to shareholders in payment of distributions declared

   

23,854

   

   

   

333,980

   

   

48,195

   

   

   

644,701

   

Shares redeemed

   

(837,249

)

   

   

(11,758,227

)

   

(2,205,565

)

   

   

(29,578,702

)

NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS

   

(178,676

)

   

$

(2,529,005

)

   

(1,314,389

)

   

$

(17,837,600

)

NET CHANGE RESULTING FROM SHARE TRANSACTIONS

   

(7,115,206

)

   

$

(98,906,659

)

   

(30,606,123

)

   

$

(414,782,217

)

4. FEDERAL TAX INFORMATION

At September 30, 2003, the cost of investments for federal tax purposes was $1,239,867,062. The net unrealized appreciation of investments for federal tax purposes, excluding any unrealized appreciation/depreciation resulting from changes in foreign currency exchange rates was $84,810,292. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $127,307,988 and net unrealized depreciation from investments for those securities having an excess of cost over value of $42,497,696.

At March 31, 2003, the Fund had a capital loss carryforward of $444,158,054 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year

  

Expiration Amount

2010

 

$318,431,224

2011

 

$ 125,726,830

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.60% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest in Prime Value Obligations Fund which is managed by the Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions. Income distributions earned by the Fund are recorded as income in the accompanying financial statements and totaled $699,682 for the period.

Administrative Fee

Federated Services Company ("FServ"), under the Administrative Services Agreement ("Agreement"), provides the Fund with administrative personnel and services. The fee paid to FServ is based on the aggregate daily net assets of all Federated funds as specified below:

Maximum Administrative Fee

  

Average Aggregate Daily Net
Assets of the Federated Funds

0.150%

 

on the first $250 million

0.125%

 

on the next $250 million

0.100%

 

on the next $250 million

0.075%

 

on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of Shares.

On August 22, 2003, the Directors approved a new Agreement. Effective November 1, 2003, the fee paid to FServ will be based on the aggregate daily net assets of all Federated funds as specified below:

Maximum Administrative Fee

  

Average Aggregate Daily Net
Assets of the Federated Funds

0.150%

 

on the first $5 billion

0.125%

 

on the next $5 billion

0.100%

 

on the next $10 billion

0.075%

 

on assets in excess of $20 billion

The administrative fee received during the fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares.

FServ may voluntarily choose to waive any portion of its fee. FServ can modify or terminate this voluntary waiver at any time at its sole discretion.

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, Class B, Class C and Class F Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC.

Share Class Name

  

Percentage of Average Daily
Net Assets of Class

Class A Shares

 

0.50%

Class B Shares

 

0.75%

Class C Shares

 

0.75%

Class F Shares

 

0.25%

FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the six months ended September 30, 2003, Class A Shares did not incur a distribution services fee.

Sales Charges

For the six months ended September 30, 2003, FSC retained $106,969 in sales charges from the sale of Class A Shares. FSC also retained $833 of contingent deferred sales charges relating to redemptions of Class C Shares and $1,388 relating to redemptions of Class F Shares. See "What Do Shares Cost?" in the Prospectus.

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. 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.

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. FServ may voluntarily choose to waive any portion of its fee. FServ can modify or terminate this voluntary waiver at any time at its sole discretion.

Expense Reduction

The Fund directs portfolio trades to a broker that in turn pays a portion of the Fund's operating expenses. For the six months ended September 30, 2003, the Fund's expenses were reduced by $153,473 under these arrangements.

General

Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the six months ended September 30, 2003, were as follows:

Purchases

  

$401,976,369

Sales

 

$576,415,113

7. LEGAL PROCEEDINGS

In October 2003, Federated Investors, Inc. and various subsidiaries thereof (collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. Federated and the Funds are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. Although Federated does not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from related regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

8. SUBSEQUENT EVENT

On November 13, 2003, the Directors approved the change of the Fund's fiscal year end from March 31 to November 30.

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.

IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY

In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the "householding" program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of "householding." Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of "householding" at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.

Federated Investors
World-Class Investment Manager

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

Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407

Federated is a registered mark of Federated Investors, Inc. 2003 ©Federated Investors, Inc.

8110102 (11/03)

 


Item 2. Code of Ethics

        Not Applicable

Item 3. Audit Committee Financial Expert

        Not Applicable

Item 4. Principal Accountant Fees and Services

        Not Applicable

Item 5. Audit Committee of Listed Registrants

        Not Applicable

Item 6. [Reserved]

Item 7.  Disclosure  of Proxy Voting  Policies  and  Procedures  for  Closed-End
         Management Investment Companies

         Not Applicable

Item 8. [Reserved]

Item 9. Controls and Procedures

     (a)  The  registrant's  President and  Treasurer  have  concluded  that the
          registrant's  disclosure  controls and  procedures (as defined in rule
          30a-3(c)  under the Act) are effective in design and operation and are
          sufficient  to form the basis of the  certifications  required by Rule
          30a-(2) under the Act, based on their  evaluation of these  disclosure
          controls  and  procedures  within 90 days of the  filing  date of this
          report on Form N-CSR.

     (b)  There  were no  changes  in the  registrant's  internal  control  over
          financial  reporting (as defined in rule  30a-3(d)  under the Act), or
          the internal control over financial reporting of its service providers
          during the last fiscal half year (the registrant's second half year in
          the case of an annual report) that have  materially  affected,  or are
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting.

Item 10. Exhibits



                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.


Registrant  Federated Equity Income Fund, Inc.

By          /S/ Richard J. Thomas, Principal Financial Officer

Date        November 19, 2003


Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934 and the
Investment  Company  Act of  1940,  this  report  has been  signed  below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.


By          /S/ J. Christopher Donahue, Principal Executive Officer
Date        November 19, 2003


By          /S/ Richard J. Thomas, Principal Financial Officer
Date        November 19, 2003